Coverage of New Medical Technologies in Medicare


Traditional fee-for-service Medicare covers items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” The Medicare statute excludes coverage for certain items and services, such as cosmetic surgery and certain drugs. MA plans must cover all items and services covered under Parts A and B, and may cover additional services as well.

CMS may decide whether and when Medicare will add a new medical technology, such as a device, drug, or surgical procedure, as a covered benefit. Coverage determinations as a rule involve items or services that are very expensive (e.g., implantable defibrillators), that represent dramatic improvements or breakthroughs in the standard of care, or that are dated or ineffective. CMS has made national coverage determinations for only a few hundred items and services, but the number is increasing as the agency takes a more active role in Medicare coverage policy. Medicare administrative contractors may make local coverage determinations for types of services that are not the subject of a national coverage determination. In the absence of a national or local coverage ruling, Medicare administrative contractors (whom CMS employs to pay claims to providers) may decide whether to pay claims on the basis of “medical necessity” in light of individual patient circumstances.

Cost-effectiveness analysis—CMS has attempted to adopt cost-effectiveness analysis (CEA) as a Medicare coverage criterion in the past, but these proposals met strong, broad-based opposition and were withdrawn.

Cost-effectiveness is an economic concept aimed at improving efficiency by improving performance and/or reducing cost. A CEA compares at least two alternative clinical interventions, such as a new technology versus routine care, and produces data about the incremental costs and health effects of each, usually expressed as a ratio. A CEA can adjust for changes in the patient’s quality of life as a result of the intervention. Many CEA studies report results as cost per quality-adjusted life-year gained. For example, if an intervention costs an additional $50,000 and extends life by two years, then its cost-effectiveness ratio is $25,000 per additional life-year. A CEA does not consider the fairness or distributional effects of trade-offs between alternative interventions.

Critics of CEA argue that the lack of standardized methodology is problematic because multiple evaluations of the same services and conditions could produce different results. These results may reflect the biases of study funders and/or the analysts who conduct the studies. Critics also worry that the analyses could be used selectively as a rationale for cutting spending or rationing care, particularly in public programs like Medicare and Medicaid. (For information on Medicaid coverage issues, see this chapter’s section Health Care Coverage: Medicaid.)

Advocates of CEA assert that it could be useful as an approach to improve value and to optimize Medicare resources. Moreover, its wider application could just as well uncover underused services that improve outcomes, which could increase spending for that service. They also suggest that CEA may better target coverage for interventions to the specific subpopulations where they will be most effective. Because Medicare spending consumes a growing share of the federal budget, some argue that the current policy of paying for any intervention or device that promises medical benefits, no matter the cost, is not sustainable.

Using CEA to manage Medicare’s spending might seem contrary to the recent trend of requiring greater accountability from providers for more efficient resource use and health care quality, as opposed to the top-heavy approach of Medicare managing spending. However, these ideas need not be mutually exclusive. CEA could support and reinforce reimbursement policies that reward providers for considering both cost and clinical matters.

The United Kingdom uses CEA to make coverage decisions for its National Health Service (NHS). The National Institute for Health and Care Excellence (NICE), an agency within the NHS, evaluates the clinical efficacy and cost-effectiveness of drugs, devices, and procedures. However, some recommendations by NICE have been controversial, and it has been criticized for caving to external pressure, for adopting a one-size-fits-all approach to medicine, and for not being transparent in its decisionmaking processes.

Coverage with evidence development—disagreement exists about whether CMS may use CEA for Medicare coverage decisions in the absence of express legal authority to do so. In the past, CMS has relied on public information to assess new technologies for coverage decisions. Now, however, the agency is using an approach known as “coverage with evidence development.” Under this method, Medicare beneficiaries who take part in a clinical trial or data registry are granted temporary coverage for the item of new technology. If use of coverage with evidence development grows, that raises a concern about the protections of Medicare beneficiaries enrolled in these trials or data registries. Patients enrolled in clinical trials receive protections afforded human research subjects, such as informed consent. Those enrolled in data registries do not, which may raise ethical concerns.

During the evidence development period, CMS collects additional patient-specific data on clinical conditions and utilization, as well as claims, related to a new technology. This may continue indefinitely. The agency may use these data to limit or expand Medicare coverage criteria for the technology. These data may also have other uses, such as monitoring a technology’s safety and utility and gauging the appropriateness of care delivered. The data collected during evidence development also may be linked to other data sets for research and non-research purposes. CMS has indicated that the results of some analyses might not be published.

Coverage with evidence development has raised a number of questions, including:

  • whether the policy provides Medicare beneficiaries with adequate privacy protection and sufficient information to provide informed consent to take part in the evidence development process;
  • whether changes in coverage under the new process will ensure that beneficiaries have access to clinically effective technologies based on scientifically rigorous results; and
  • whether the Medicare coverage determination process should include public notice and the chance for comment.

