IDE Status Offers Direct Route to Reimbursement

Originally Published MDDI May 2003 REGULATORY OUTLOOK

Originally Published MDDI May 2003


If a device meets certain criteria, clinical investigators in an IDE trial can seek Medicare reimbursement for the device.

Ted Mannen

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Integrating reimbursement strategy into a regulatory plan for a new medical device can seem daunting, especially for a smaller company. Managers at small firms may understandably feel they have their hands full just meeting the broad variety of FDA requirements. 

But even the smallest companies are finding that there's at least one early, smart, and concrete reimbursement step they can take—a stitch in time that might literally save nine. 

In this case, the “stitch” is a set of Medicare regulations that allow the nation's largest health insurer to pay for certain devices being developed under an investigational device exemption (IDE). Although these regulations have been on the books for several years, these regulations sometimes get overlooked as smaller companies contend with the host of issues that confront them when placing a new device on the market. By giving this issue timely focus, however, a company may be able to defray clinical trial costs and position the device for long-term reimbursement. 

Reimbursement under IDEs

Medicare pays for healthcare services that the law terms “reasonable and necessary.”1 Historically, Medicare interpreted this phrase to mean that FDA marketing clearance (for any device requiring such clearance) was necessary but not sufficient for a medical device to be reimbursed. In other words, Medicare interpreted the law to say that medical devices requiring an FDA marketing clearance could not be reimbursed until this clearance was secured, at the earliest (and might not be reimbursed even after it was secured).

In 1995, however, Medicare issued regulations that created an important exception to this interpretation for certain devices being investigated in an IDE trial.2 In general, Medicare drew a distinction between those devices that represented clinical breakthroughs and those that represented incremental technological advances. The latter group of devices—those “for which the underlying questions of safety and effectiveness have been resolved”—became eligible for Medicare reimbursement.3,4

For device companies, the significance of this change is that Medicare can reimburse certain device costs at clinical-investigation sites where IDE trials are being conducted. As such, the device's sponsor can avoid bearing at least some of those costs.

Requirements for Category B Status

The investigational devices made eligible for Medicare reimbursement are called Category B devices—as distinct from Category A devices, for which reimbursement eligibility does not extend.5 For a device to be classified in Category B, it must satisfy specific criteria. 

The clearest delineation of the Category B criteria is contained in an addendum to the regulations that created Category B. The addendum states six independent grounds under which devices can be classified to Category B. Category B devices must meet one of the following: 

(1) Devices, regardless of the classification, under investigation to establish substantial equivalence to a predicate device, that is, to establish substantial equivalence to a previously/currently legally marketed device.
(2) Class III devices whose technological characteristics and indications for use are comparable to a PMA- approved device.
(3) Class III devices with technological advances compared to a PMA- approved device, that is, a device with technological changes that represent advances to a device that has already received PMA approval (generational changes).
(4) Class III devices that are comparable to a PMA-approved device but are under investigation for a new indication for use. For purposes of studying the new indication, no significant modifications to the device were required.
(5) Pre-amendments Class III devices that become the subject of an IDE after the FDA requires premarket approval, that is, no PMA application was submitted or the PMA application was denied.
(6) Nonsignificant risk device investigations for which the FDA required the submission of an IDE.6

If a device sponsor can show that its device falls into any one of these six categories, then the device is in Category B and eligible for Medicare reimbursement during a trial.

Deciding and Implementing Category B Status

Administration of the Category B process is carried out jointly by FDA and the Centers for Medicare and Medicaid Services (CMS). The two agencies work together in accord with an interagency agreement that spells out their respective roles.7 Generally speaking, FDA plays the dominant decisional role in the process, while CMS and its local contractors play the dominant implementation role. 

FDA is responsible for deciding whether a device is properly assigned to Category A or B.8 Notice of this will generally be provided at the time FDA approves an IDE for the device. Should a device sponsor disagree with FDA's assignment of its device to Category A, there is a right to reconsideration by FDA, with a further right of appeal to CMS.9 In any such appeal, CMS will review only the information that the sponsor had previously supplied to FDA.10 If FDA decides that a device originally granted Category B status no longer satisfies the applicable requirements, CMS is notified and eligibility for reimbursement ends.11

Payments for Category B Devices

Even if a device is assigned to Category B, it is important to understand that CMS and its contractors view this status as simply “a factor in making Medicare coverage decisions.”12 That is, Category B status does not automatically confer Medicare reimbursement. In effect, assignment to Category B merely removes the barrier that would otherwise prevent reimbursement for a device not cleared for marketing by FDA, but it does not affect other Medicare requirements that may apply.13 For example, Medicare might deny reimbursement for services associated with a Category B device if those services were believed not medically necessary in the case of a particular patient. It is fair to say, however, that Category B status removes the major barrier to Medicare reimbursement for an investigational device—providing important potential advantages to device sponsors. 

Category B's key advantage is that the clinical investigators in an IDE trial can seek Medicare reimbursement for the device. Though Medicare's payments for a Category B device are made to the providers delivering the care, not to device sponsors directly, the sponsors realize a benefit, too: they can be relieved of the obligation to bear at least some of the trial's device costs. In this connection, it is important to note that Medicare's rules do nothing to alter FDA restrictions on amounts that can be charged for investigational devices. Specifically, 21 CFR 812.7(b) provides that “[a] sponsor, investigator, or any person acting for or on behalf of a sponsor or investigator shall not . . . [c]ommercialize an investigational device by charging the subjects or investigators for a device a price larger than that necessary to recover costs of manufacture, research, development, and handling.”

