The medical device payment controversy rages on.

Payers have often used FDA approval as a benchmark to assess the safety and effectiveness of technologies. Devices without approval are generally considered ineligible for coverage. However, as part of the FDA approval process, the devices can be used clinically in a limited number of patients under a very specific protocol known as an "investigational device exemption" (IDE). Data gathered from an IDE trial are used to support a manufacturer's application for FDA approval. Once the device has been approved, the device may be marketed, and the manufacturer can enjoy the profits. The heart of the debate centers around the following questions: Should the costs of devices not approved by the FDA be considered part of the manufacturer's research and development budget? Or should these devices be considered "state-of-the-art patient care" and the associated costs be assumed by the patient/policyholder and, thus, by society . The Office of the Inspector General (IG) of Health and Human Services fired the first salvo in this debate when it announced in the spring of 1994 that it was launching an investigation into Medicare payment for cardiac devices not approved by the FDA. The 1986 Medicare manuals for Part A intermediaries and Part B carriers state that the use of unapproved devices is considered investigational and, thus, ineligible for coverage. However, as signaled by the IG probe, compliance has been difficult and inconsistent because of difficulty in identifying unapproved devices. For example, medical devices can be broadly categorized into novel, first-generation devices and those that represent further evolution and refinement of existing FDA-approved devices. Novel devices are easily identified because they lack a CPT billing code. However, if an unapproved device represents a new generation of an approved device and a CPT has been assigned for its general category, its regulatory status may go unnoticed. The use of cardiac pacemakers offers a familiar example. They have undergone many evolutions, so it is likely that some sort of pacemaker will be studied as part of an IDE. However, when the claim is submitted for the device and the associated medical costs for inserting it, the exact pacemaker model may not be included. Even when it is included, it is rarely obvious that it was part of an IDE. In the managed care environment, the make and model of a pacemaker is typically not part of the precertification process. In addition, unapproved FDA devices may be used in some instances in patients who do not meet IDE protocol requirements. Although this process is technically illegal in most situations, it would be difficult to detect this practice unless the complete IDE protocol was readily available. For these reasons, manufacturers have routinely enjoyed an inadvertent subsidy of their IDE trial. The IG investigation indicated that Medicare was scrutinizing this benefit.

The response to the IG investigation was perhaps predictable. The hospitals targeted in the investigation jointly filed a lawsuit against Medicare's policy of denying payment for devices not approved by the FDA. The hospitals contend that Medicare should formulate a regulation spelling out its payment policy. A new regulation would require public notice and an opportunity for comment before any action could be taken. The suit also contended that nonpayment for these devices "requires the hospitals to choose between nonpayment for services involving IDE devices furnished to Medicare beneficiaries and declining to furnish the often lifesaving treatment the devices afford." Clearly. the hospitals interpret the costs of these devices as pure patient costs. Not surprisingly, device manufacturers, (which are represented by the Health Industry Manufacturers Association (HIMA), concur. In a meeting with Medicare, HIMA implied that the incremental nature of medical device innovation suggests there should be minimal safety and effectiveness concerns with many unapproved devices. Thus, these devices should be considered reasonable and necessary medical services and eligible for coverage. Again, pacemakers are a good example. If a pacemaker is considered reasonable and necessary for the treatment of a patient, should a payer be concerned about brand when it could provide additional health benefits?

While many next generation devices do provide substantial health benefits, lack of FDA approval signifies that their safety and effectiveness are unproven. Reimbursement for these devices creates a lopsided assignment of risks and benefits. While the patient may enjoy substantial health benefits from an unapproved device, he or she must also assume the risks of its uncertain safety and effectiveness. The payer must assume the risks of the medical costs that result from any malfunction. Manufacturers, however, enjoy a research and development subsidy.

A recent case involved a woman who was scheduled to undergo the implantation of a third pacemaker. None was FDA approved. The leads of the first pacemaker malfunctioned, and a repeat thoracotomy had to be performed to insert a new pacemaker. The batteries on the second pacemaker expired prematurely, and the woman had to undergo a repeat abdominal procedure to replace the batteries. She consequently underwent two more surgeries. All these health costs were assumed by the payer/policyholder in addition to the cost of the pacemakers. On the other hand, the manufacturer was paid for three unapproved devices.

In their lawsuit, the hospitals stated that the Medicare policy creates an all-or-none situation for them. Either they could receive Medicare reimbursement, or the patient would not have access to these unapproved devices. It is unfortunate that the responsibilities of the manufacturer are not considered.

In response to this debate, both regulatory and legislative solutions have been proposed. On Sept. 14, Medicare announced it would provide coverage for devices that are modifications to existing products and would continue to deny coverage for "experimental" devices. Essentially, Medicare has retreated back to the status quo.

Two bills have been introduced into Congress. One bill, SB 955, by Sen. Orrin Hatch (R-Utah), is exceptionally generous in allowing reimbursement for any medical device as long as it is part of an IDE. This would include reimbursement for novel devices, too. The other bill, HR 1744, presented by Rep. William Thomas (R-Ca]if.) is essentially similar to the regulatory solution proposed by Medicare. Thomas states that the bill is "budget neutral" since no increased reimbursement would be allowed for the unapproved devices. Of course, the bill is budget neutral only if one believes that the federal government and patients should assume all the risks associated with an unapproved device.