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

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HCPCS Code(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.

Individual Liability for Medicare Overpayment Claims

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Medicare overpayments(February 24, 2015): Medicare recently finalized regulations allowing enrollment as a Medicare provider to be denied if any owner or control person of the enrolling provider is affiliated with another provider which owes money to Medicare. These regulations are based on sections of the 2010 Affordable Care Act (ACA). They provide CMS an indirect means to penalize individual owners for unpaid debts owed to Medicare by their provider companies, but are more narrowly written than the ACA requires, and are likely only a 1st step in implementing the screening required by the ACA. Additionally, owners of health care companies with Medicare overpayments also need to consider whether there is individual liability exposure for the company’s Medicare debt.

I.  Background on the Medicare overpayments Individual Liability Issue:

This article is an update of an earlier article on this website addressing individual liability for Medicare overpayment claims, originally published in April 2012. That article examined the liability that individual owners of provider companies can have for Medicare overpayment claims against their providers, and advised that although CMS and Medicare contractors have limited means to collect providers’ overpayment balances from their owners, they may in the future punish the owners indirectly by sanctioning other provider companies they own. Portions of the Workplan published by HHS’s Office of Inspector General in 2011 clearly pointed in that direction.

II.  Recent Development — Issuance of a New Final Rule:

The Secretary of Health, Education and Welfare published a Final Rule[2] amending Medicare Regulations at 42 CFR 405, 424 and 498 effective Feb 3, 2015. The Final Rule conformed closely to the Proposed Rule published April 29, 2013, despite substantial public comment. While this Final Rule included regulation changes on a number of Medicare topics, of interest here is the provision allowing CMS and its contractors to deny enrollment in Medicare programs to a provider if any owner previously owned another provider having unpaid debts owed to Medicare.

III.  Specific Provisions:

Medicare Regulations at 42 CFR 424.530(a)(6) have now been amended to allow CMS to deny a provider or supplier’s enrollment in the Medicare program if

(a)  The enrolling provider or supplier, or any of its owners was previously the owner, directly or indirectly, of another Medicare enrolled provider or supplier;

(b)   The other provider or supplier’s Medicare enrollment has been terminated or revoked;

(c)   The owner left the provider or supplier with the Medicare debt within 1 year before or after that provider or supplier’s enrollment termination or revocation;

(d)    The Medicare debt has not been fully repaid; and

(e)   CMS determines that the uncollected debt poses an undue risk of fraud, waste, or abuse. In making this determination, CMS considers the following factors:

(1) the amount of the Medicare debt;

(2) the length and timeframe that the enrolling provider or supplier or its owner was an owner of the prior entity;

(3) the percentage of the enrolling provider, supplier, or owner’s ownership of the prior entity;

(4) whether the Medicare debt is currently being appealed; and

(5) whether the enrolling provider, supplier, or owner thereof was an owner of the prior entity at the time the Medicare debt was incurred.

A denial of Medicare enrollment under this paragraph can be avoided if the enrolling provider, supplier or owner agrees to a CMS-approved extended repayment schedule for the unpaid debt, or repays it in full.

IV.  Narrowed Scope of New Regulation:

As discussed below, the statutory language authorizing the new regulation targets all owners of providers who are debtors to Medicare. The resulting regulation, however, contains a provision which limits it effect only to certain owners. This is the requirement that the authority to deny enrollment exits only if the owner left the provider or supplier with the Medicare debt within 1 year before or after that provider or supplier’s enrollment termination or revocation. In this context, the verb left means ceased to be an owner. So, if the owner in question divested himself of his ownership more than a year before the Medicare enforcement process terminates the overpaid provider’s enrollment, or keeps his ownership at least a year after termination of enrollment, both of which are plausible circumstances in an overpayment situation, the authority to deny enrollment will not apply. This requirement was not remarked on by the numerous commenters during the proposal period, or otherwise discussed in any CMS releases; and it is unobvious why it was included.

V.  Subjective Element in Regulation:

The 5th element required to authorize denial of enrollment, namely CMS determines that the uncollected debt poses an undue risk of fraud, waste, or abuse is clearly subjective. CMS’s comments in the Final Rule release explain that this is meant to allow enrollment to proceed if the debt or the ownership in the debtor provider are small, or if similar exonerating circumstances exist. These factors are listed in the regulation as subjects of CMS’s subjective consideration without being hard requirements, to allow CMS discretion in the matter. More notably, however, this text tracks the actual authorizing language of the Federal statute quoted below, which phrased the authority as a subjective determination.