The actual amount of reimbursement paid to providers is specified in the regulations: “Payment under Medicare for a . . . Category B . . . device is based on, and may not exceed, the amount that would have been paid for a currently used device.” That currently used device must serve “the same medical purpose that has been approved or cleared for marketing by the FDA.”14

In carrying out this provision, Medicare pays for a Category B device in accord with the reimbursement methodology that would otherwise apply. For example, in an instance in which a Category B device is used to treat a patient during an inpatient hospital stay, the applicable reimbursement methodology is the diagnosis-related group (DRG) prospective payment system. 

In paying for a Category B device in such an instance, “the DRG payment under the prospective payment system ordinarily will not be affected.” More broadly, “hospitals are paid on a prospective basis so that prices are not adjusted based on changes in the price-components (that is, device costs) of individual DRGs. . . . As a result, this change in coverage [i.e., availability of Category B status] will not significantly affect Medicare's current payments . . .”15

Integrating Reimbursement into Clinical Trials

Like many other facets of Medicare, Category B reimbursement is principally carried out at the local level by private contractors—insurance companies that work with CMS to implement Medicare's requirements. Each contractor administers Medicare claims in a designated geographic region, operates relatively autonomously within established limits, and makes decisions that may differ from those of contractors in other regions.

The decentralized nature of Medicare reimbursement means that a device sponsor may need to mold its plan for Category B reimbursement to different requirements; specifically, to the requirements of the contractors responsible for the geographic areas of the trial sites. This can mean working in different locales with two key sets of players: the contractors themselves and the clinical investigators that file claims for Medicare reimbursement. In working with investigators, device companies should ensure that their actions are consistent with laws intended to combat fraud and abuse.

The process for reimbursement is generally initiated like this: the physician investigator responsible for managing research at each clinical site submits a request to the local contractor to request Category B coverage during the trial. While Medicare payments for Category B devices typically begin at the inception of the clinical trial, reimbursement may in some instances be claimed retroactively. The initial request is made prior to submission of Medicare reimbursement claims in connection with the trial. As part of this request, the investigator typically provides a series of documents. While specific requirements for documentation may vary from contractor to contractor, they generally call for the following:

• Description of the device (along with any relevant peer-reviewed literature).
• Documentation of the Category B designation.
• Study protocol (number of sites, number of patients per site, anticipated start and end dates).
• IRB approval letter (along with approved informed-consent protocol and documents).
• Investigator agreement.
• Anticipated diagnosis, procedure, product, and revenue codes for Medicare claims associated with the trial.

Contractors review the submitted documentation and decide whether to reimburse for the Category B medical device. If they do, they must also determine the applicable payment amount. As this process unfolds, medical device companies may need to communicate with contractors, and it is sometimes difficult to pinpoint the individual within the contractor organization who can address Category B reimbursement issues appropriately. Often, the best course is to make direct contact with the contractor's medical director. This is the person ultimately responsible for deciding whether claims for particular services should be paid by Medicare within the contractor's geographic region.

After the Clinical Trial 

A device's Category B status is in effect only during the period in which the IDE trial is being conducted. At the conclusion of the trial, the authority to reimburse on the basis of Category B ceases.13

Once a device completes its trial, and secures FDA marketing clearance, it becomes eligible for Medicare coverage on a more routine, or “standard,” basis. It is important to note that reimbursement as a Category B device does not guarantee continuing reimbursement by Medicare or other payers. But device companies that have worked effectively with contractors in Category B trials often find themselves well positioned to secure longer-term reimbursement. And so for these companies, the stitch in time has indeed saved nine.

01. Social Security Act, section 1862(a)(1)(A).
02. 42 CFR 405.201–405.215.
03. Health Care Financing Administration, “Criteria and Procedures for Extending Coverage to Certain Devices and Related Services,” 60 FR 48419 (September 19, 1995).
04. Medicare's regulations accomplish this by excluding from coverage any experimental or investigational device except a Category B device “[f]urnished in accordance with the FDA-approved protocols governing clinical trials.” 42 CFR 411.15(o).
05. 42 CFR 411.15(o), 405.201(b).
06. Health Care Financing Administration (HCFA), Addendum to Final Rule, “Criteria and Procedures for Extending Coverage to Certain Devices and Related Services,” 60 FR 48425 (September 19, 1995).
07. “Implementation of the FDA/HCFA Interagency Agreement Regarding Reimbursement Categorization of Investigational Devices,” IDE Guidance Memorandum #95-2, Attachment A (Rockville, MD: FDA, September 15, 1995); “Interagency Agreement between the Food and Drug Administration and the Health Care Financing Administration; Categorization of Investigational Devices for Coverage under Medicare,” 61 FR 7011 (February 23, 1996).
08. 42 CFR 405.203(a).
09. 42 CFR 405.213.
10. 42 CFR 405.213(c).
11. 42 CFR 405.205(b).
12. 42 CFR 405.203(c).
13. Medicare Carriers Manual, Part 3, section 4122.5 (CMS-Pub. 14-3).
14. 42 CFR 405.209.
15. Health Care Financing Administration, “Criteria and Procedures for Extending Coverage to Certain Devices and Related Services,” 60 FR 48421, 48422. 

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