Why It Takes So Long to Develop a Medical Technology (Part 4)

Written by Mark Carol, MD


As discussed in Part 3, the company NOMOS found a straightforward 510(k) regulatory path for its extracorporeal Peacock radiation therapy product even though Peacock was a totally novel product. NOMOS was able to argue that the predicate was intracorporeal brachytherapy, allowing Peacock to receive clearance in 1996 for the delivery of intensity-modulated radiation therapy (IMRT). The clearance effectively was a tool claim, not limited by disease type or disease site, meaning it could be used for delivering radiation anywhere in the body for any reason. The company could not make marketing claims that IMRT was useful in the treatment of any form of cancer or other disease.

The FDA also ruled that new clinical indications for Intuitive Surgical’s da Vinci robotic devices could be reviewed through the 510(k) clearance process because AESOP’s surgical robot 1993 510(k) authorization served as a predicate device.


Treatments with IMRT and Peacock began with immediate public and private reimbursement because IMRT used existing treatment planning, verification, delivery, and physician oversight codes. There were no additional codes at the start that compensated for the additional work required to prepare for and deliver an IMRT treatment, and not all carriers covered the codes, but existing reimbursement was sufficient to maintain the financial viability of the technology. Later, additional codes were issued that increased payment rates.

Similarly, robotic surgery used existing laparoscopic surgery codes for the payment of da Vinci procedures. These codes were based on the use of a laparoscopic approach regardless of the technology being used for the laparoscopy.

Treatments with the two prostate focused ultrasound ablation technologies that began in early 2016 were on a cash pay basis only; there was no generic payment code associated with ablation of the prostate. All existing prostate ablation codes, such as those used with cryosurgery and laser ablation, were energy specific. Sonacare and EDAP both sold a limited number of systems into the U.S. during that first year. A Medicare C-Code (used only by facilities and only for the billing of Medicare patients, with physicians remaining cash pay) was granted in July 2017. With a favorable payment associated with the C-code (defined as a payment to the facility at least equal to the estimated cost of doing the procedure), patient treatments and sales of devices by the two manufacturers continued even though private insurance carriers, and many of the regional Medicare Administrative Contractors (MACs), were not providing coverage for the code.

In 2018, the Centers for Medicare and Medicaid Services (CMS) conducted a review of actual claims data for focused ultrasound of the prostate for the previous year (2017). Both companies had released billing guides that, if followed correctly, would have resulted in billings sufficient to keep the payment level at its initial amount. However, facilities failed to capture the full cost of the equipment as well as the single patient use disposable required for the procedure. Following an analysis of actual facility claims data, CMS reduced the payment for the C-code by almost 40% at the end of 2018, a rate far below the cost of performing the procedure when capital and disposable equipment costs were included. This resulted in a reduction in patient treatments and almost a complete halt to sales, as facilities were unwilling to absorb a loss per treatment even though the clinical results were excellent.

The low payment rate continued through 2019 into 2022. Recently, improved billing profiles by facilities has resulted in a proposed increase in the preliminary payment rate for 2023, making the use of the device breakeven for facilities at a minimum. The increased payment rate in 2023, if it remains in the “Final Rule,” should have a favorable impact on device placements and case numbers.

The tacit and voiced assumption by many in the field of medical devices is that gaining US regulatory authorization from the US Food and Drug Administration (FDA) is THE major milestone required to realize commercial success. In some cases, this is correct. When a new technology is not an entirely different way of doing things – a robotic prostatectomy is the same as a laparoscopic prostatectomy but with more advanced technology, IMRT is a type of radiation therapy with more advanced planning and delivery devices – and when reimbursement codes, payment, and coverage already exist for the similar procedures – for example, robotic prostatectomy is paid and covered just like laparoscopic prostatectomy – FDA authorization is key. However, when the new technology is an entirely different way of doing things, the real challenge lies in reimbursement.

