Developing Integrated Product Approval And Reimbursement Strategies In The Absence Of Clear Rules

The often-frustrating, still-evolving policies at HCFA make it all the more important for device manufacturers to put together a well-thought-out plan to gain coverage for their products.

SINCE THE DAWN of the Industrial Age, attorneys have recognized that technological innovations drive the development of the law, and that therefore the law invariably lags behind technology. This temporal gap is due in large measure to the fact that the law, by its very nature, is deliberative, reactive, and looks to the past as a way of handling the future. Technology, driven by the entrepreneurial spirit, is time sensitive, anticipates trends, and looks beyond the proven remedy for solutions.

This state of affairs is no doubt readily apparent to the medical device industry. With technological innovations making new or next-generation devices possible every two years or so, medical device manufacturers are acutely aware that the law-as embodied in the United States FDA and the Health Care Financing Administration (HCFA)-cannot keep pace with innovative new technologies. Thus, the challenge for medical device manufacturers is to develop coordinated FDA clearance and HCFA reimbursement strategies to close this gap and bring quality products to the healthcare market in a prompt and efficient manner.

Historically, device manufacturers could afford to focus their energy on obtaining FDA clearances as their pathway to the market. Of even greater concern to device manufacturers, however, should be the process by which HCFA makes its reimbursement decisions. As the single largest payer for healthcare services and supplies through the Medicare program, HCFA has significant influence over payment trends in both the public and private sectors. As the battle for the ever-shrinking healthcare dollar continues to intensify, HCFA's impact on device manufacturers becomes more severe.

HCFA and FDA have different mandates to evaluate medical devices and apply different standards during their respective reviews. Whereas FDA's responsibility is to determine whether a medical device is "safe and effective for its intended use," HCFA's job is to judge whether the device is "medically necessary" for reimbursement purposes. Although FDA clearance is required for a HCFA determination, it does not ensure a favorable reimbursement decision.

AN OBSCURE PROCESS

HCFA's reimbursement process can be a difficult one for a manufacturer to navigate. It consists of two essential steps: coverage and payment. It is important to note that although coverage is a prerequisite to payment, these two steps are separate and distinct. The coverage decision focuses on the threshold issue of whether HCFA will pay for the device or the procedure in which it is used. Once HCFA makes a favorable coverage decision, the payment decision, which is code driven, focuses on how much HCFA will pay when the device is used in a medically necessary context. This two-step reimbursement process is complicated by the fact that HCFA has never detailed in writing the standards by which it judges "medical necessity"-despite a 1987 court order and recent pressure from Congress to do so.

This is not to suggest, however, that HCFA has not tried to clarify its workings. In 1989, it published a proposed rule that, for the first time, outlined cost-effectiveness as a key component of the coverage process. The reaction from the healthcare community, particularly from industry, was so vehement in its opposition to cost-effectiveness that HCFA withdrew the proposed rule, which was never published for comment again.

HCFA's failure to promulgate a binding rule in any form should not be construed to mean that it is not using cost-effectiveness as a key criterion in making coverage decisions. In fact, many throughout industry would argue that HCFA's failure to publish a proposed rule is purposeful: that the agency not only wants to avoid the type of controversy it engendered in the late 1980s, but also desires to hold on to the freedom and flexibility it has created for itself by not delineating the standards by which it makes decisions.

Thanks to consistent pressure from industry and other stakeholders, HCFA's lack of identifiable standards has not escaped the attention of Congress. Feeling the increased...