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. Medicare Advantage plans must pay for all items and services covered under Medicare Parts A and B and may cover additional services.

The Centers for Medicare & Medicaid Services (CMS) makes coverage determinations about whether and when a new medical technology—such as a device, drug, or surgical procedure—will become a covered benefit. This is especially important as new technologies can result in effective but potentially expensive medical advances. As a rule, coverage determinations involve items or services that are either very expensive (e.g., implantable defibrillators), represent dramatic improvements or breakthroughs in the standard of care, or are 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,” taking account of individual patient circumstances.

Various criteria and strategies may be used for coverage determination. Each has implications for beneficiary access and out-of-pocket costs.

Cost-effectiveness analysis: Cost effectiveness is an economic concept aimed at improving efficiency by improving performance, reducing cost, or both. CMS has attempted to adopt cost-effectiveness analysis strategies for coverage determinations. But proposals have met strong, broad-based opposition and were withdrawn.

A cost-effectiveness analysis (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 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 (see also this chapter’s section on 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 broader application could uncover underused services that improve outcomes, leading to increased spending for that service. They also suggest that CEA may better target coverage 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. 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, adopting a one-size-fits-all approach to medicine, and not being transparent in its decision-making processes.

Disagreement exists about whether CMS may use CEA for Medicare coverage decisions in the absence of express legal authority to do so.

Coverage with evidence development: 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 questions about patient privacy and access to evidence-based technologies.

These issues include:

• 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 known as the “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: This approach to coverage decisions uses research that has directly compared two or more health care interventions to determine which works best for which patients and which poses the greatest benefits and harms. Cost is not taken into account. The Food and Drug Administration and CMS do 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 advice about Medicare coverage.