Coverage and Payment of New Products – CPT / HCPCS Code Issues


(January 12, 2016): With the advent of the Affordable Care Act and the changes in the payment incentives that are being developed by payors, including the Medicare and Medicaid programs, many emerging companies are developing new products and devices for the market. While companies will take these products through the regulatory process of obtaining FDA approval, such as 510(k) approval, companies will frequently fail to take into consideration the need to determine whether and how third-party payors will cover the device or product at a sufficiently early stage in the process. If Medicare is involved, this requires determining whether the product is medically necessary and fits into one of the benefit categories, and then, if it does, how it will be reimbursed. A key element of determining if a product is medically necessary and whether it fits into a benefit category is ascertaining which, if any, of several types of codes is applicable to the product.

Additionally, many private insurers will “piggyback” onto Medicare in some manner with respect to these decisions. Finally, while coverage and payment determinations may differ, state Medicaid programs are also likely to consider Medicare decisions in this process. Both private insurers and state Medicaid programs will make these decisions based in large part on what codes apply to the device or product.

Many of these products or devices will go through clinical trials that are extremely costly, especially with respect to FDA approval. In designing these trials, it is also incumbent to consider whether they will be sufficient for coverage and payment decisions as well.

For example, where the manufacturer will be seeking Medicare coverage and payment for a device, it is important to take this fact into account when designing the composition and size of the subjects for the trial, e.g. whether there are a sufficient number of individuals who would be covered by Medicare in the trial. Otherwise, the manufacturer may discover that, after spending considerable funds on a study that is sufficient for the FDA, it cannot satisfy the Medicare program that the device meets Medicare coverage specifications without conducting a whole new trial. While there may have been reasons to do a two stage trial, consideration of these factors up front may avoid the necessity of doing so and save a substantial amount of time and money.

This article presents a brief discussion of the process that is involved in obtaining codes for new devices. There are two different types of codes that may be applicable – a HCPCS code which usually applies to a physical product or device and a CPT code which generally applies to a procedure. As part of a larger procedure, the CPT code may address use of a device or product.

I. Analyzing HCPCS Code Issues:

In order to obtain reimbursement from any insurer or governmental program, a Healthcare Common Procedure Coding System (“HCPCS”) Level II code must be assigned to the device.[1] Determining the proper HCPCS code is critical, as that code will determine whether (a) the device is reimbursable at all and (b) what the amount of reimbursement will be.

The first decision that must be made is whether an existing HCPCS code is applicable or if the device requires a completely new HCPCS code. If the manufacturer believes that an existing code is appropriate and wishes to obtain verification of that belief, application must be made to the Pricing, Data Analysis and Coding (“PDAC”) contractor. Although obtaining a HCPCS code is voluntary for most devices, there are multiple benefits to doing so, not the least of which is avoiding retroactive denial of payments made by governmental and private healthcare programs resulting from billing under an incorrect HCPCS code and recoupment of the same following a post-payment review. Furthermore, many payers will not even consider reimbursement for a device absent a coding verification determination from the PDAC. Determination of the correct and appropriate HCPCS code initially is also important because once a HCPCS code is assigned, it is quite difficult to change the assigned code. In addition, as noted above, the assigned code will determine reimbursement.

Upon submission of an initial application, the PDAC reviews information supplied by the manufacturer, including marketing literature, usage instructions, labeling, FDA approval, any applicable Local Coverage Decisions (“LCDs”) and other relevant data. A manufacturer may suggest a HCPCS code, but the PDAC may determine that a different code is more appropriate. Once FDA approval has been received and a coding application has been submitted,[2] PDAC personnel may meet with a manufacturer, especially if the parties believe that a product demonstration is appropriate. Coding verification applications are accepted throughout the year.[3] Once the PDAC has all of the appropriate information, a decision letter can be expected 90 days after.

A recommended step prior to submitting a coding application is making informal calls to the PDAC to attempt to determine any threshold concerns or comments that the PDAC may have about a device and the coding proposed by the manufacturer and obtaining guidance as to specifically the types of documentation that should be submitted to the PDAC.

If the device is novel or contains breakthrough technology, then application must be made to Centers for Medicare and Medicaid Services (“CMS”) for a new code. The information to be submitted for a new HCPCS code is similar to that for a coding verification. However, in this situation, a manufacturer should be careful to submit data that demonstrate how its device fails to fit into an existing HCPCS code. If the HCPCS code sought is under the durable medical equipment (“DME”) benefit, the manufacturer must submit 3 months of sales data to the PDAC and must demonstrate that its device represents 3% of the market “for that type of device.”[4] The deadline for submitting an application for a new HCPCS code is the first week of January. The CMS HCPCS Workgroup accepts new code applications throughout the year, but will not issue decisions on a rolling basis. The Workgroup issues preliminary coding decisions in April or May. CMS will subsequently hold a public meeting, during which the manufacturer may make a brief presentation if it did not receive a code that it thought was appropriate. Final codes are issued in November and become effective the following January.

