14 Oct On track with the FDA — But what about your coverage and reimbursement strategy?
Food and Drug Administration (FDA) approval or authorization is critical to any new medical technology or treatment’s success. But coverage and reimbursement issues can be just as determinative.
“Coverage” is whether there will be payment by an insurer for the product. “Reimbursement” is how much payment there will be if there is coverage.
Unlike the FDA, insurers include economic analyses in their evaluation of new products and, depending on the product, demand different types of data before agreeing to cover a new technology or treatment. As a result, coverage and reimbursement planning is a critical part of pre-market development processes for many types of medical products.
Evaluation of coverage and reimbursement issues
Companies developing a new technology or treatment should evaluate coverage and reimbursement issues as part of their early stage planning and, if appropriate, begin developing a strategy to address them. Key issues to evaluate include:
• Who will be the primary payer for individuals who use the technology or treatment (e.g., will the cost be part of the hospital or clinic’s overhead expenses, or will the patient be responsible for payment)?
• What are the primary settings in which it will be used (e.g., inpatient, outpatient, skilled nursing facility, self-administered by patient)?
• What are the characteristics of the coverage rules and payment systems used in that setting (e.g., existing payment structure for product type, use of formularies)?
• What is the direct and indirect financial impact of the proposed new technology or treatment in each proposed practice setting?
If the product treats a condition that affects those 65 and older, Medicare coverage can be an absolute necessity. Medicare coverage is important because individuals age 65 and over use three times as much health services as the average American. In addition, Medicare has enormous influence over other health plans because once Medicare agrees to pay for a new treatment, other insurers often follow suit.
Roles of the FDA and CMS
Medicare includes several major programs with different rules and administrative systems. All are managed by the Centers for Medicare and Medicaid (CMS). CMS, like the FDA, is an agency within the U.S. Department of Health and Human Services. CMS and the FDA have different roles with respect to new technologies and treatments.
The FDA is a public health and regulatory agency. It evaluates the safety and efficacy of new technologies and treatments, and whether new medical products do what they claim to do. The safety and efficacy standard it applies varies by the product’s benefit-risk profile. That means that the FDA applies a more rigorous standard in evaluating a new treatment for a disease that already has one or more existing approved treatments that address the same aspects of the disease as the new treatment, than for a new treatment for a serious disease that does not have adequate treatments. The FDA’s evaluation processes assume that the marketplace will sort out questions of clinical value and comparative effectiveness.
By contrast, CMS is both a purchaser and regulator of medical products. In many situations, data that is sufficient for the FDA to conclude that a new product’s benefits outweigh its risk for purposes of product approval is not sufficient for CMS to authorize payment. CMS authorizes payment through a process know as coverage decisions.
For certain types of products, such as new pacemakers or surgical equipment, CMS coverage decisions are not needed because the products will fall within existing payment structures or be rolled into a facility fee. Innovative technologies and treatments are more likely to necessitate coverage decisions, often because they fall outside any existing payment structures or existing payment structures pay too low.
In making coverage decisions, CMS considers the following issues:
• Does the product have FDA marketing approval or authorization (required except for certain investigational medical devices)?
• Is it appropriate for the Medicare population?
• Has it been proven medically necessary for the relevant disease or condition?
• Does it improve health status and outcomes?
• What is the magnitude of the potential benefit?
• Is it better than what already exists on the market?
CMS’s evaluation focuses on evidence involving studies that tend to be more long-term and in-depth than those required for FDA approval or authorization. The FDA evaluates “efficacy” data, evidence that reflects a new product’s performance in an optimal environment under optimal circumstances (e.g., academic hospitals with trained and specialized experts and treating well-selected patient groups).
CMS and private insurers focus on “effectiveness” data, evidence that is derived from the broad use of the technology (e.g., regional hospitals and ambulatory clinics with less specialized practitioners who treat a wider variety of patient groups). Because of that distinction, companies often need additional and different evidence to convince CMS and private insurers that their new technology or treatment warrants coverage. That evidence commonly includes data from randomized clinical trial and publication of these trials in peer-reviewed medical journals.
Companies developing new technologies or treatments that are likely to need coverage decisions should incorporate a coverage and reimbursement strategy into their product development processes. Key initial steps include:
• Identifying up front who the major payer players will be and what their coverage and payment policies are for the technology or treatment
• Planning clinical trials to capture the data needed for coverage and reimbursement decisions, such as studies that have both clinical and pharmacoeconomic endpoints (i.e., comparisons to existing technologies or treatments)
• Early planning is essential to help ensure that the product will be covered and reimbursed appropriately.
The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC, accepts no legal liability or responsibility for any claims made or opinions expressed herein.