VI.  Statutory Authority; Disclosure and Screening Requirements in Statute:

The authority to deny enrollment because of an affiliated provider’s debt to Medicare is part of Section 6401[3] of the Affordable Care Act[4], which requires Medicare providers and suppliers to disclose any current or previous affiliation (directly or indirectly) with those who owe money to Medicare. Specifically, it provides

(A) DISCLOSURE.—A provider of medical or other items or services or supplier who submits an application for enrollment or revalidation of enrollment …shall disclose (in a form and manner and at such time as determined by the Secretary) any current or previous affiliation (directly or indirectly) with a provider … or supplier that has uncollected debt, has been or is subject to a payment suspension under a Federal health care program, has been excluded from participation under [Medicare], the Medicaid program … , or the CHIP program under title XXI, or has had its billing privileges denied or revoked. [emphasis supplied]

Section 6401 authorizes denial of enrollment based on these disclosures with the following language:

(B) AUTHORITY TO DENY ENROLLMENT.—If the Secretary determines that such previous affiliation poses an undue risk of fraud, waste, or abuse, the Secretary may deny such application. Such a denial shall be subject to appeal in accordance with paragraph (7).

In addition to requiring disclosure of affiliated providers with debts to Medicare, Section 6401 also requires Medicare to conduct certain screening of providers and suppliers. The statute does not state what providers and suppliers must be screened for, but merely gives examples. It requires that

Such screening—

(i) shall include a licensure check, which may include such checks across States; and

(ii) may, as the Secretary determines appropriate based on the risk of fraud, waste, and abuse described in the preceding sentence, include—

(a) a criminal background check;

(b) fingerprinting;

(c) unscheduled and unannounced site visits, including pre-enrollment site visits;

(d) database checks (including such checks across States); and

(e) such other screening as the Secretary determines appropriate[5].

Other parts of Section 6401(a)(3) make clear that the screening is to apply to enrolling providers, previously enrolled providers, and during any periodic revalidation of enrollment.

VII.  Affiliated Debt Disclosure via Form 855:

The CMS Final Order release mentions that CMS Form 855 is the form affected by this regulation. This is the multi-use form required to be filed by providers for initial enrollment, to report changes of certain organization information including ownership, to request CMS approval of any change of ownership, to re-validate enrollment or terminate it. Form 855 is the obvious place to require the disclosure mandated by ACA Sec. 6401. As of this writing (February 20, 2015) Form 855 contains no questions about debts owned by other providers and suppliers under common ownership with the signer of the form. Very probably such a question will be added, but even without it CMS could probably rely on its own ability to “connect the dots” between information already called for in this form, and data it has on providers and suppliers which owe it money, to learn of any debts owed by affiliates.

In this regard, the existing language of Form 855 requires that all direct and indirect owners of each provider and supplier be identified by name and Taxpayer Identification Number, or (as applicable) Social Security Number. If the owners are enrolled in Medicare themselves, their NPI and enrollment numbers are required. With this information in CMS’s hands from the enrolling provider or supplier, it must be a simple matter to conduct database searches comparing it with the identifiers of providers and suppliers owing money to Medicare, to determine if any of the enroller’s affiliates are among these debtors. If a connection is established this way, the enrollment denial rules in the regulation could then be applied to deny the enrollment.

VIII.  Practical Application of New Regulation:

As of this writing, there is no public report of any application of the new provisions of 42 CFR §424 to an actual provider enrollment situation, so no one knows how strictly it will be enforced once a debt to Medicare owed by an affiliate of an enrolling provider is identified. Particularly, it is not known how the factors in the subjective 5th element of the new provision will be interpreted, for example, what dollar amounts of affiliate debt, or what ownership percentages in the debtor, will be judged too small to “pose an undue risk of fraud, waste and abuse.” It will also be instructive to learn if such judgments will be made by enrollment contractors or an organ of CMS.

IX.  Future Enforcement Against Owners of Debtors to Medicare:

What is clear is that this new regulation and authority is not the final step in CMS efforts to sanction owners and affiliates of medicare overpayment debtors. Considering the portions of ACA Section 6401 requiring screening of existing as well as enrolling Medicare providers and suppliers, it is likely that future regulations will authorize revocation of enrollment of existing providers and suppliers under common ownership with such debtors. The database searches mentioned above could be conducted on the owner identification information CMS already maintains on its current enrollees, comparing it to the identifiers of providers and suppliers owing Medicare money, to terminate their enrollment when a connection is found, and thus extend Medicare’s efforts to punish owners of debtors to its program. We note that the current-year Work Plan published by CMS’s Office of Inspector General provides, under a section captioned “Provider Eligibility”:

We will determine the extent to which and they way in which CMS and its contractors have implemented enhanced screening procedures for Medicare providers pursuant to the ACA, § 6401[6].

This new regulation, and the clear announcements by CMS officials, suggest that efforts by the agency and its contractors to reach beyond its debtor companies, and sanction their owners and affiliates, will continue.

David Parker Healthcare AttorneyDavid Parker practices in the business transaction and healthcare areas. In the health law area, Mr. Parker represents providers in Medicare, Medicaid, and private payor administrative proceedings involving Medicare Overpayment, revocation and other audit matters, and buyers and sellers in healthcare related transactions. He also gives advice on False Claims Act, Stark, and Anti-Kickback Statute issues.  For a free consultation, call:  1 (800) 475-1906.