II. Investigate Proper CPT for Physician Use of Devices:

CPT codes are issued and maintained by the American Medical Association (“AMA”). Existing Category I CPT codes identify procedures or services that are generally accepted medical procedures performed by many physicians throughout the country. Category III CPT codes are temporary codes for new and emerging technologies. They are often used for data collection purposes to document widespread usage and thus justification for a Category I code.

Selection of an appropriate CPT code is the responsibility of the physician, but physicians often look to manufacturers for guidance, particularly if the CPT code relates to use of a particular equipment, machine or device (e.g., laboratory tests and equipment). If AMA members have questions about the most appropriate CPT code to use, they can submit questions online. Otherwise, physicians rely upon coders (usually certified) to review the medical documentation and select the most appropriate existing code. The results of selecting the incorrect CPT code can range from a recoupment request from a payer all the way to accusations of fraud, especially if the incorrect code is not supported by underlying documentation or has been used incorrectly for an extended period of time.

If there is not an appropriate CPT code, an application may be submitted to the AMA for development of a new CPT code. Applications are accepted on a rolling basis, with deadlines approximately three months before the next CPT Editorial Panel meeting, which occurs three times per year. New CPT codes are issued in the fall of each year and become effective the following January. An application for a new CPT code will often need the involvement and support of the relevant medical specialty society. In addition, if a new code is sought, the AMA will require significant supporting data, including clinical trial results, peer-reviewed articles, and FDA approval of the device or drug to be utilized in providing the services for which the new code is sought.

If the device and treatment involve telehealth, for example the development of an app that is used by the physician with the device, an open question at this point is whether one of the telehealth CPT codes may be appropriate for use for the physician services provided in connection with the device. Also in this regard, in October 2015 the AMA established a Telehealth Workgroup, with the specific objective of evaluating and recommending changes to, and almost certainly expansion of, the CPT codes for medical services involving telehealth technologies. The work product of this Workgroup will likely result in new codes. that may be more appropriate for the device and app than existing codes, so it behooves companies in the area to monitor developments from this process.

Finally, depending upon the issue, it may be appropriate to approach the Centers for Medicare and Medicaid Innovation (“CMMI”) along with a hospital or university system partner.

III. Coverage / Reimbursement:

The above steps regarding HCPCS and CPT codes are only part of the process. If existing HCPCS and CPT codes are verified as appropriate, addressing actual coverage and reimbursement is likely to be an easier process, as there are often coverage and payment policies already in place for established codes and products. However, if a new HCPCS or CPT code is obtained, then the company will have to address the need for a (new) coverage and reimbursement policy or policies by potential payers. Simply because one obtains a new code does not necessarily mean that a payment policy is also developed and implemented.

Accordingly, if new codes are obtained, the manufacturer will likely need to approach the various payors such as the Medicare program, state Medicaid programs, or private insurers.

In order to justify coverage, the manufacturer must be prepared to submit various types of documentation, which may vary by payer. As noted, above, this may well involve clinical trial data demonstrating effectiveness, professional articles (preferably peer-reviewed) evidencing improvements in the patients’ conditions, and a cost-benefit analysis. In addition, the payors, particularly the private ones, may wish to see product demonstrations. Although the process may vary depending upon the population to be served by the product or device, if Medicare is to be involved, we generally will recommend early stage meetings with appropriate representatives of the Centers for Medicare and Medicaid Services (“CMS”) in order to try to ascertain whether the product fits into a covered benefit category, the types of studies that CMS will be seeking to make their determination, and other questions, to minimize the likelihood of having to go back and reinvent the wheel after having spent considerable sums of money only to prove the wrong facts for CMS’ purposes. In short, the process dictates the old adage that “an ounce of prevention is worth a pound of cure.”

Michael Cook and Heidi Kocher of our staff have considerable experience in assisting companies with new products in this process. They can be reached by contacting our office at 202-298-8750 or at and
  • [1] HCPCS Level I codes are Current Procedural Terminology (“CPT”) codes, which are used to classify procedures and services performed by physicians and other medical personnel. CPT codes are discussed below in more detail.
  • [2] Information submitted in the 510(k) application and the subsequent FDA approval may limit a manufacturer’s flexibility regarding HCPCS code assignment.
  • [3] For DME products covered by Medicare, during the interim period, manufacturers may well code the product as miscellaneous and seek payment from the contractor. The contractor will then review the claims on a case-by-case basis, which puts the manufacturer at risk during this interim period where the price and coverage are being determined.
  • [4] Precisely how to define “that type of device” is not clear.