Reforming Medicare:Opportunities for Change Emerge

June 1, 1998

7 Min Read
Reforming Medicare:Opportunities for Change Emerge

Medical Device & Diagnostic Industry Magazine
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An MD&DI June 1998 Column


An industry reformer urges others to add their voices to the demand for a reevaluation of Medicare's coverage process and the standards of evidence required of manufacturers.

The medical device industry is often so preoccupied with FDA's regulatory challenges that it overlooks coverage and reimbursement issues. However, a payer's decision whether to cover a technology or procedure can determine a product's success.

Nowhere is this issue more pressing than in the Medicare program, the world's largest health-care payer, serving more than 40 million elderly and disabled beneficiaries. Because private payers often follow its lead, Medicare's decisions can make or break a new product or procedure.

Congress has virtually ignored the issue of coverage since the Medicare program began. The Health Care Financing Administration (HCFA) has overseen the evolution of coverage policy. The bad news is that HCFA's approach is closed, slow, and frustrating at best, and at worst, it creates barriers to market entry for valuable technologies. The good news is that opportunities exist this year to reform the coverage process, if device companies are willing to engage in the debate and ally with other stakeholders, such as patients and physicians.


Medicare coverage law has remained unchanged since 1965. Under section 1862 of the Social Security Act, Medicare must provide all services that are "reasonable and necessary for diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member."

Congress has left the implementation of the Medicare program to HCFA and has never issued formal regulations to define terms, establish criteria for coverage, or ensure a fair process. The absence of a clear process led to the Jameson v. Bowen case in the 1980s. Jameson, a Medicare beneficiary, received angioplasty treatment; Medicare denied the payment claim, asserting that Medicare did not pay for experimental treatments because they are not "reasonable and necessary." In a consent decree that settled the case, the government promised to clarify both the process and the standards used in making reimbursement decisions.

The result of this attempt at clarification was that HCFA issued a notice of proposed rule making in January 1989. Much of the proposal would have cleared the air on the coverage process, but a controversial criterion of cost-effectiveness caused a flurry of industry opposition and left a legacy of distrust between HCFA and industry. The 1989 regulation was never finalized, and a modest effort to revive it was subsequently abandoned.


HCFA operates on the basis of internally defined, informal processes and evolving criteria. The vast majority of decisions concerning technology are made at the local level by fiscal intermediaries or carriers. Durable medical equipment is generally subject to regional review by the durable medical equipment regional carriers.

HCFA can issue national coverage decisions that apply to all Medicare beneficiaries, but only 10–20 such decisions are made each year. HCFA has announced its intention to rely on the national process for more coverage decisions, and the agency now uses a Technology Advisory Committee (TAC) to assist in determining national coverage policies. The TAC is made up of representatives from various government agencies, such as FDA and HHS, as well as medical directors and local carriers, and it meets in private.

Some of the difficulties manufacturers face when attempting to obtain coverage for new products and technologies are:

  • Lack of a clear process. The current HCFA process is a black box for manufacturers. They are not notified if their products are subject to national decision making; they have no opportunity to present evidence in a formal fashion; they cannot participate in the discussion about the data; and they have no right of appeal if coverage is denied. HCFA makes FDA look good by comparison!

  • Lack of clear standards. Process problems are serious, but a lack of standards can be devastating. It is never clear what evidence will be required for an affirmative decision. Currently, HCFA subjects products to showing "demonstrated effectiveness" and appropriateness and then compares the technology to alternatives. While these standards are evolving, only HCFA creates and defines them, and the agency can change them without input from affected parties.

  • Confusion about who makes the coverage decision. Manufacturers rarely know when their products will receive consideration by the local carriers or when they will be subject to national determinations. HCFA officials have recently stated that they want to increase the number of national decisions to achieve greater consistency and uniformity in the program. HCFA also wants to increase support for new technologies, which can be done more effectively at the national level. While serious evidentiary review may lend itself to national decisions, the current uncertainty as to applicable standards, the closed process, and the lack of resources and delays at the national level present serious concerns. Virtually no public participation or accountability exists at either the local or the national level of decision making.

Problems have arisen at the local level as well, since local carriers vary widely in talents, sophistication, and resources. Therefore, their decisions about coverage and levels of reimbursement can vary widely. The current emphasis on rooting out fraud and abuse has made some local carriers inclined to say no to any new product or technology.

What happens to a company when its product comes under HCFA scrutiny? Many technologies fall within the diagnosis-related group (DRG) payment system, and hospitals are reimbursed without product review. However, if a product requires a new code or falls outside an existing DRG, or if someone within the Medicare system decides it should be reviewed, the manufacturer faces significant and often frustrating hurdles.

Cases abound where manufacturers have tolerated excessive delays, sometimes up to six years, awaiting a national decision or review of a national noncoverage decision. Others have faced rumored national noncoverage decisions, creating a chilling effect on local carriers in the absence of any official action. Others perform requested studies, only to be told that alternative study designs are now preferred.


Last fall, a small coalition of manufacturers of patient self-testing devices for coagulation time went to their representatives in Congress to explain the flaws in the coverage process and to challenge the legality of the TAC. According to the Federal Advisory Committee Act, if the government seeks advice from private parties, those deliberations must be open to the public. Since some members of the TAC work for local carriers and are not government employees, the meetings should be open. Congressman Bill Thomas (R–CA), chair of the Ways and Means subcommittee on health, referred the issue to the General Accounting Office (GAO) for evaluation. GAO found that the TAC violated the act, and HCFA agreed. Unfortunately, HCFA's response was to go behind closed doors with a promise to make the process more open. Meanwhile, HCFA is delaying important coverage decisions until later this year.

It is clear we need a comprehensive re-evaluation of the entire coverage process and the standards of evidence required. The Indiana Medical Device Manufacturers Council recently filed a petition with the agency requesting that it initiate negotiated rule making to revamp its coverage policy. Negotiated rule making, which allows interested parties to participate in the design of a regulation, is a new tool with great potential. Other options include obtaining new legislation or traditional rule making. Members of Congress are aware of the problem and are looking for ways to address it in the interests of Medicare beneficiaries.

The Medicare Coverage Coalition, composed of small and large device companies, patient organizations, and physicians, has gathered to work for comprehensive reform. In the political environment, it is critical that device manufacturers join with other stakeholders, particularly patients, in order to tell their story. The medical device industry must be bold and visionary if it expects to become a catalyst for change and to participate in the redesign of this critically important public policy.

Susan Bartlett Foote is president of Public Policy Partners, a Washington, DC–based health consulting firm, and the Washington, DC, coordinator for the Medicare Coverage Coalition.

Copyright ©1998 Medical Device & Diagnostic Industry

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