Procedure Coding: An Integral Component In New Product Development
By Edward Black, founder and principal, Reimbursement Strategies
The primary focus within the new product development (NPD) process has always been designing that product to meet identified clinical and user requirements, while other aspects may be considered secondary. A regulatory assessment has always been the next most critical component. But today, most medical technology entrepreneurs will tell you that a reimbursement assessment is at least equally important to a product’s path to commercialization and successful product launch.
New product development is usually undertaken to meet a recognized, unmet clinical need, as documented within clinical literature or from the experience of healthcare professionals. NPD includes creation of a product that meets clinical requirements for efficacy, customer requirements for ease of use, and a design that can be manufactured cost-effectively. For medical devices, the NPD must include a plan to navigate the regulatory barriers and determine the appropriate path to FDA clearance through the 510(k) process or the IDE/PMA (Investigational Device Exemption/ Premarket Approval) processes. The regulatory path requirements influence the clinical studies plan, as certain data may be crucial for premarket approval.
Within the past decade, medical device reimbursement has increased in complexity and difficulty, oftentimes with a prolonged road to obtain adequate payment and coverage for a device or a procedure within which the device is used. A reimbursement plan should be an integral part of the NPD, initiated early, as reimbursement elements may take months or even years to implement. Think of reimbursement planning like a gymnast whose special event is the balance beam. He/she has to navigate a narrow, 4-inch wide pathway to success. With planning, skill and practice, this can be done. One misstep, though, can take you out of the competition.
Where To Start
A good reimbursement plan often starts with an assessment of whether or not the product or service is currently described in any existing Current Procedural Terminology (CPT) code. CPT codes constitute Level I Healthcare Common Procedure Code System (HCPCS) codes. CPT is a numeric coding system maintained and copyrighted by the American Medical Association (AMA); it consists of carefully determined terms that identify medical services and procedures performed by physicians or other healthcare professionals. The codes are used, in lieu of long narrative descriptions, to bill government and private insurers.
There are two primary types of CPT codes: Category I and Category III. A CPT Category I code is assigned to a medical service that has met established criteria that include published, peer-reviewed clinical literature, adequate usage by healthcare professionals, and regulatory clearance. If an existing Category I code can be used, this can make the path to full commercialization much smoother and faster. If a new Category I code is needed, it could take two to three years, so advanced planning needs to begin early. A Category III code is also known as a temporary code, used to track new technology. These codes are rarely recognized for payment by Medicare or private insurers, but they help companies build a database of utilization that can demonstrate market adoption, as well as the subsequent need to elevate the product to Category I status. Category III codes have lower requirements and are consequently easier to obtain.
The AMA maintains control and ownership of the CPT system through the AMA CPT Editorial Panel. This panel meets three times a year to create or modify the coding system. Fundamentally, this system exists primarily for third-party payers and health providers to effectively communicate the professional service that was provided. Without an effective coding scheme, payers and providers have no common data processing language by which physicians can get paid and health plans can determine which services they are willing to cover and which ones they won’t.
The 20-member panel depends heavily on the clinical and technical expertise of physicians and expert coders within the medical professional societies. The medical societies, in turn, exist to ensure accuracy and consistency in the development of new codes and descriptors for the work they do, while simultaneously representing the interests of their physician members. New technology developers must ensure that the manner in which their devices are to be used is incorporated into this system because, generally speaking, doctors won’t do procedures for which they can’t get paid — and who would blame them?
Cracking The Code
The CPT code process requires application for codes on a specific time table that can extend to 18 months. A coding change application for a CPT Category I code includes requirements for published clinical literature. At least one of the study groups in published literature must be from within the U.S., and there must be at least two separate study cohorts. Generally, five clinical publications are required for a Category I code application.
Literature requirements are stratified by the quality of the evidence in the studies, ranging from the gold standard of multi-center, randomized, controlled studies (RCT) to case studies and professional opinion. These clinical and peer-reviewed publication standards must be understood early in the NPD, when a clinical study plan is being developed for regulatory and coverage purposes. Be advised, too, that clinical criteria for coverage are even higher than for coding. Clinical study outcomes should have measurable and substantial improvements, compared to existing therapies, on the basis of improved outcomes, quality of care, and patient experience. Outcomes in each of these domains can be incorporated into initial clinical studies for efficient collection of data that can be used for reimbursement purposes.
Diagnosis code(s) are the companion to procedure codes. They are reported along with the CPT code. The ICD-10 (International Statistical Classification of Diseases and Related Health Problems) code set uses an alpha-numeric sequence to report the health state that the product or procedure addresses. This international code set specifies various diseases, signs and symptoms, abnormal findings, complaints, and diagnoses, including anatomical locations. Review this code set to determine if a specific diagnosis already exists for the product or procedure under development. The Centers for Disease Control and Prevention (CDC) maintains the ICD-10 codes, and new codes can be created as necessary.
HCPCS Level II codes are primarily used to describe medical supplies, equipment, and injectable drugs. Examples include ambulance services, durable medical equipment (DME), prosthetics, orthotics, and urinary supplies. HCPCS Level II codes are managed by CMS and implemented on an annual basis. Each HCPCS Level II code has a payment allowance assigned by Medicare. In most cases, newer models of DME equipment and supplies will still get assigned to existing codes and existing allowances, which may or may not be sufficient to cover the costs of added features and capabilities. Medtech entrepreneurs must know these risks before final new product design.
The reimbursement process has become confusing and complex, and it often comes with protracted timelines to achieve optimal results. It is imperative to incorporate reimbursement early in the NPD process, when requirements can be fully integrated into the product design, regulatory, clinical, and marketing strategies. Failure to do so puts overall commercialization success at risk.
For small companies, a reimbursement assessment is an absolutely essential component of the business plan. No venture capital company will invest in a technology whose prospects for payment have not been identified.
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.