CMS finalizes “reasonable and necessary” definition, expedited breakthrough device coverage process

On January 14, 2021, the Centers for Medicare & Medicaid Services (CMS) published a final rule that, for the first time, adopts a regulatory standard for determining whether a particular item or service is “reasonable and necessary” under section 1862(a)(1)(A) of the Social Security Act (SSA) and sets the stage for commercial insurance coverage to be considered in assessing such coverage in prescribed circumstances. In addition, the final rule establishes a “Medicare Coverage of Innovative Technology” (MCIT) pathway, which is a voluntary and expedited mechanism to obtain national Medicare coverage for medical devices designated with “breakthrough” device status by the Food and Drug Administration (FDA).

The new MCIT pathway follows from steps CMS has taken in recent years to use breakthrough device status as a proxy for determining whether a device qualifies as a “substantial clinical improvement” to existing technology for purposes of determining whether a device is eligible for a new technology add-on payment under the Medicare Hospital Inpatient Prospective Payment System or for pass-through payment status under the Medicare Hospital Outpatient Prospective Payment System.

Though mostly similar to the proposed rule, which we summarized online here, below we analyze how the final rule differs from the proposed—most notably by deferring the establishment of a specific methodology by which commercial insurers’ policies would be determined to be relevant for purposes of evaluating whether a device is reasonable and necessary and establishing a flexible start date for coverage under the MCIT pathway, though without extending the duration of MCIT coverage. We also address some open questions with respect to how the program will operate in practice. The final rule will take effect March 15, if it is not held by the incoming administration.

New "reasonable and necessary" regulatory standard

A statutory requirement for coverage for most items and services under Parts A and B of Medicare is that the item or service must be “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” CMS and its contractors have long determined whether items and services are “reasonable and necessary” through case-by-case review of the clinical appropriateness of claims, or through local and national coverage policies.

The final rule mostly codifies in regulation the long-standing “reasonable and necessary” criteria contained in the Medicare Program Integrity Manual, which has three main elements: An item or service must be (1) safe and effective, (2) not experimental or investigational, and (3) appropriate for use in Medicare beneficiaries.

CMS also proposed to add an alternative pathway for evaluating whether an item or service satisfies the “appropriate for use in Medicare beneficiaries” element in the agency’s reasonable and necessary standard. Under the proposed rule, interested parties could demonstrate that an item or service is “appropriate for Medicare beneficiaries” based on evidence of commercial coverage, except where evidence supports that there are clinically relevant differences between Medicare beneficiaries and commercially insured individuals.

In the final rule, CMS decided that, where there is insufficient evidence to meet the appropriateness criteria, it will consider coverage based on whether there is coverage by a majority of commercial insurers. CMS did not offer specifics on how this alternative mechanism would work, but said that it would issue sub-regulatory guidance within 12 months of the effective date of the final rule to lay out the methodology by which commercial insurance coverage policies will be utilized pursuant to this alternative. CMS’s action was in response to comments that criticized the proposal as “vague,” expressed concern that commercial insurance coverage decisions lack transparency, and indicated that greater stakeholder input was needed.

New expedited coverage pathway for breakthrough medical devices

The final rule also establishes a new “Medicare Coverage of Innovative Technology” (MCIT) pathway that offers national Medicare coverage immediately upon FDA marketing authorization for breakthrough medical devices, as determined by FDA, when used for on-label indications for up to four years from the date of approval or clearance, provided that the device falls within a Medicare benefit category and is not statutorily excluded from coverage. Breakthrough medical devices are eligible to apply for coverage under the new pathway for up to two years from the date of FDA approval, though national coverage under MCIT will end four years after FDA marketing authorization regardless of when the application is made to CMS. CMS also clarifies in the final rule that the MCIT pathway applies to diagnostic tests that receive FDA breakthrough device designation, but that screening and prevention tests are excluded from the new pathway because they are covered under distinct statutory authorities.

The MCIT pathway is voluntary, and manufacturers with qualifying medical devices need to notify CMS via a designated CMS e-mail address if they desire expedited coverage under the pathway. At the end of the four-year coverage period under the MCIT pathway, the device would either (a) have a favorable National Coverage Determination (NCD); (b) have a non-coverage NCD; or (c) have coverage decided by the MACs (case-by-case or through a Local Coverage Determination). If a manufacturer desires an NCD for a device initially covered under the MCIT pathway, CMS also recommends that the manufacturer of the device approach the agency during year three of coverage under the MCIT pathway to ensure seamless national Medicare coverage.

Originally, CMS had proposed to initiate MCIT coverage on the day a device obtains FDA approval. In response, commenters asked CMS to allow manufacturers to pick their start date, because not all medical devices are ready for commercialization on the day of FDA approval and manufacturers may need “time to be fully prepared for device dissemination with set coding, payment, and evidence development.”

In the final rule, CMS adopts flexible start dates for coverage under the MCIT pathway to align with a device’s market release. Manufacturers must include the desired start date for MCIT pathway coverage in their letter to CMS indicating that they want to opt in to the program. However, the end of the four-year MCIT coverage period will still be four years from the date of FDA approval; for example, if a manufacturer waits one year after approval to request MCIT coverage, its device will only be part of the program for three years.

CMS will post a list of breakthrough devices covered through MCIT, as well as the duration of the MCIT coverage for those devices, on the CMS website, in order to provide greater clarity to patients, providers, and claims processors regarding coverage.

Limitations of the MCIT pathway

The MCIT coverage pathway is a huge step forward for ensuring timely access to innovative medical device technologies. However, there are some limitations to the pathway as finalized that will likely need to be addressed by CMS in the future. First, the final rule addresses coverage only; it does not address how coding and reimbursement will be handled for MCIT devices. CMS suggests in the final rule that it will assist manufacturers participating in the MCIT pathway with coding and reimbursement considerations, but it does not create a fast track for coding or reimbursement for these devices. Stakeholders are likely to seek ways to establish codes more quickly for devices covered under the MCIT pathway.

Second, in order to ensure beneficiary safety, CMS states in the final rule that if a device loses breakthrough status, or other notice is issued from FDA suggesting that the device is not safe, it will immediately lose MCIT coverage. This provision was not in the proposed rule. One of the actions that could trigger automatic loss of MCIT coverage is receipt of an FDA medical device safety communication or FDA Warning Letter.

Biden may stop final rule from taking effect

It is also worth noting that the incoming Biden Administration is expected to include the final rule in a broad regulation hold, as the Biden transition team has said they plan to issue a memo on Inauguration Day, January 20, that will put a freeze on pending Trump Administration policies from taking effect. However, trade groups are expected to press the Biden Administration to keep this rule in place.


If you have any questions on CMS’s definition for “reasonable and necessary” medical items and services or on the MCIT pathway for breakthrough medical devices, please contact the Hogan Lovells attorney with whom you regularly work, or any of the authors of this alert.


Authored by Stuart Langbein, Beth Roberts, Beth Halpern, James Huang, Victoria Wallace, and Samantha Marshall


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