Payors, both public and commercial, may in fact be the ultimate determiners of success of a new technology. No matter how great a new technology, it is difficult for it to become a standard of care if it must rely on cash pay patients (because insurance payors will not pay) or if it is paid at a rate less than the cost of performing the procedure. Gaining coverage from public and commercial payors, especially if the payment rate is competitive with more traditional approaches (meaning pays near the amounts paid for competing procedures), will allow a new and perhaps better technology to compete on its merits, driving patients to request it, which, in turn, will lead to hospitals acquiring it, practitioners using it to perform more cases, and companies selling more units.

Reimbursement includes all the steps necessary to get paid by insurance payors for using a technology. All parties in a technology company – management, board, investors, employees – should understand the true requirements for a successful reimbursement strategy and agree to the timelines for the corporate funding needed to realize the selected strategy.

Reimbursement includes:

  • Creating and/or assigning a code used by hospitals, physicians, and payors to designate the procedure for the purposes of billing
  • Assigning payments to the code that would be paid if payments are made
  • Making coverage decisions as to whether the payment will be paid.

Coding, payment, and coverage decisions by federal and commercial payors often follow different sequences. The process is different for facilities and physicians as well. However, and while there are exceptions to every rule, the process generally flows in a consistent direction from regulatory through coding to assignment of payment to determining coverage, with the final step being payors paying (or not) the physician and/or facility.


Coding involves assigning a designator or designators by which a procedure can be billed by physicians and/or hospitals. These designators come in different flavors and are controlled to some degree by different players: the Center for Medicare Services (CMS) issues C-codes and HCPCS codes, the American Medical Association (AMA) issues CAT I/II/III codes. Each player has different requirements for their issuance and implications associated with code usage. For instance, C-codes cover facilities only, AMA issues codes covering facilities and physicians. Suffice it to say that without a code it is very difficult to bill a payor.

Having a code assigned requires clinical validation of the technology. This process can take five or more years, depending on the path taken, and usually cannot happen before a device has received FDA regulatory authorization. The one exception is a Category III CPT code, which is a temporary code issued for an emerging technology, service, or procedure that allows for specific data collection associated with the technology, service or procedure. Category III CPT codes can be issued prior to regulatory authorization.


Payment rates for facilities are set by a complex and not widely understood CMS/AMA methodology that, at least when it comes to the facility payment, depends solely on Medicare claims submissions (see “Facility” future blog for a more detailed description of the process). Essentially, CMS takes claims data provided by hospitals in a given calendar year (only hospitals; ambulatory surgical center claims are not considered), determines the geometric mean of all claims, then assigns the procedure to a discipline specific ambulatory payment classification (APC) level (for instance Urology APC Level 5) closest to that mean. This process sets the CMS public insurance payment rate for the procedure. Note that as the APC level increases, the payment level can jump significantly; it does not precisely track the differences in geometric mean. An increase in the geometric mean of $500, which may be sufficient to move a procedure from APC Level 5 to Level 6, may result in a payment increase of $2,000, which is the difference between payment levels for APC 5 and APC 6.

Commercial carriers use the public rate as a basis for determining what they will pay, usually either a multiple of the CMS rate (for instance, 1.5x) or a rate negotiated with a given hospital based on a range of factors, including the lives covered and the cost structure of the institution (public versus private versus academic, etc.).

An accurate accounting for and representation of the cost of the procedure by hospitals performing the procedure is crucial for realizing an adequate payment – one that is greater than or at least equal to the true cost of performing the procedure. This, in turn, requires the manufacturer to work directly with the acquirers and users of the technology to make sure they understand how to bill the procedure correctly. The user of the technology needs to be educated about the impact their billing strategy will have on the payment rate for the procedure (and therefore on the longevity of the procedure). A savvy manufacturer will spend time with each of its users to educate them on the nuances and unique aspects of billing for their technology, thereby increasing the likelihood that the costs submitted to CMS represent the complete and true cost of performing the procedure. Note, however, that a manufacturer is not permitted to tell a user how to bill specifically or what amounts to bill.

