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New CMS Reimbursement Policy Rushed, Says IndustryNew CMS Reimbursement Policy Rushed, Says Industry

Originally Published MDDI July 2006NEWS TRENDS  Maria Fontanazza

Maria Fontanazza

July 1, 2006

5 Min Read
New CMS Reimbursement Policy Rushed, Says Industry



The CMS plan may not reimburse hospitals properly, says Jori Frahler.

CMS plans to overhaul a payment policy that hasn't been modified in nearly 20 years and may not be leaving enough time for full discussion, say industry experts. As a result, measures that could stifle innovation may take effect.

The proposed changes are to the hospital inpatient prospective payment system (IPPS), which was implemented in 1983 and has seen little reform since. The center issued the rule in April, giving industry and stakeholders only until June 12 to review changes that will significantly affect several aspects of the healthcare industry.

“Many of the changes will negatively affect industry in the sense that reimbursement rates are going to drop for many device-dependent procedures,” says Jori Frahler, director of federal affairs at the Medical Device Manufacturers Association (MDMA; Washington, DC). According to Frahler, hospitals will be underreimbursed for procedures, and this lower reimbursement rate will eventually hurt manufacturers.


Ann-Marie Lynch worries that the plan will hit small firms the hardest.

Ann-Marie Lynch, executive vice president of payment and healthcare delivery at AdvaMed, says the changes will especially hit small manufacturers. “Instituting changes of this magnitude this quickly is unprecedented and could result in wide swings in payment,” says Lynch. “Small companies produce the majority of new, breakthrough technologies that are making major medical advances. They depend on a predictable payment system, so making substantial changes in a very short time may affect their ability to get these devices to market.”

Among the changes are refinements to the diagnosis-related group (DRG) system, which is the method used to reimburse hospitals for inpatient procedures. A patient is placed into a DRG category, which has a payment weight assigned to it. Under this system, reimbursement isn't made based on what medical devices are used. CMS is suggesting complex reforms to the DRG system that could reduce payment accuracy and obstruct access to new technologies, according to AdvaMed.

“We are concerned because the proposed rule would shift payment away from advanced technology and to routine procedures, possibly reversing the trend toward less-invasive procedures,” says Lynch.

The new rule would shift the DRG system from charge-based weights to cost-based weights. In addition, the cost calculations would be based on data that are too old (possibly up to five years) to take into account new technology. If CMS ultimately switches to cost-based weights, MDMA recommends that it validate and use the 2005 cost reports before the center even finishes validating its 2003 and 2004 reports.


Some specialty hospital payments could be about 11% less, says Debbie Brandel.

CMS is also proposing to revise the DRG system in FY 2008 to take into account the severity of a patient's illness. “Once CMS adopts the severity-adjusted DRG system, the implications for new technology may be of even greater concern,” says Debbie Brandel, principal at Preferred Health Strategies (Rye Brook, NY). “The current system includes an annual adjustment to account for changes in complexity of the case. The severity-based system will recognize cases with greater severity but not complexity. Therefore, the use of a new technology might not be recognized.”

Cardiovascular and orthopedic technologies will especially take a hit with this change. According to Brandel, cardiac specialty hospitals could experience an 11.2% decrease in payments in FY 2007, and orthopedic hospitals could face a 4.4% decline in payments.


Ted Mannen characterizes the plan's changes as complicated and dramatic.

Brandel adds that the rule doesn't address the implementation of severity-adjusted DRGs, even though it could have a major effect on device manufacturers. “For example, there would not be a separate DRG for a coronary angioplasty with or without a stent. It is assumed that the use of a stent does not mean the patient is more or less ill and therefore would not affect the payment rate. In the current system, there is a separate DRG, because the use of a stent affects the complexity of the case.”

Since the rule was issued, industry had just over eight weeks to review and comment on it, which experts say isn't nearly enough time to explore its potential effects. “It's a very complicated set of changes to try to figure out and comment on in 60 days,” says Ted Mannen, member of Epstein, Becker & Green (Washington, DC). “I would think CMS would understand that what it's proposing is a fairly dramatic change. One possible outcome is taking into account the comments it gets, and at a minimum, slow [implementation of the changes] down a bit.”

If CMS chooses to move ahead as scheduled, the rule will be implemented on October 1. Although not impossible, CMS probably won't aim for that date considering the complex changes involved. MDMA suggests that CMS delay implementing the changes in the rule for at least one year to give the government and device industry more time to analyze and process the changes.

Copyright ©2006 Medical Device & Diagnostic Industry

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