I am pleased to be here today to discuss the issue of
Medicare coverage of investigational medical devices and services
associated with those devices. As you know, there has been
considerable interest in this topic in the last year. I would
like to begin by explaining Medicare's coverage policy as it
existed prior to November 1, 1995.
POLICY PRIOR TO NOVEMBER 1995
The law specifically provides that Medicare shall make
payment only for items and services that are reasonable and
necessary for the treatment of illness or injury. Historically,
the interpretation of the terms "reasonable and necessary" by
HCFA has required that services must be safe and effective and
not experimental. In the case of devices, Medicare has looked to
the Food and Drug Administration (FDA) since the 1970s when
Congress charged it with responsibility for assuring the safety
and effectiveness of devices. Devices approved by the FDA were
considered safe and effective and not experimental by Medicare.
On the other hand, the fact that a device was being used in
clinical trials pursuant to an investigational device exemption
(IDE) from the FDA was seen by Medicare as an indication that the
device was experimental, and these devices were not covered under
the Medicare program until receiving final PreMarket Approval or
clearance under section 510(k) of the Federal Food, Drug and
Cosmetic Act. This policy was not established so Medicare could
avoid paying claims, but to protect beneficiaries from services
that had not been found to be safe and effective.
Medicare's policy of not covering investigational and
experimental devices is longstanding and, in fact, stems from the
inception of the program. A letter to the fiscal intermediaries
in January of 1977 clearly explained the policy. It stated the
following: "Since the beginning of the Medicare program the
Bureau of Health Insurance has tried to emphasize to physicians
and beneficiaries that our decision to deny payment for a
particular medical item or service because it is considered
experimental or investigational is not a judgement that a
physician's choice of treatment is inappropriate or that a
patient does not need treatment. These decisions are, first,
required of us by the law (section 1862(a)(1) of the Social
Security Act ) and are based on qualified medical advice that the
items and services have not been generally accepted by the
professional medical community as effective and proven
treatments........."
Medicare's program instructions on medical devices, which
were governing until November 1, 1995, were added to the Medicare
Hospital Manual, the Carrier Manual, and the Intermediary Manual
in 1986. These instructions stated clearly that "medical devices
which have not been approved for marketing by the FDA are
considered investigational by Medicare and are not reasonable and
necessary". The instructions went on to explain that payment
would not be made either for the devices or the procedures and
services performed using the devices. Additional instructions in
these manuals dealing more generally with all noncovered services
also state that any services related to a noncovered service are
excluded from coverage.
I would like to emphasize that HCFA was clear from the start
about its policy regarding both coverage of investigational
devices as well as any related services. To provide an example
of how the policy was designed to work -- if a hospital admission
was solely for the purpose of implanting an investigational
device, no payment would be made for the hospital stay. On the
other hand, if a patient was admitted for chest pain, but it was
decided during the visit to implant an investigational device,
Medicare would pay for a medical admission recognizing the chest
pain, but Medicare would not pay the much higher rate applicable
to a surgical stay. No payment would be made for services
associated with the surgical procedure to implant the
investigational device.
This payment policy was designed to protect beneficiaries
against the use of devices that the FDA had not found to be safe
and effective and devices that had not yet been generally
accepted by the medical community. Not all devices that are
available on a limited basis subject to an IDE in a clinical
trial are ultimately approved. Problems are sometimes discovered
in the course of the clinical trial, and some devices fail ever
to receive final FDA approval.
NEW COVERAGE POLICY FOR INVESTIGATIONAL DEVICES
As you are aware, however, HCFA carefully reevaluated its
coverage policy for investigational devices last year. We
considered the rapid rate of technological change and
improvements made to medical devices that exists today and
examined with the FDA the plausibility of creating a mechanism to
distinguish among different types of devices with IDEs. As a
result, HCFA issued a final rule on September 19, 1995 that would
allow for expanded Medicare coverage of investigational devices.
This rule was effective for services performed on or after
November 1, 1995.
HCFA and the FDA entered into an interagency agreement to
establish a process for placing devices with IDEs into one of two
categories based on level of risk. The first category (Category
A) is for novel, first-of-a-kind devices for which "absolute
risk" of the device type has not been established. The second
category (Category B) is for devices for which the underlying
questions of safety and effectiveness have been resolved for that
type of device. These devices are often newer generations of
already proven technologies or replications of existing devices
by other manufacturers. Under the new policy, Medicare may now
cover items and services associated with the use of a Category B
device within the context of the FDA approved clinical trial, as
long as the device meets other Medicare coverage criteria.
Given the fact that a mechanism could be created to
distinguish between level of risk, HCFA determined that some, but
not all, devices could be covered without compromising patient
safety and should be made available to Medicare beneficiaries who
wanted to participate in clinical trials.
