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Last week, the FDA gave final approval to Medtronic to market its Prestige cervical disc. Right away the questions started about how the device will be covered by payers. Will the Centers for Medicare and Medicaid Services (CMS) cover it?

Wrong question.

Private payers provide most of the medical coverage for Americans, and the real question is, how does a device manufacturer get private payers to cover a device? We’re using the Prestige as an example, but it could be any medical device.

A Common Misconception

There is a common misconception by device manufacturers that CMS coverage equals private payer coverage. That's what Andre Cheng M.D., Ph.D, says.

Dr. Cheng is VP for medical affairs at Acclarent Inc. in Menlo Park, California. He's also the former executive director of The Advisory Board Company. That organization serves the CEOs, boards and senior executives of leading hospitals and health systems in the U.S. and includes over 2000 CEOs.

Dr. Cheng was a recent speaker, along with Dr. Steve Phurrough, director of the coverage and analysis group at CMS, at the Medical Device Manufacturers Association's annual meeting earlier this summer.

He's a heavyweight in the arena of experts who think about the future of health care and the impact of new technologies. He launched the Innovations Center, a strategic forecasting program, and Technology Insights, an on-demand technology assessment service, for over 2,600 hospitals and health systems.

This misconception about CMS coverage focuses a lot of attention on speculation on "what will Medicare do?" about coverage. But support from commercial payers is just as important as from government payers, says Dr. Cheng.

CMS Coverage Overemphasized

Medtronic Sofamor Danek’s VP for strategic services, Diana Bogard, says that there has been a lot of focus on Medicare coverage because of the high-profile lumbar artificial disc noncoverage decision. But most new technologies are never reviewed for coverage by CMS because CMS is only focusing on their particular beneficiary population—the elderly.

Private payers, however, are responsible for coverage for over 53% of the U.S. population. In fact only one fourth of the entire U.S. population is eligible for government-provided health care coverage. That means that the commercial plans cover more people than Medicare, Medicaid, and all the uninsured all put together.

Payers have high expectations of the quality of the evidence to support providing coverage. Just because CMS covered it doesn't mean private payers will provide coverage. When CMS provided an add-on payment for Infuse, did private payers follow suit? "Absolutely not," said Bogard.

Inside The “Deciders” Minds

What lurks in the minds of these private payers (we’ll call them the “Deciders”) in the wake of new technologies being developed in orthopedics every day and in particular the Prestige disc.

We'll know what the private payers are going to say about the disc before we hear from CMS.

Medtronic's Bogard said that the cervical device is aimed at younger patients. Most of the patients in the trials were in their mid-40s. Medtronic doesn't see the Medicare population as a primary patient target group and so we don't expect them to request coverage until the device is tested on the Medicare age population.

Data from PearlDiver database analyst Matt Menze shows that only about 10% of all anterior cervical fusion procedures performed are for those more than 60 years old. So we're back to the private Deciders.

Bogard tells us to go back to the basics. First, get the current procedure terminology (CPT) codes, then seek coverage from payers and, finally, receive payment.

Getting coverage from the Deciders at private pay organizations requires an understanding of their technology evaluation process. Dr. Cheng says that device manufacturers needs to understand the technology evaluation process and the nuances of decisionmaking by the Deciders.

He offers a glimpse into the minds of these health-plan administrators.

He points to two trends that bear on their decisionmaking process.

First there has been an influx of new medical technologies. Since 1992 there have been a total of 5,133 new class III medical device applications made to the FDA.

Second, the percentage of hospital spending growth due to technology advancements has risen from 15% in 1995 to 39% in 1999. This proliferation of technologies makes the Deciders wary of "me-too” innovations. In addition, says Cheng, the medical directors can only devote a limited amount of time to new technology assessments. On average, the medical directors spend around 10% of their time on new technology assessments. This figure goes up if the insurer has a dedicated Medical Director of Policy Development.

The Technology Assessment Committee

A private coverage decision is the end result of a review of available evidence by a Technology Assessment Committee (TAC). These committees utilize research provided by internal analysts and external expert opinions. These include recommendations from 3rd party tech assessment services like BlueCross BlueShield, Hayes Health Technology Assessment Directory, and the Health Technology Assessment Information Service. We saw CMS use to the BCBS tech assessment in denying coverage to the Charité disc.

Private payers with higher expectations for clinical evidence, says Cheng, are scrutinizing evidence beyond FDA requirements and that many manufacturers realize this too late in the game. Private payers are also not bound by certain FDA requirements. For instance, the FDA ortho panel recently said that Medtronic's Bryan cervical disc could not make the claim that it was more effective than fusion. However, a private plan can evaluate the evidence through their technical assessment process and determine that for its particular covered population, the device got people back to work faster.

The tech assessment committees typically meet on a quarterly basis and review 20 – 60 new technologies annually. They make recommendations to the payer’s Medical Policy Review Committee (MPRC), which holds veto power over coverage. The MPRC makes sure the policy is vetted against perceived implications for each health plan function and that a cost-benefit analysis has been performed.

The standard matrix of criteria for the tech assessments focus on criteria important to the payer. Cheng identifies these as:

• Medical necessity
• Safety
• Efficacy
• Cost to the plan
• Cost-effectiveness

Clearing the safety and efficacy hurdle requires FDA approval, but the definition of medical necessity, cost to the plan and cost-effectiveness vary widely by health plan. It doesn’t exactly match the CMS criteria of reasonable and necessary, but sounds a lot like the recommendations from the Medicare Payment Advisory Committee that a criteria of “comparative effectiveness” be adopted by CMS.

Not surprisingly, Cheng says that while payers won’t say it directly, the cost to the plan is a huge criteria.

More Effective and Efficient

Cheng’s description of these criteria include phrases such as the technology “must provide incremental benefit to overall patient health outcomes and must offer unique, more effective, or more efficient treatment than available alternatives.”

This tells us that if you want to be sure you’re going to be successful with the Deciders, you’d better be better than what’s available in the marketplace.

Not all the resources used by the Deciders in reaching coverage decisions are equal. Cheng lists clinical literature, physician requests for coverage, competing plan policies and formal 3rd-party technology assessments as being highly influential. On the low end of influence lies CMS decisions and requests from patients/lawyers.

Hmm ... CMS decisions have about as much influence with private payers as do lawyers.

So how important is CMS really to private coverage?

We go back to Diana Bogard at Medtronic. It depends, she says. If your device is targeted towards the Medicare beneficiary population, CMS coverage will have an impact. But if your device is targeted to a specific population covered by a specific insurer, the demographics and patient profiles of that payer’s base will determine if coverage is warranted. Since the private payers cover most patients in the U.S., and most new technology never reaches a point of a coverage determination by CMS, we’d suggest you bone up on Dr. Cheng’s suggestions of building a strong clinical case to the Deciders that shows you have something unique, provides incremental benefit to overall patient health outcomes, and offers a more effective and efficient treatment than available alternatives.

What about the Prestige? Bogard says that now that the device has FDA approval they have just begun formal discussions with private payers. She says preliminary discussions have been ongoing and early communication with payers can help a company design trials and evidence that will eventually be considered by the payers.

Like the Kyphon experience not long ago, Medtronic will battle for coverage provider by provider.