Technology Commercialization

Medical Cost Reimbursement

When developing medical products, when should you evaluate reimbursement issues?

Before you even form a company around a prospective medical device or drug product…


You should have a reasonable expectation that future reimbursement for your product will be “attainable”. Exciting new technology is not automatically reimbursed, and even when it is, it may not be at a level that supports an intended selling price.

If you are developing a product (with at least some improvement in features or patient safety), for which there is clearly an existing payment category, you are in a favorable position — as long as your company could be profitable with the current level of reimbursement associated with that payment code. If your product does not clearly fall into one of the existing payment codes, in order to satisfy potential investors you may be required to enlist the aid of a regulatory consultant to evaluate and render an opinion on the reimbursement prospects.

U.S. Healthcare System
The business structure that supports the U.S. healthcare system is composed of “providers” of health-related services, which include physicians, nurses, technologists, etc., and “payers”, which includes federal and state governments, as well as private insurance companies.

“Cost Reimbursement” is the mechanism for payment...


The personnel, products and services, as well as the facilities required for rendering the healthcare services (hospitals, clinics, etc.) are generally paid for through various mechanisms of reimbursement following the provision of the service.

Diseases and related medical procedures have classification systems that are utilized by payers to determine whether or not particular insurance coverage is applicable, and if so, at what rate the medical services will be reimbursed.

Payment codes and coverage for products and services:

  • International Classification of Diseases, Clinical Modification (ICD 10-CM)
    Used in assigning codes to patient diagnoses, and is specific to the setting where the services were delivered (inpatient, outpatient, or physician office). Visit this CMS.gov site to explore existing codes potentially relevant to your product.
  • CPT (Current Procedural Terminology) Codes
    Numbers assigned to every task and service a medical practitioner may provide to non-Medicare patients, including medical, surgical and diagnostic services. The codes are intended to assure uniformity in billing practices and are used by insurers to determine the amount of reimbursement that a practitioner will receive. CPT codes are developed, maintained and copyrighted by the AMA (American Medical Association). Visit this AMA site for information regarding when and how new codes may be acquired for “emerging technologies”.
  •  Healthcare Common Procedure Coding System (HCPCS)
    Administered by U.S. Centers for Medicare & Medicaid Services (CMS), this system defines medical procedures and services for Medicare patients, the federal government-sponsored healthcare plan for seniors. Visit this CMS.gov site for the most current HCPCS information.
  • “Coverage” of Procedures, Products and Services
    Coverage refers to a payer’s decision to provide program benefits for a specific product or service, and is usually conditioned upon the FDA clearance or approval of the product, as well as the medical necessity of the treatment. Medicare and private payers institute coverage criteria to ensure appropriate utilization of products and services and to control costs. Limited coverage for a technology or procedure often leads to minimal market uptake. Visit this CMS.gov site for a review of the Medicare Coverage Determination Process.
  • Coding for Reimbursement
    The alphanumericiStock_000024778958_Small coding systems described earlier are the link between insurer’s coverage of a procedure and payment for a product or service utilized in that procedure, and is the “language” supporting automated claims processing and review throughout the private and government healthcare payment system.
  • DRG Payment System for In-Patient Hospital Care
    Diagnosis Related Group (DRG) is an element of “managed” care applicable primarily to in-patient hospital care, where all patient cases are classified by initial diagnosis, the average length of stay, and procedures and supplies expected to be required to get the patient discharged.  A fixed payment (MediCare or private insurance) is made to the provider organization that is, for the most part, independent of the actual costs incurred.

Under the DRG payment system, it's important to determine early how your product may affect a cost center within the hospital...


Your “value proposition” must embody the potential “economic value” it will provide your prospective customer, whether through direct cost reduction or improved efficiency of care delivery.

Reimbursement Strategy
For many products, considerations necessary to establish reimbursement are already established as their use falls under existing categories of care, such as those for inpatient hospital services or outpatient and ambulatory care setting. Even when this is the case, understanding how each payer type (private insurer vs Medicare/Medicaid) makes coverage decisions and uses existing coding systems to pay providers, is critical in determining how to approach a reimbursement strategy for a new medical technology.

As stated earlier in this guide, the FDA evaluates the safety and effectiveness of medical devices, and the Payer and Provider organizations decide whether to cover, pay for, or use a device. Payers and providers usually make their decisions after the FDA has approved or cleared a device for use in the U.S.

More recently, however, FDA’s Center for Devices & Radiological HealthCDRH logo (CDRH) has established the Payer Communication Task Force (PCTF) to “… identify ways to shorten the time from FDA approval or clearance of a medical device to coverage by Payers.” The PCTF defines Payers as public payers (e.g. Centers for Medicare & Medicaid Services (CMS)), private health plans, health technology assessment groups (HTAs), and others who provide input into coverage and reimbursement decisions.

According to the PCTF, “Manufacturers do not always have clinical trial data that demonstrate safety and effectiveness for FDA approval or clearance, as well as the data Payers require to determine whether or not they will cover the use of the device.”

The PCTF believes, however, that ...


“Early engagement between device manufacturers, CDRH, and Payers will allow for the design of clinical trials that may produce required outcomes for both regulatory approval or clearance and positive coverage determinations.”

NOTE: A startup company in the medical products industry needs to pursue a reimbursement strategy in parallel with the development of the regulatory and clinical strategy.

Even when reimbursement at some level seems attainable, young companies oftenstock-photo-77404387-close-up-of-man-with-smartphone-making-blood-test wait too long before thinking about the development of a reimbursement strategy for their new medical technology, and sometimes make critical errors when implementing a regulatory and/or clinical strategy that can negatively impact reimbursement.

Do not hesitate to seek early advice from industry-experienced individuals or consulting firms regarding the reimbursement landscape around your product or service…


Prospective investors will likely focus on this area early in your discussions, so be prepared.

About The Proof of Concept Institute, Inc.

The Proof of Concept Institute, Inc. is a California 501(c) (3) non-profit corporation, whose mission is to develop educational materials and programs for research scientists, clinicians, and engineers that will facilitate more efficient transfer of public-funded (university and federal laboratory) technology and intellectual property to the private sector, where products and services can be developed for the common good and to support U.S. global competitiveness.

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