I would like to emphasize that this change is a new policy.
It is not retroactive and has no bearing on past billing
practices. We continue to believe that the prior policy, which
was designed to protect beneficiaries against devices that the
FDA had not found to be safe and effective, was the best approach
available at the time.
INAPPROPRIATE PAYMENTS MADE TO HOSPITALS PRIOR TO NOVEMBER 1995
I would now like to address the issue of inappropriate
payments made to hospitals for investigational devices furnished
prior to last year's final rule. Please note that there is
ongoing litigation between the Department and 25 hospitals
related to the hospitals' claim that the Secretary failed to
comply with the requirements of the Administrative Procedures Act
in issuing policy in this area. I cannot comment on issues
related to this litigation.
Assertions from Hospitals Related to Policy
As you know, the Office of Inspector General (OIG) has
uncovered cases where erroneous payments were made for items and
services related to the implantation of investigational devices.
In response to the OIG investigation, hospitals have made various
statements about our policy and the cause of the overpayments.
Some hospitals have stated that HCFA's policy was unclear, and
others have stated that they did not know about it. As I stated
before, however, the policy was plainly contained in Medicare's
manual instructions, including the Hospital Provider Manual.
That manual explains and interprets the statute and the rules on
coverage, payment, and billing that govern operation of the
program, and hospitals know that these rules are binding.
If hospitals felt that the policy was unclear, we believe
they should have made attempts to discuss it with HCFA. On any
issue of uncertainty, providers are encouraged to seek
clarification from us. Conversely, if the policy is clear but
providers disagree with it, the proper course of action is the
same -- to contact HCFA. We are always willing to investigate
and reevaluate a policy issue brought to our attention by
concerned parties.
Payment Integrity
The Medicare system is highly complex and deals with a large
volume of individual claims. In FY 1995, the fiscal
intermediaries processed 133.3 million bills. HCFA tries to
ensure that its policies are being implemented correctly through
focused payment safeguards efforts, such as prepayment review,
postpayment review, and audits. And, as I will address in a few
minutes, we support other payment integrity ideas that would
require legislation.
We are disturbed that improper payments were unknowingly made
by Medicare for investigational devices and that these improper
payments went undetected for so long. However, we are also
disturbed that providers continued to bill us despite the fact
that it was clearly contrary to our written policy. Avoiding
improper payments in the Medicare program depends heavily on the
integrity of providers to bill us responsibly and honestly. The
situation Medicare faces is similar to that of the Internal
Revenue Service in administering the tax system. We expect
providers to adhere to the rules stipulated in the manuals and to
contact us if they do not understand them or if they are unsure
of their responsibilities.
Finally, I want to make clear that hospitals were not
confronted with the dilemma of having to bill illegally in order
to receive payment for implanting devices. We believe that in
almost every instance in which an investigational device was
provided, hospitals instead could have furnished an approved
device, legally billed Medicare for it, and received payment.
The choice they made, however, was to bill improperly for devices
that were part of a clinical trial and therefore not covered.
Overpayment Recovery
If Medicare paid claims that were billed inappropriately--in
this case for medical devices that had not been approved by the
FDA--those payments constitute overpayments that are subject to
recovery by HCFA. We are already at work identifying
overpayments, and we expect to seek recoveries in accordance with
the Debt Collection Act and the Medicare Act. This effort will
help to ensure the integrity of the program.
I would like to point out, however, that we may be limited in
our overpayment recovery efforts by the level of resources
available. Current funding to pursue payment safeguards
activities is inadequate because the continuing resolution
provides resources at last year's level despite the continuing
increase in the volume of Medicare claims. There appears to be
growing support in Congress for the need to invest in payment
safeguards, and we hope that funds will be appropriated at a
level commensurate with the importance of this activity and its
anticipated payoff.
PROPOSED LEGISLATION
I would like to close by commenting on various legislative
proposals to strengthen our payment safeguards efforts, including
overpayment recovery.
While Medicare's payment integrity activities are improving,
they need further improvement, and we look forward to working
together on this subject with this Subcommittee and others in
Congress. To ensure effectiveness of our payment integrity
activities, they need stable and reliable funding. The
President and Congress have addressed this need by including in
various balanced budget plans a provision that would provide
stable funding for payment integrity activities, and we urge you
and your colleagues to retain such a provision in any further
Medicare legislation.
CONCLUSION
I am happy to be here today to discuss this important issue.
I want to stress again that we should not take lightly the fact
that hospitals were consistently billing Medicare and receiving
overpayments for care and services related to investigational
devices. We hope that situations such as this can be avoided in
the future through both our reliance on the integrity of
providers and the strengthening of our payment safeguard efforts.
Thank you. I will be happy to answer any questions you may
have.
