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CMS Releases Proposed Rule on Medicare Coverage of Innovative Technology, Definition of Medical Necessity
Thursday, September 3, 2020

On August 31, 2020, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule intended to expedite and clarify Medicare coverage of innovative technology.

Helpful Links

  • The proposed regulations are available here.

  • The press release is available here.

  • The fact sheet is available here.

Comments on the proposed rule are due by November 2, 2020.


The proposed rule flows from President Trump’s October 3, 2019, Executive Order (EO) on Protecting and Improving Medicare for Our Nation’s Seniors. The EO outlines several policies, including a provision directing the US Department of Health and Human Services (HHS) to issue regulations “streamlining the approval, coverage, and coding process so that innovative products [including breakthrough medical devices] are brought to market faster, and…are appropriately reimbursed and widely available.” The EO notes that this process should include minimizing or eliminating the time between US Food and Drug Administration (FDA) approval and CMS coverage decisions, clarifying the application of coverage standards, and identifying and addressing challenges to the use of parallel FDA and CMS review.

In line with the EO, the proposed rule would define the term “reasonable and necessary” to clarify coverage standards and would introduce a Medicare Coverage of Innovative Technology pathway to accelerate the coverage of breakthrough medical devices.

Key Takeaway: CMS plans to codify “reasonable and necessary” and give deference to commercial insurance plans for coverage.

Criteria for coverage of a service under Medicare is tied in large part to whether the service is “reasonable and necessary” in accordance with section 1862(a)(1)(A) of the Social Security Act. CMS has never codified what this particular phrase means. Medicare Administrative Contractors (MACs) generally make determinations as to whether a service is reasonable and necessary on a claim-by-claim or case-by-case basis. The MACs can also make a determination through a local coverage determination (LCD) as per 1869(f) of the Social Security Act.

CMS provided some description of what is considered “reasonable and necessary” in a current guidance document for the LCD process, Chapter 13 of the Program Integrity Manual (PIM). In this proposed rule, CMS proposes to codify this language into the regulations with two modifications to the third criterion listed below. Under the proposed rule, an item or service would meet the definition of reasonable and necessary if it meets all of the following criteria:

  1. Safe and effective

  2. Not experimental or investigational

  3. Appropriate for Medicare patients, including the duration and frequency that is considered appropriate for the item or service.

For the third criterion, CMS proposes to add a reference to Medicare patients and to provide two options by which an item or service may meet that criterion.

Option A: The item or service adheres to all of the following sub-criteria:

  • Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member

  • Furnished in a setting appropriate to the patient’s medical needs and condition

  • Ordered and furnished by qualified personnel

  • Meets, but does not exceed, the patient’s medical need

  • At least as beneficial as an existing and available medically appropriate alternative.

Option B: The item or service is covered by commercial insurance plans except where evidence indicates that there are clinically relevant differences between Medicare beneficiaries and commercially insured individuals.

If the item or service meets either option A or B, it is considered to meet the third criterion in the definition of “reasonable and necessary.”

Key Questions

CMS solicits stakeholder feedback on several questions regarding this definition of “reasonable and necessary”:

  1. What are the best sources of data to review for the commercial market analysis? What are the most appropriate sources for coverage policies?

  2. Should the commercial market analysis be transparent and public?

  3. In reviewing the commercial coverage policies, should CMS only choose to cover a device if covered by a majority or a plurality of covered lives amongst plans?

  4. In scenarios where there are variations in the conditions of coverage, should CMS adopt the least restrictive or most restrictive coverage policy when commercially available given potential for unreasonable or unnecessary regulations?

  5. Should current coverage policies on items or services be grandfathered in if the device meets the reasonable and necessary criteria, including commercial coverage?

  6. What role should the commercial coverage policies play in the MACs’ determination of coverage?

  7. Should CMS or the MACs have discretion to use the current criteria in the program integrity manual when there is evidence that Medicare beneficiaries have different clinical needs than the commercial market?