Least costly alternative—another technique for considering cost as a factor in coverage is “least costly alternative.” This approach only covers the least costly clinical intervention options that are considered just as effective, or at least “therapeutically equivalent.” This implies that some drugs, devices, procedures, and other interventions, while not identical, serve comparable functions and may be appropriate substitutes for each other. The terms “therapeutic equivalence” and “functional equivalence,” while not defined in Medicare policy, are often applied to drugs that are not the generic equivalents of patented medicines but may produce similar effects, such as various pain relievers. However, federal courts have denied CMS the authority to pay for functionally equivalent drugs based on the least costly alternative approach, at least in some cases.

Comparative effectiveness research—the Food and Drug Administration does not assess the relative effectiveness of similar drugs, devices, or procedures. Limited independent clinical research has been performed in this regard. The Agency for Healthcare Research and Quality (AHRQ) sponsors research on the comparative effectiveness of various interventions commonly used by Medicare beneficiaries.

Recent federal legislation expanded funding for comparative effectiveness research. The law also authorized a private, nonprofit entity, the Patient-Centered Outcomes Research Institute (PCORI), to set a national agenda for such research. This includes training researchers and distributing findings through the AHRQ. The institute may not publish practice guidelines or coverage, payment, or policy suggestions. While policymakers hope that PCORI produces data useful to Medicare, they do not expect PCORI to become an independent source of information on CEA or of advice about Medicare coverage.

Coverage of New Medical Technologies in Medicare: Policy

Cost vs. clinical effectiveness

In this policy: Federal

AARP supports rapid expansion of the assessment of health care technologies, including medical devices, drugs, procedures, and services, based on studies of clinical effectiveness and comparative effectiveness, in order to enhance decisions on Medicare coverage for the safest and most effective medical interventions.

AARP opposes the use of cost as the sole criterion in decisions regarding coverage of new medical technology. Such decisions should be based on clinical effectiveness, with consideration given to the cost of the new technology.

AARP supports the development of national goals and priorities to guide research related to Medicare coverage. This priority-setting process should include opportunities for stakeholder input and public comment. One of these priorities should be to identify low-benefit applications of high-cost technologies.

Cost- effectiveness analysis (CEA)

In this policy: Federal

AARP supports improving the quality and quantity of independent comparative effectiveness and CEA research. Such information should be broadly disseminated to Medicare providers and beneficiaries, as well as private payers, clinicians, patients, and the public. This research should take into account the perspective not only of payers, such as Medicare, Medicaid, and private insurers, but also of patients and the broader society.

CMS should not use CEA as a Medicare coverage criterion without explicit new congressional authorization, regardless of whether or not CMS has the regulatory authority to do so. Prior to congressional action, an independent panel, including subject-matter experts, ethicists, and consumers, should advise Congress on the appropriate use of cost-effectiveness for determining Medicare coverage.

Coverage determination process

In this policy: Federal

CMS should continue the present policy of making national coverage decisions, with Medicare contractors making local decisions, based on standard procedures that include public notice and comment periods for the proposed decisions.

CMS and contractors should also continue an appeals process that allows patients and other stakeholders, either individually or as a group, to effectively challenge any agency decision regarding coverage determinations. Such appeals should apply to related conditions for coverage, such as practice guidelines, that may affect patient access to new technologies and related services.

AARP supports the development and use of new approaches in the Medicare coverage determination process that ensure all beneficiaries appropriate access to clinically effective new medical technologies.

Use of evidence in Medicare coverage decisions

In this policy: Federal

CMS should:

  • publicly disclose and seek input regarding its plans for changing the Medicare coverage determination process and the criteria regarding new technologies based on evidence development using clinical trials and patient data registries;
  • allow independent researchers, using evidence development, to review the validity of data and methods that form the basis for Medicare coverage and publish the results of their findings; and
  • ensure that Medicare beneficiaries are not unduly influenced to participate in Medicare trials or data registries and that they receive appropriate patient protections, including informed consent and privacy safeguards.

Therapeutic or functional equivalence

In this policy: Federal

Determinations of a drug’s therapeutic or functional equivalence should comply with AARP policy recommendations for drug formularies, such as appropriate oversight and a provision for medical exceptions (for a discussion of drug formularies, see this chapter’s section Specific Needs and Services—Prescription Drugs).

CMS and the AHRQ should continue to develop and evaluate policies and procedures for applying research on comparative effectiveness in the context of functional and therapeutic equivalence.

CMS should determine the conditions under which, and the target populations for whom, Medicare coverage for comprehensive geriatric assessment is warranted.

CMS and the AHRQ should fund studies to identify and demonstrate the most clinically efficacious and cost-effective types and uses of assistive technologies. Information about these technologies should be disseminated to Medicare contractors to improve appropriate access by beneficiaries.