Diagnostics & Imaging Week Associate

The medical device industry over the past decade has been critical of CMS reimbursement policies which it says have the effect of blocking the uptake of groundbreaking new technologies.

CMS always has responded with promises to do better, to be open to evidence-based applications for added reimbursements for these technologies. And the newly proposed policies for revising IPPS makes the same promise by describing an open door for providing additional reimbursement for new technologies.

To be eligible for additional reimbursement, the new regulations state that a product must be:

  • new – meaning less than two to three years old;
  • more expensive – that is, it must meet a defined cost threshold in relation to the underlying DRG;
  • and it must offer a substantial clinical improvement for the Medicare patient population.

Instead of making add-on payments easier to obtain, Dr. Henry Dove an independent consultant to managed care organizations, hospitals, group practices and health information firms, argued that they will in fact, be more difficult to obtain.

In a conference call on the new CMS regulations sponsored by investment banking firm Harris Nesbitt (New York), Dove, who works for Casemix Consulting, said that device companies may try to make the argument that the mark-up on their devices "is not as great for very expensive devices as it is in less expensive supplies." However, he wondered "if that would carry much water with CMS or even if they talk with Congress."

On the more positive side Dove noted that while hospitals are likely to try and "pass the buck" on to the device companies, he believes that they will only be able to pass on roughly 5% of the reimbursement impact to the hospital.

"I can see that the medical device manufacturers won't necessarily be sympathetic to [hospitals]," he said.

Dove also noted that rural hospitals may be at a disadvantage when it comes to negotiating prices, since they don't have the volume that larger urban hospitals do.

Another thing that hospitals may try and do, said Dove is "standardize the medical devices that they try to use."

While this standardization may work in the rural setting, he said hospitals probably "won't have very much luck at all in the large urban hospitals or the academic medical centers because there are just too many points of view there and it's too hard to get the physicians to agree to use only manufacturer A vs. manufacturer B."

In general, hospital companies fared much better in the proposed new system than their device counterparts, with higher-than-expected proposed increases in payments.

The rules propose boosting payment to all hospitals by 3.4% in FY 2007, which would increase payments to acute care hospitals by $3.3 billion. Rural hospital operators would fare even better under the proposed rules, with more than 1,000 such facilities getting an average increase of 6.7%.

CMS is also proposing to increase the outlier threshold for FY 2007 to $25,530, up from $23,600 in 2006. This proposed increase is based on data suggesting a consistent pattern of inflation in hospital charges which affect hospital cost-to-charge ratios used in determining eligibility for outlier payment. The proposed FY 2007 threshold is expected to keep aggregate hospital outlier payments within the target of 5.1% of total payments under the IPPS.

Tom Gustafson, deputy director of the Center for Medicare Management, said during a CMS-sponsored conference call on the new proposed regulations that his agency has thought about the problems that implemeting this new billing system will most likely have on hospitals, as they will all have to implement new coding software as well as discern what the changes mean for hospital revenues.

"We're interested in what we can do if we're going to be moving down this road in terms of making sure that the hospital billing machinery is comfortable with this."

He also indicated willingness to have a dialogue around the idea of having a gradual phase-in of the implementation of the rules to ease the pain.

"You can judge, based on our past behavior, that we have been receptive to that kind of idea, and we'll certainly look for the reactions of the community to this," said Gustafson.

One person during the call-in part of the session turned up the heat on CMS, questioning the methodology behind the new proposed IPPS rates, specifically noting that the reimbursement rate under the new plan calls for an ICD to be covered to between $23,000 to $24,000 and the average selling price for the devices falls within that same range, leaving no wiggle room for the many ancillary costs associated with the device in the hospital, let alone the cost for the procedure.

This is of particular concern in relation to cardiovascular procedures, because a higher percentage of their total procedural costs are associated with ancillary services than in other segments of the healthcare field.

Gustafson's answer was less than satisfactory. He advised the caller to forward comments on the issue to CMS, but offered no insight into the complex formula that his agency used to come up with the reimbursement numbers.

He said he could appreciate the frustration of the caller but that there was little more he could say on the methodology, because of the laws governing such disclosures under the Adminitrative Procedures Act.

"There's a limit of how we're able to communicate at this point," he said, adding the caveat that his agency has it's hearing aids tuned up and [is] listening really carefully" to what the public has to say. Until the final rule is implemented around Aug. 1, he said the information is essentially sealed in a "black box.

Importantly, Dove said CMS had not targeted cardiovascular manufacturers in developing the new plan.

"The main challenge that CMS faced was that they wanted to address the imbalance of the relative [DRG] weights. They in no way had it in for the cardiology devices or the orthopedic devices."

Dove said that one trend that might be seen from hospitals because of these proposed payment changes will be a shift to treating "medical" patients as opposed to "surgical" patients," which could impact some medical devices since hospitals would be less likely to open new surgical wings.

Ultimately, he said the "big battle that is going to be occurring with respect to hospitals is going to be between managed care organizations and hospitals and between hospitals and medical suppliers." Who is going to win those discussions he said, most likely "depends on the local market."