CMS Approves Medicare Coverage of ‘Breakthrough’ Medical Devices

The Centers for Medicare and Medicaid Services has issued new rules that require Medicare to cover medical devices that the Food and Drug Administration designates as “breakthrough” technology. 

The rule paves the way for giving Medicare recipients access to the latest technologies four years after they receive market approval by the FDA. The move should greatly speed up the time by which these new devices are covered by Medicare, the approval process of which can be extremely slow.

Under the final rule, the CMS will use the data for these devices during the four years after the FDA approves them, to evaluate them based on clinical and real-world experiences. If the data shows they are effective, the CMS could move to approve them for coverage under Medicare. 

The CMS said the rule was necessary because the current process hinders innovative technologies from getting to Medicare beneficiaries. Companies that make the breakthrough devices currently have to receive approval from the FDA and then receive approval for Medicare coverage, which costs them both time and funds.

Examples of breakthrough devices that were approved in 2020 include:

  • Innovative stents
  • Heart valve replacements
  • Advanced lab tests
  • Automatic defibrillator machines.

To further reduce the time it takes for Medicare to approve a device after FDA approval, the CMS has created a special “breakthrough” approval timeline that the FDA can use to approve innovative devices and potentially life-saving equipment.

Along with the expedited pathway to FDA approval, Medicare may automatically cover FDA-approved products for up to four years. After four years or the given timeframe for coverage, the CMS can reassess whether it will continue covering the device based on patient outcomes.

Qualifying requirements

Covered devices would have to fit Medicare statutory definitions of “reasonable and necessary” for treating patients. To that end, the final rule refines these definitions. Among the requirements, devices would have to be considered:

  • Safe and effective.
  • Not experimental or investigational.
  • Appropriate for Medicare patients, including the duration and frequency that is considered appropriate and whether it is covered by commercial insurers.

The new rule aims to nationalize what some state Medicare systems are already doing and avoid the possibility that a revolutionary new product may receive Medicare coverage in one state, but not another.

Making coverage of breakthrough products national also prevents the product manufacturers from having to approach individual Medicare administrative contractors for local coverage determinations, the CMS said in a press release.

The rule takes effect March 15 and is retroactive for two years before the effective date.

Ohio Auditor’s Report on PBMs Sparks Changes

An audit carried out for Ohio Medicaid found that large pharmacy benefit managers that contract with the state’s Medicaid program have been pocketing a larger and larger share of drug pricing.

In fact, PBMs charged Ohio Medicaid plans 31% more for generic prescriptions than the amount they paid pharmacists for the drugs, the audit found, shedding light on a practice that observers say is being mirrored throughout the country.

The auditor found that the two largest PBMs operating in the state billed Medicaid managed-care plans $223.7 million more for prescription drugs than they paid pharmacy providers in 2017.

The report comes as pressure grows on PBMs to be more transparent about their pricing and costs amid complaints by pharmacies that are barely breaking even or losing money due to the tough contracts they have to enter into with PBMs. Many critics say that PBMs are not passing on the savings to payers when they negotiate lower contracts with pharmacies.

“We know that Ohio is not alone,” Ernie Boy, executive director of the Ohio Pharmacy Association, said in a prepared statement. “Every state and every payer in the country is grappling with these overinflated costs.”

What’s going on

Medicaid doesn’t directly pay pharmacists. Ohio Medicaid pays five private insurance companies to manage Medicaid plans for the state. The insurance companies contract out pharmacy benefits to middlemen, which pay pharmacists to fill prescriptions.

Medicaid and most health plans contract with PBMs to essentially run the drug portion of the health insurance equation. They are supposed to negotiate volume discounts with drug-makers and rates with pharmacies to reduce the overall drug spend by the payers.

PBMs make a good deal of their money from a growing “spread” between what the PBM pays pharmacies and what it charges payers (in this case, the state Medicaid program). The PBM keeps the spread, but most PBMs are not transparent about how much the spread is, leaving both the pharmacies and the payers in the dark.

According to the report, the overall spread in 2017 in Ohio was $224.8 million – with an average spread of 8.9% per prescription. Generic drugs, which comprise 86% of Medicaid prescriptions in Ohio and for which pricing is most opaque, accounted for an overwhelming majority of the spread.

The report found that during the entire study period:

  • The average spread was $5.71 per prescription.
  • The average spread for brand-name prescriptions was $1.85.
  • The average spread for generic prescriptions was $6.14.
  • The average spread for specialty drugs was $33.49.

Generic drugs account for 86% of Medicaid prescription claims in Ohio.

The auditor stated in its report that PBMs’ administrative fees typically range from $0.95 to $1.90 per prescription.

“Although this figure may not include all of services performed by a (pharmacy benefit manager), it suggests Ohio’s current spread may be excessive and warrants the state taking further action to mitigate the impact on the Medicaid program,” the report stated.

As part of its findings, the auditor noted that pharmacies in Ohio have been shuttering at a brisk pace since Medicaid PBMs have been cutting how much they reimburse them for medications.

Between 2013 and 2017, some 371 pharmacies closed in Ohio, coinciding with significant reimbursement reductions in their PBM contracts. The majority of those closures have taken place since 2016.

As a result of the audit, Ohio’s Medicaid department directed its managed-care organizations to quit their contracts with PBMs, citing the opaque pricing practices.

The state’s five managed-care plans were required to enter into new contracts with companies that were able to manage pharmacy services using a more transparent pricing model by the start of 2019.