  8. Are there other definitions that CMS should consider or establish for the term “reasonable and necessary”?

Key Considerations

The proposal to link eligibility for Medicare coverage (in part) to private payer coverage policies may give MACs increased flexibility to cover novel items and services. Substantial details regarding the proposal are not fully defined, however, including what policies MACs should consider; whether the most restrictive or least restrictive (or neither) policy should be considered controlling; and how much discretion MACs should retain. These details will have a substantial impact on how the regulation is implemented in practice. Interested stakeholders should consider commenting on the proposal to address these and other key issues that may affect the utility of the proposal.

Key Takeaway: CMS would create a new pathway whereby breakthrough devices could obtain national coverage for up to four years from the time of FDA marketing authorization.

Currently, medical devices can obtain coverage under the Medicare program through several different pathways:

  • National coverage determination (NCD)

  • LCD

  • Claim-by-claim adjudication by the MACs

  • Clinical trial policy NCD

  • Parallel review program with concurrent review by FDA and CMS.

As CMS notes in the proposed rule, however, none of these options gives predictable coverage in a timely manner, concurrent to the FDA market authorization.

In response to the president’s EO and in light of stakeholder feedback in recent years, CMS proposes a new pathway: the Medicare Coverage of Innovative Technology (MCIT). The MCIT would be a voluntary, opt-in pathway for Medicare coverage of medical devices (including some diagnostic tests) that have been included in the FDA’s Breakthrough Device Program, were FDA market authorized no more than two years before the effective date of the final rule, and are not otherwise excluded from coverage through law or regulation. CMS proposes that national Medicare coverage of the breakthrough device would begin immediately upon the date of FDA market authorization. Coverage is only applicable to indications with FDA approval. Breakthrough devices with no existing Medicare benefit category or that would be statutorily excluded are excluded from the MCIT pathway.

For eligible devices, coverage would begin on the day of FDA market authorization and would continue for up to four years unless that manufacturer withdraws the device from the MCIT pathway or the device becomes the subject of an NCD or otherwise becomes non-covered through law or regulation. The proposed rule would be retroactive for breakthrough devices that received FDA market authorization within the past two calendar years but would only apply to claims that occur after the final rule’s effective date. Unless otherwise excluded from coverage, items and services covered under this policy would include the breakthrough device itself, any reasonable and necessary procedures to implant the breakthrough device, reasonable and necessary costs to maintain the breakthrough device, related care and services for the breakthrough device, and reasonable and necessary services to treat complications arising from the use of the device.

At the end of the four-year coverage period, coverage for the device would fall into one of the following outcomes:

  • NCD (affirmative coverage, which may include facility or patient criteria)

  • NCD (non-coverage)

  • MAC discretion (claim-by-claim adjudication or LCD).

Key Questions

CMS solicits stakeholder feedback on several questions regarding this proposed pathway:

  1. Should CMS require or incentivize manufacturers to provide data on outcomes, or should CMS obligate manufacturers to enter into a clinical study similar to the Coverage with Evidence Development paradigm while in the MCIT pathway?

  2. Should CMS open a national coverage analysis if a MAC has not issued an LCD within six months of the expiration of the MCIT period for a device?

  3. Should CMS broaden the MCIT pathway to include diagnostics, drugs and/or biologics that use breakthrough or expedited approaches to the FDA, or to all diagnostics, drugs and/or biologics?

  4. Should CMS require manufacturers to opt in or opt out of the MCIT pathway? Which method is less burdensome to manufacturers? If the latter, can a manufacturer opt in after previously opting out?

  5. Under what circumstances should off-label use be covered, and what should be the evidentiary standards for off-label indications?

  6. Should any of the existing coverage pathways (e.g., NCD, LCD, parallel review, clinical trial policy) be modified to further the goals of the proposed program?

Key Considerations

The MCIT proposal would create an expedited pathway to coverage for breakthrough devices (and certain related items and services). However, while dozens of devices receive “breakthrough” designation each year, CMS reports that just 16 have actually received the full FDA approval or clearance required to trigger the coverage mandate. Moreover, the proposal does not change the underlying “benefit category” requirement, which excludes many innovative device types from eligibility, such as screening services not explicitly referenced in the Social Security Act. As a result, while industry may rightfully look upon these changes as a step in the right direction, the impact of the policy may be somewhat limited.

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