Medtronic's InFuse bone graft/ LT-Cage lumbar tapered fusion device will be the first product to receive a new technology "add-on" payment under the inpatient prospective payment system (IPPS), provided FDA grants the device PMA approval before publication of the FY 2003 final rule.

"If FDA approves the product for general use prior to our issuance of the final rule by August 1, 2002, we will [then] issue a determination...whether [or not] this technology represents a substantial clinical improvement," the Centers for Medicare & Medicaid Services' IPPS proposed rule, published May 9, states. Comments are due July 8.

Sec. 533 of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) mandates additional payments for new technology items under the IPPS. New technology items must meet one or more of three criteria to qualify: the technology must offer a treatment option for a patient population for which currently available treatments are inappropriate; allow for a diagnosis of a condition that is currently undetectable or offer an earlier diagnosis than current technology; or significantly improve clinical outcomes compared with currently available treatment (¹ Also see ""Substantial Improvement" Standard, 50% Cap Remain In Inpatient PPS Rule" - Medtech Insight, 10 September, 2001., p. 5).

In addition, a new technology must result in average charges above the DRG mean charges plus one standard deviation of charges based on a logarithmic distribution. The extra funds are 50% of the amount by which the cost of the case exceeds the DRG payment.

Cost data submitted by Medtronic estimate the average standardized charge for single-level fusion cases is $33,757. However, roughly 47% of cases are expected to be multi-level fusion, which would cost hospitals $17,780 per level. Accordingly, the weighted standardized charge (53% single-level and 47% multi-level) is calculated to be $45,556. Based on the payment rates for DRG 497 and DRG 498, the threshold to qualify for payments is $37,815, making it likely the InFuse will be eligible for the add-on payment.

On Jan. 10, FDA's Orthopedic & Rehabilitation Devices Panel voted unanimously to recommend the InFuse for PMA approval (² Also see "Medtronic Seals FDA Panel Endorsement With InFuse Bone Growth Product" - Medtech Insight, 14 January, 2002., p. 4). The firm is anticipating FDA approval this summer.

Medtronic was one of four applicants for the IPPS new technology add-on payments for FY 2003. The other device manufacturer - Advanced Neuromodulation Systems - was denied add-on payment for its Renew spinal cord stimulation therapy for chronic pain because CMS did not consider the device to be "new."

The ANS denial, along with the fact that only four add-on payment applications were evaluated by the agency and none approved, illustrates the device industry's stance that the criteria to qualify for add-on payments are too stringent. AdvaMed claims it can identify at least six or seven companies manufacturing substantially improved technology items, none of which applied for add-on payment for their products because they could not meet the agency's cost criteria.

The strict requirements have distorted the original intent of BIPA, AdvaMed maintains. "The rule shows that, 18 months after Congress mandated it, CMS has still not put in place an effective mechanism to recognize the costs of medical technology advances in a timely manner," a May 9 release states.

While AdvaMed would like to see CMS lift some of the requirements for add-on payments, the association is hopeful that a bill currently being considered by Congress will enact some key changes to the system.

The Medicare Innovation Responsiveness Act of 2001 (HR 2973), introduced last October by Reps. Jim Ramstad (R-Minn.) and Karen Thurman (D-Fla.), would lower the cost threshold for new technology add-on payments and increase payment amounts to be higher than 50% (³ [A#01270410010], p. 13). The measure would also more rapidly place new technologies into existing DRGs and provide separate payment when no DRG is available.

While the legislation is unlikely to move as a stand-alone bill, certain provisions could be included in an omnibus Medicare "give-back" package, which could pass later this summer, AdvaMed Executive VP-Federal Government Relations Stephen Ubl predicted at the Deutsche Banc Alex. Brown healthcare conference May 8 in Baltimore.

Overall, the FY 2003 inpatient PPS proposed rule marks a 2.75% increase for hospital inpatient payments, reflecting the projected "market basket" estimate of 3.3%, up from 2.8% in FY 2002.

Medtronic InFuse New Technology Add-On Payment Hinges On FDA Approval

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