MEDICARE AND MEDICAL DEVICES: HOW TECHNOLOGY COVERAGE DECISIONS ARE MADE AND PROPOSED SOLUTIONS

MEDICARE AND MEDICAL DEVICES:
HOW TECHNOLOGY COVERAGE
DECISIONS ARE MADE AND
PROPOSED SOLUTIONS

Medicare is the federal program charged with financing the health care needs of the disabled and Americans over 65 years of age. Medicare is administered by the Health Care Financing Administration (HCFA) in the Department of Health and Human Services (HHS), and is comprised of two parts, known as Part A and Part B. Part A provides premium-free coverage for hospital stays and follow-up services, while Part B, which requires a co-payment, provides for physician services, laboratory tests, and other medical technology and equipment costs.
COVERAGE AND PAYMENT
Coverage by public and private insurers is essential for medical technologies to reach the bedsides of patients. Consequently, one of the most fundamental functions Medicare must perform is deciding whether to pay for, and the appropriate reimbursement level for, various drugs, diagnostic tests, medical procedures, and services. HCFA uses local and regional insurance contractors, referred to as carriers and fiscal intermediaries, to process claims. It is these local and regional contractors that make the vast majority of coverage decisions; and their decisions apply only to the beneficiaries for which they are responsible. There are also four regional carriers, known as Durable Medical Equipment Regional Carriers (DMERCs), that process claims involving durable medical equipment (DME), and prosthetics and orthotics (PO). HCFA only considers national coverage decisions in especially important or far-reaching casesCapproximately 10-20 times per year.
LOCAL CONTRACTORS AND FISCAL INTERMEDIARIES
Local contractors are private-sector companies like Blue Cross/Blue Shield, and most coverage decisions are made by individual health plan administrators in conjunction with local advisory committees.
While specific Medicare coverage criteria are not in place, there are, however, some general practices most contractors use in processing claims. Medicare does advise contractors to make coverage decisions based on the appropriateness, effectiveness, and comparative value of a service or device. Local contractors sometimes also cover technologies in the experimental or developmental stages, known as IDEs, or even sponsor clinical trials.
REGIONAL CARRIERS (DMERCS)
HCFA signs a contract with a carrier in each of the four regions to administer the durable medical equipment/prosthetics and orthotics portion of Medicare. The DME/PO falls under Medicare Part B involving physician services, most outpatient hospital services, and certain related services. The government pays a fixed portion of the cost, and the remaining percentage is financed through patient co-payments. Each DMERC publishes a coverage and payment manual to guide its decision-makers. ¹
THE CRITICAL NATURE OF NATIONAL DECISIONS
By definition, national decisions affect the choices of every Medicare patient and physician, and the outlook for each producer of the technology in question. National decisions are bindingCeach local contractor and regional carrier must abide by HCFA's ruling. Although affected parties may ask HCFA for reassessment at the agency's discretion, national decisions cannot be appealed before federal administrative law judges, augmenting HCFA's power.
HCFA'S DECISION-MAKING PROCESS
HCFA takes up coverage cases when a technology is likely to significantly affect Medicare costs or health benefits, (or if there are substantial disagreements over the safety or effectiveness of the product or service).
Local insurance contractors, physicians, and technology manufacturers, among others, often raise national coverage issues with HCFA.
The national coverage decision process includes review by HCFA's Technology Advisory Committee (TAC). The TACCuntil recently when it was ruled to have been violating federal open meeting lawsCwas comprised of HCFA employees and local and regional contractor executives. It is empowered to recommend (1) issuance of national coverage or non-coverage recommendations, (2) allowing local and regional contractors to continue making decisions, (3) referring issues to the Center for Health Care Technology Assessment (CHCTA), or (4) that HCFA conduct its own special studies. The TAC is presently being reconstituted.
At the heart of coverage decisions is whether a technology is "reasonable and necessary" for treatment or diagnosis of an injury or illness. These rather broad criteria significantly contribute to (1) the number of distinct coverage policies issued by local contractors, (2) what some would say are arbitrary non-transparent decisions at the national level, and thus (3) great frustration among many physicians and manufacturers. In 1989, HCFA proposed regulations that would have defined specific criteria for use by local, regional, and national decision-makers (including TAC), but the rule was never finalized. Many parties believe the numerous changes in health care since 1989 call for an entirely new process for developing clear and up-to-date coverage criteria.
INNOVATION
The impact of Medicare coverage policy on technological innovation cannot be overstated. Manufacturers of medical equipment and devices are constantly striving to make their products more effective, more efficient, more accurate, easier to use, and less costly. At the same time, they are developing entirely new products that perform functions that were at one point unimaginable. Because Medicare insures each of America's senior citizens (a population that is growing fast), its decisions on which equipment and devices should be paid for are very important to companies that make the technologyCnot to mention the patients and physicians who want choices and access to quality health care.
PROPOSED SOLUTIONS
To ensure access to medical care for Medicare patients, HCFA should adopt coverage policiesCboth for fee-for-service and managed care payment arrangementsCthat foster the development and timely adoption of life-enhancing and life-saving health care technologies. Specifically, the policies must:

facilitate timeliness and predictability of coverage decisions;
create greater openness and opportunities for public participation;
apply standards that are designed to encourage device innovation; and
permit reasonable flexibility for Medicare's carriers and intermediaries to determine whether new products should be covered in particular circumstances.

When physicians and manufacturers don't know what kinds of devices HCFA is likely to cover; when data supplied to HCFA is reviewed behind closed doors without standard, well-understood criteria; or when products have been turned down for coverage for seemingly questionable reasons, doctors and manufacturers are far less likely to pursue promising research. A firm grasp of how HCFA's technology coverage process works and what criteria its decision-makers useCfrom the local to the national levelCis essential to continued scientific and medical advancements.

¹ According to the Congressional Research Service, federal guidelines define DME as that which "(1) can withstand repeated use, (2) is used primarily to serve a medical purpose, (3) is not generally useful in the absence of illness or injury, and (4) is appropriate for use in the home." Prosthetics and orthotics are defined as items which functionally replace internal or external organs or limbs.