Medical Device Daily Washington Editor
WASHINGTON — The influence of the Centers for Medicare & Medicaid Services on payment policy in the U.S. makes the “800-lb. gorilla” descriptor seem puny, so when the agency’s staffers speak at industry events, attention is rapt.
Such was the case at this year’s Medical Device Manufacturers Association (MDMA; Washington) reimbursement conference earlier this week. While none of the news was the blockbuster type, the incremental changes in Medicare reimbursement policy can make for big changes on the bottom lines for device makers.
Don Thompson, acting deputy director of the hospital and ambulatory policy group at CMS, said, “The cornerstone of where CMS is heading is transparent, value-driven healthcare,” but the agency is not there yet. He said it is waiting for Congress to pass legislation that more decisively remodels the Medicare payment paradigm.
In the meantime, the agency is still “working under the old indemnity insurance model,” Thompson said.
His office is responsible for $200 billion in spending each year and spends, he said, “about $1.6 billion a day” on Medicare. Medicare, with expenditures of about $454 billion in FY08, currently covers about 43 million Americans. But that number will jump to roughly 77 million by 2031, Thompson said, adding that the hospital trust fund for Part A will dry up in about 12 years.
While CMS has rolled out several changes in payment protocols, Thompson said the agency wants a more fundamental alteration. “We want to change from paying for just reporting, to paying for outcomes,” requiring new legislation.
As for the 2008 edition of the hospital in-patient prospective payment system (HIPPS), Thompson said that the agency published the final rule for 2008 in August, and “the average payment increased about 4.3%,” over 2007, an overall increase of $4.6 billion.
Among the key changes is a transition to the Medicare severity diagnostic related groups (MS-DRGs), adopted by the agency because the Medicare Payment Advisory Commission (MedPAC) said that the old DRG system led to cherry-picking of less severe patients.
“You had growth of the specialty hospitals,” thanks to the previous system, a trend that drew considerable congressional scrutiny, Thompson said.
The MS-DRGs consist of 745 codes, greatly expanding the existing 538 codes.
“Public comments on that system were very favorable” overall, according to Thompson, and analysis by Rand (Santa Monica, California) concluded that the MS-DRGs “compared favorably with the commercial products” in terms of ease of use. They had the added advantage of transparency, however, ensuring buy-in.
The new rule also continues the three-year transition to cost-based weights, which started in FY07.
Thompson said that a report compiled by RTI (Research Triangle Park, North Carolina) indicates that some in industry think the existing system led to lowball cost estimates for some items because “the cost-to-charge ratio for certain hospital cost centers largely reflect greater mark-up rates on lower cost items,” such as supplies. RTI recommended expanding from 13 to 19 departments for cost-based weights in the short term.
However, “this [report] wasn’t ready to go” when the rule was published, Thompson said, and “the comments were mixed” on whether to try to adopt them immediately once RTI published the report.
“Several hospital associations recommended addressing long-term cost report issues raised by RTI” before getting into the expansion of cost departments, and CMS expanded to 15 departments for 2008. “This will be an issue for the next in-patient proposed rule, which will come out in late winter or early spring next year, but also the outpatient rule,” Thompson said.
As for hospital-acquired conditions, which for CMS are quickly becoming no-pay situations, Thompson said, “We’re required by statute to select at least two conditions ... and they had to be reasonably preventable.”
The agency selected objects left in the patient during surgery, catheter-association urinary tract infections and several others. Overall, these were “extremely well received” by hospitals, And Thompson said that Minnesota is looking at 28 such events to deny reimbursement.
Rather than not reimbursing at all for such situations, CMS will cut reimbursement by 50% in 2008.
CMS will trim hospital in-patient payments when hospitals get partial or full credit for devices in 2008. Thompson said this policy applies in situations in which “the hospital received a credit equal to 50% or more of the cost of the device,” but also applies to replacements for recalled devices.
As for new technology add-on payments in the in-patient setting, Thompson noted that the consideration period is still two to three years after availability, and the technology still must “demonstrate substantial clinical improvement over existing technologies,” a requirement for both diagnostic and treatment modes. Companies can apply to CMS for the pass-through prior to getting a PMA from FDA, but the PMA has to be an accomplished fact before CMS will issue a decision.
As was previously the case, the term “substantial clinical improvement” is defined by the efficacy of the device in treating patients who are unresponsive to current drugs and devices or, in the case of a diagnostic, is defined by the ability to detect an undetectable condition or the ability to detect a condition earlier in the disease cycle than is currently possible. However, Thompson said, this is conditioned upon “evidence that the use of the device to make a diagnosis affects the management of the patient.”
To make an argument in favor of coverage, a sponsor can use clinical trial data and published peer-review articles as well as “other information relevant to the clinical effect of the technology.” The charges for use of the device have to exceed the MS-DRG threshold for that application, and applicants can find this information in MedPAR (CMS’s medical provider analysis and review database), clinical trial claims information, and other hospital information, such as data from the pay-for-performance hospital pilot. The data, however, must be robust enough to have statistical significance.
CMS will hold a “town hall” meeting on pass-through rules in February. The standard 60-day comment period will apply, with the final rule posted in April.
Thompson said that CMS is looking at a payment pass-through with drugs and biologics, noting that “for the last couple of years, there hasn’t been a payment differential for drugs and biologics, but beginning next year, there will be.”
Thompson promised “an entirely new payment system for ambulatory surgical centers” (ASCs) soon, and CMS will likely use a relative payment system similar to the one used in the HIPP system.
He said that any change has to be budget neutral. The concept of budget neutrality, however, is not as simple as it seems.
“There are two ways of looking at budget neutrality,” Thompson said. One way is to examine the total spending on ASC procedures. “Another way of looking at it is looking at the migration of patients” into ASCs from hospitals and out of ASCs into doctor’s offices.
He said that actuaries at CMS looked at the expanded list of payable procedures and assumed 25% migration from hospitals to ASCs and a migration rate of 15% from ASCs to doctor’s offices. The calculation came to a net effect of zero, in part because previous increases in ASC utilization were concentrated in a few procedures and when CMS started paying relative weights, some procedures went up in volume.
The final rule pays ASCs 65% of the charges paid to hospitals for identical procedures in an out-patient hospital setting, and Thompson pointed out that despite comments recommending that some procedures be exempted from that calculation, doing so would have required cuts in payments for other services due to the budget neutrality requirement. The 65% rule drew comments indicating that manufacturers will not accept a 65% payment for their devices, so CMS separated the device costs, applying the 65% rule to the balance of the service.