Medical Device, Drug, Or Biologic? A Reimbursement Strategy Lesson

By Edward Black, founder and principal, Reimbursement Strategies

Have you ever stopped to think about bioengineered skin substitutes (BSS)?  This area of medical technology exposes more areas of potential confusion between the FDA, the Centers for Medicare and Medicaid Services (CMS), and industry than almost any other “device” sector.  The current business environment presents manufacturers of these products with all of the classic challenges of medtech reimbursement – coding, coverage, and payment — plus additional challenges not seen in other areas of the industry. 

BSS may be either acellular or cellular. Acellular products (e.g., dermis with cellular material removed) contain a matrix or scaffold composed of materials such as collagen, hyaluronic acid, and fibronectin. The various products can differ in a number of ways, including species source (human, bovine, porcine, and the newest one, piscine [fish]), tissue source (dermis, pericardium, intestinal mucosa), additives (antibiotics, surfactants), hydration (wet, freeze-dried), and required preparation (multiple rinses, rehydration). Cellular products contain living cells, such as fibroblasts and keratinocytes, within a matrix. Most commonly, these products are FDA-cleared for treatment of partial and full-thickness wounds, pressure ulcers, venous stasis ulcers,  chronic vascular ulcers, diabetic ulcers, trauma wounds (abrasions, lacerations, second-degree burns, skin tears), surgical wounds (donor sites/grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence), and draining wounds. 

So, BSS must be biologicals, right? FDA, CMS, and industry can’t agree on what to call them. CMS refers to these products as bioengineered skin substitutes. Industry prefers the terms cellular- or tissue-based products (CTPs), believing that BSS is a clinically inaccurate catchall term for a broad category of products.

These products are all biological in nature, but the FDA clears them as devices under one set of rules for xenografts and another for human placental materials, and categorizes some of them as “wound dressings” or “collagen wound dressings.” CMS treats them as devices because, in their parlance, “wound dressings” or “surgical dressings” are disposable supplies that are applied on top of BSS/CTPs to maintain a moist healing environment. BSS/CTPs vascularize into the skin and become part of living human tissue.

Still, there are at least 70 of these biological products on the U.S. market today. If yours is to join those ranks, you need a viable reimbursement strategy, and a look at the complications surrounding BSS/CTPs is a good place to begin developing that strategy.

Coding

The field of BSS/CTPs may be the only area in medical device technology where each branded product can qualify for its own, unique Q–prefixed Healthcare Common Procedure Coding System (HCPCS) code. In this regard, BSS/CTPs are treated more like drugs than devices. All other devices, supplies, or durable medical equipment that have basic commonalities are assigned to a common, single HCPCS code.

The unique code assignments for BSS/CTPs result from government and commercial payers’ desires to cover some products for specific clinical conditions, but not others. The only way to do this is to give them all unique identifying numbers in order for payers to process claims. Creating new HCPCS codes is an annual task that causes CMS’ HCPCS staff to roll their eyes with every new request, and those requests have rolled in at a rate of about 15 annually for each of the past three years. CMS is usually very stingy in awarding new HCPCS codes, but the agency now finds itself at the mercy of payers who want to differentiate coverage policy for these products. 

Coverage

The growth in popularity of BSS/CTPs is a good example of the greatest challenge in medtech reimbursement. How much clinical evidence, and what types of evidence, are sufficient to get a product or device covered by government and commercial insurers? Is non-inferiority or clinical equivalence sufficient, or do you need to demonstrate superiority? As this audience knows, the vast majority of Medicare coverage decisions are made by the ten (at last count) Medicare Administrative Contractors (MACs) in twelve jurisdictions. Consequently, some products are covered in some jurisdictions for some conditions, and not covered for any indications in other jurisdictions. 

In October, the FDA issued a new Draft Guidance for Industry questioning whether the use of human cells, tissues, and CTPs should be limited to “homologous use,” meaning the repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor. This could preclude their use in a broad range of other conditions.  

Of the approximately 70 BSS/CTP products on the market today, many only have modest studies to support their claims of clinical effectiveness, either in their ability to heal wounds faster or with fewer applications. Consequently, Medicare and commercial insurers write product-specific medical policies for the precise conditions for which they feel sufficient evidence exists. As an example, Product A could be FDA cleared for all the clinical indications cited earlier, but only covered by Medicare and/or commercial payers in specific service areas for diabetic foot ulcers (DFUs) or venous stasis ulcers (VSUs), depending on the volume and quality of supporting clinical evidence. 

Many payers will argue that the variance in data among them is not statistically significant, and that they struggle to determine which products to cover for which clinical conditions. The resultant difference of opinions causes some of the MACs to only cover eight to 10 products, while at least one MAC — Novitas Solutions — covers them all (thereby begging the question of why the products should all have their own HCPCS code numbers in the first place).

The other MACs continue to wrestle with the question of which products to cover for which indications, within the time and staff resources they have to manage all other Local Coverage Determinations (LCDs). Watch for those other MACs to adopt more liberal policies, like Novitas Solutions.

Payment

The cost of these products varies tremendously, ranging between about $6 and more than $225 per square centimeter. When a clinician is treating a large chronic wound, measuring about 80 square centimeters, the product cost could reach $18,000, making it difficult for manufacturers to justify the health economics when selling to a hospital on a fixed payment system.

Two years ago, CMS put all of these products into one of two payment categories —high cost or low cost — under the Hospital Outpatient Prospective Payment System (HOPPS), the location where most wound care therapies are provided.  The threshold for high cost hovers around $30 per square centimeter and moves slightly each year. The burden rests on the hospital to determine which product is best suited for each clinical condition, and which one is affordable under current payment structures. If you’re on the high end among the high-cost products, you need a very compelling clinical case.

In the physician office setting, the products are paid at their average selling price plus 6 percent.  Manufacturers are expected to file their prices quarterly on a CMS drug reporting form, because Medicare has no other system to track their changing costs unless prices are posted on other subscription-based drug databases — the types more commonly used by commercial insurers.

How To Clear The Confusion

The cost of treating chronic wounds poses a significant — and growing — clinical and financial burden to the healthcare system. The evolution of BSS/CTPs is bringing more choice to clinicians and patients, particularly those who may have cultural, religious, or moral objections to the use of certain source materials. Thus, to successfully bring such products to market, manufacturers should heed the industry’s reimbursement lessons:

1. Be careful when choosing your predicate product for FDA clearance. You want to choose a product whose characteristics — and price — are comparable, otherwise you risk setting a payment precedent that doesn’t meet your cost of doing business, or creates expectations that your performance cannot attain.
2. Keep in mind that differentiation can be obtained either clinically or economically in this field.
3. Look to the level and quality of evidence of your primary competitors, whose products are covered, as an indicator of what will be required of yours.
4. Be careful in how you describe your product to CMS when seeking a Q-prefixed HCPCS code, lest your product be categorized as a simple wound dressing (as classified by the FDA), and not a highly engineered skin product.

The first article in this series examined how medtech reimbursement came to be in its current state. Read it here. 

About The Author

Edward Black specializes in reimbursement strategy, payer relations, and health economics for medtech and biotech companies in the U.S. and abroad. Before founding Reimbursement Strategies, LLC in 2008, Mr. Black worked over 25 years in health and provider network management within the Blue Cross Blue Shield system and served on two national advisory boards responsible for leading consistency in medical, benefit, and payment policy. From 1994 to 2002, Mr. Black served as the executive director of three managed care business partnerships with large multispecialty clinics for which he was awarded the 1995 Outstanding Contribution to the Healthcare Industry Citation by LifeScience Alley.