[1]. David Parker is a founder and managing member of Liles Parker PLLC, a health care law firm in Washington D.C. Mr. Parker was formerly a partner at Dickstein Shapiro in Washington, DC, and before that the in-house general counsel of Allied Capital, a publicly-traded group of companies in Washington.

[2]. The Final Rule was published Dec 5, 2014 in Vol. 79, No. 234 of the Federal Register at page 72500.

[3]. Now codified at 42 USC §1395cc(j).

[4]. Public Law 111-148 enacted March 23, 2010. It may be noted that the provision of law under discussion was enacted 2 years before this writer’s article predicting it, but like much of that statute, was completely unknown to the writer or the public at the time.

[5]. ACA §6401(a)(3).

[6]. HHS OIG Work Plan, FY 2015, Medicare Program section, pg. 22.

Supreme Court Rules That the ACA is Constitutional

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(June 28, 2012): In a landmark case for the healthcare industry, the Supreme Court ruled today that the “individual mandate” provisions of the Affordable Care Act (ACA), colloquially known as “Obamacare,”  were indeed constitutional. As such, ACA was largely upheld by the Court. This decision further expands Congress’ legislative powers and maintains some of the significant changes to healthcare under ACA, such as rules requiring insurers to cover young adults until they are 26, a penalty tax for those who don’t buy insurance, and restrictions against discrimination of patients with pre-existing conditions.  More information to come once the opinion is released in its entirety.

I.  Supreme Court Affordable Care Act Decision Update:

In a surprising twist, the majority opinion from the Supreme Court did not uphold ACA on the grounds that Congress could use its power to regulate commerce between the states to require everyone to buy health insurance. Many experts and pundits believed that the case would revolve almost exclusively on Congress’ legislative power under the Commerce Clause, which allows Congress to regulate interstate (and now most intrastate) trade. Instead, five Justices, in an opinion written by Chief Justice John Roberts, agreed that the penalty that someone must pay if he or she refuses to buy insurance is a form of a tax that Congress can impose under its taxing powers.

II.  Limitations Worth Noting in the Supreme Court’s Decision:

Nevertheless, there were some limitations within the Court’s opinion. In particular, ACA also included a provision that required the States to comply with various new eligibility requirements for Medicaid or risk losing their federal funding. On this issue, the Court held that the provision would be constitutional so long as States only lost new funding if they did not comply with the new requirements, rather than losing all of their funding. The bigger questions, though, especially concerning the authority of Congress, were answered by the Court in favor of an expansion of powers.

This decision does not just signify that Congress may wield increasing authority to tax, but also recognizes the fact that the healthcare industry is in the midst of a crisis, and that any strategies which may decrease healthcare costs should be encouraged. Had the law been overturned, Accountable Care Organizations (ACOs), the government’s newest HMO-like program, would cease to exist, and the Health Insurance Exchanges currently being set up to provide larger public pools (thereby reducing insurance risk) would be closed. As a result of this decision, the likely billions of dollars that have gone into revamping many healthcare programs will not be wasted.

Liles Parker is a full service health law and business transactions firm, representing clients throughout the country. Attorneys at Liles Parker assist clients in a variety of matters, including buying, selling, and financing businesses, conducting internal reviews and compliance audits, representing providers in Medicare and Medicaid administrative appeals, and counseling providers on healthcare fraud and abuse concerns. For a complimentary consultation, call us today at: 1 (800) 475-1906.

ACA Reporting and Repayment Mandates are a Real Minefield for Medicare Providers.

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ACA Reporting and Repayment(July 9, 2010): Does the failure to promptly return a Medicare overpayment really warrant liability under the False Claims Act (FCA)?  Congress thinks so.  The Patient Protection and Affordable Care Act (also known as the “Affordable Care Act” or “ACA”) creates an obligation under the FCA whereby a Medicare provider who fails to timely report and refund and overpayment may be subject to substantial penalties and damages. Section 6402 of the ACA requires Medicare providers, including physicians and partial hospitalization providers, among others, to a) return and report any overpayment, and b) explain, in writing, the reason for the overpayment. This law creates a minefield for physicians and other Medicare providers.  First, providers have only 60 days to comply with the reporting and refund requirement from the date on which the overpayment was identified or, if applicable, the date any corresponding cost report is due, whichever is later.  Of course, the ACA does not actually explain what it means to “identify” an overpayment.  Nonetheless, the ACA reporting and repayment requirement an “obligation” under the FCA.  Pursuant to the Fraud Enforcement and Recovery Act of 2009 (FERA) amendments to the FCA, an individual or entity may be liable if he or it “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”  Thus, providers who fail to meet their 60 day “obligation” may be subject to monetary penalties of up to $11,000 per claim, and treble damages.

Health Care AttorneySeveral Liles Parker attorneys have worked former Federal and / or State prosecutors.  Our attorneys have extensive experience working on False Claims Act cases.  Should you have any questions, hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at: 1 (800) 475-1906.