After an AMA CPT code is issued for a procedure, AMA will determine the payment rates for physicians. The process entails surveying existing physician users of the technology to determine the time and resources involved in using the technology or performing the procedure. After the AMA sets a proposed rate, CMS will review the rate and make its own determination as to the published public insurance rate for physicians. Commercial carriers will set their own rates, often a multiple of the CMS rate.


Coverage decisions are determinations by insurance payors as to whether to “pay” a payment – whether the insurance payor will cover (pay) a filed claim for the procedure.

Public Coverage

CMS is the public payor in the US. CMS divides the USA into 12 separate Medicare Administration Contractors regions (MACs) to administer Medicare claims and make coverage decisions. Each MAC independently decides whether to provide coverage, either on a case-by-case basis or with a blanket local coverage determination (LCD) that applies to all instances of the procedure. CMS also can make a National Coverage Decision, a decision that applies to all 12 MACS and takes precedence over any current or future individual MAC decisions.

While positive clinical outcomes data can help, CMS, unlike commercial payors, does not have a specified requirement or program for review of clinical guidelines in its coverage decision process. Rather, CMS often relies more on patient demand; the greater the number of cases performed within a given MAC, the more likely is the MAC to make a favorable LCD. Lobbying has a role to play in this process as well, with each MAC often requiring its own outreach by the manufacturer to press its case. It takes time, and frequent visits over time, but meetings with individual MACs to press the case for coverage can have a positive impact.

Commercial Coverage

There are dozens of commercial payors in the US. Each of these payors makes what is usually an independent decision on whether a code will be covered (paid) based on an internal or external review of the clinical, and sometimes economic, justification for the procedure. While meetings by manufacturers with payors to bring clinical data to their attention can be beneficial, these commercial assessments usually include reference to guidelines issued by professional societies and technology assessment organizations. This process will be discussed in a “Guideline” future blog; suffice it to say that without inclusion in issued guidelines, commercial coverage may be difficult to obtain.

With paradigm-shifting technology, achieving insurance coverage, itself dependent on realizing a code and payment, is the true key to commercial success. No matter how great it is, a new technology will languish if not covered with a “living payment” by insurance payors. Just realizing a code from CMS or the AMA is not enough. There is no guarantee the code will carry a payment that encourages facilities to purchase and use the product. Having an adequate payment does not guarantee that coverage will be provided, which is required for patients to seek out and receive the treatment. Wide ranging decisions, made or not early in the product development and commercial strategy development processes, will impact payment levels and coverage decisions in ways not readily apparent at the start and often counterintuitive to standard teachings.

As an example, it may be assumed that charging less for a disposable would reduce the cost to a hospital to deliver the treatment resulting in an increase in case numbers. In reality, the actual impact may be to move the procedure into a lower APC and a lower payment by CMS, thereby discouraging hospitals from using the technology. Charging more for a disposable will translate into increased cost to the facility that may move the payment level into a higher APC that has a payment differential compared to the lower APC greater than the increase in cost, thereby providing a profit to the hospital and an incentive to purchase the technology.

Obtaining coverage must be in the minds of company decision makers from the very first steps taken along the development path, since decisions made early on relative to the product commercialization roadmap can have serious consequences when it comes time for realizing coverage. As an example, and as mentioned previously, it may seem cost-effective to take the 510(k) regulatory route, thereby avoiding an upfront expensive comparative clinical trial required for PMA approval. However, the lack of the rigorous clinical data such a trial would produce may significantly prolong the time required to get included in the published clinical guidelines and technology assessment reports that are almost always a prerequisite for commercial payors to issue favorable coverage decisions. This delay, and the resulting need to fund operations using investor dollars rather than proceeds from sales, can be a time-dependent expense greater than the cost of the trial.

Mark Carol, MD, is a senior consultant at the Focused Ultrasound Foundation.

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