QUESTIONS AND ANSWERS
MEDICARE COVERAGE AND PAYMENT

Government regulation of medical technology extends beyond product safety regulation by the Food & Drug Administration (FDA). The process Medicare uses to cover and pay for new technologies is a powerful influence over innovation-critical to the introduction, diffusion and ultimate survival of a new technology. But HCFA has never clarified the standards upon which it bases its coverage decisions. To ensure appropriate access to medical care for Medicare patients, HCFA should adopt predictable coverage criteria and procedures that foster the development of life-enhancing and life-saving health care technologies.

Is every technology approved by FDA covered by Medicare?
No, the Health Care Financing Administration (HCFA) which administers the Medicare program determines whether a technology is "reasonable and necessary" for treatment or diagnosis of an injury or illness. While the FDA determines whether a new technology is "safe and effective" for use, this is no guarantee HCFA will reimburse doctors or patients who use it.

What guidelines does HCFA follow in making coverage decisions?
With only a few exceptions, Medicare law, enacted in 1965, does not provide an inclusive list of specific items, services, treatments, procedures or technologies to be covered or excluded from Medicare coverage. Congress vested in the Secretary of HHS with authority to pay for items or services reasonable and necessary for the diagnosis or treatment of illness or injury, however, HCFA has not defined the terms "reasonable" and "necessary," nor is there a clear process for applying those terms.

How are coverage decisions implemented in practice?
Decisions on coverage are made mostly by contractors that contract with HCFA to review and adjudicate Medicare claims. In deciding whether to cover a medical service or technology, contractors apply general criteria such as:

Another consideration is whether a health care technology is commonly accepted by the medical community. As a consequence, many contractors maintain special advisory committees comprised of local specialists to advise them.

In 1993, claims processing for certain products was consolidated into four regional carriers, known as Durable Medical Equipment Regional Carriers (DMERCs). A small number of services are the subject of a national coverage decision making.

Is there a difference between Medicare coverage and the level of reimbursement?
Yes, coverage permits payment under the Medicare program, but determining the amount of such payments requires the use of complex methodologies as well as a new set of incentives that influence the use and development of medical technologies. Payment methods depend on where the technology is used and by whom, and on the kind of treatment or service that is provided.

How has Medicare affected technology innovation?
The ability of Medicare=s financing structure to adequately fund program growth has been a concern for many years. The Balanced Budget Act of 1997 reduces the growth rate in Medicare spending and, concurrently, HCFA has supported movement toward national coverage decisions to eliminate disparities in local decision-making. National coverage decision making should not be used as a tool to slow program growth.

Robust innovation is one of the most important features of the health care technology industry. But device innovation is a dynamic and incremental process, with continuous physician and user feedback, which makes ultimate application of new technology difficult to predict. The current coverage process which is unpredictable and confusing must be modernized to permit flexibility and determine whether new products or incremental product modifications will be covered in particular circumstances.

How can the coverage process be improved? To make coverage decisions, HCFA needs the best available information on medical technologies and their benefits. Unfortunately, the current Medicare process is often unpredictable, confusing, and lacking any systematic input from the public including health care professionals, academic researchers, patient groups and manufacturers of the technologies. HCFA should work with the affected public to design a process that will permit this necessary input into coverage decisions.