Getting Paid for New Drugs, Medical Devices and Procedures

For the past 38 years, I've helped medical specialists, surgeons, healthcare facilities, pharma and device manufacturers and investors navigate the challenges of getting paid for new drugs, medical devices and innovative new treatment approaches and procedures.

As a former OR nurse, back in the day, I listened to pitches by medical sales specialists who would bring in explanations of benefits (the attachment to remittances by insurers) that showed fantabulous amounts of money for a new medical device or technology. I assisted in surgery as a scrub nurse and watched as applications specialists stood next to the surgeon coaching us how to assemble, prepare and use the new device or consumable.

Nobody on the chargemaster team knew the application specialist was in the building, or why, or how to bill for the item. They didn't train the admin folks on that. The contract held by the facility contained no mention of the item and there was no formal obligation to pay for the surgeon to use it. Many of these cases were pre-certified and pre-authorized but few paid heed to the disclaimer that says that "pre-certified and pre-authorized does not guarantee payment."

In some cases, the balance was transferred to the patient's financial ledger. In other cases, the balance outstanding on the item was written off the books as non-covered. Some contracts stated that non-covered services had to be rendered with the patients' informed consents. They required a specific Advanced Beneficiary Notice (ABN) explaining "why" the service or item was expected to be non-covered and how much they were responsible for in the event that the item or entire claim was denied.

But in the case of these new devices and procedures, those ABNs were rarely obtained. The contract stated that without the ABN, the insured patient or financially responsible party would be held harmless and not billed for the amount in question and sometimes for the entire procedure. Other contracts mentioned no meeting of the minds on these situations and required nothing in particular with regard to billing the patient for non-covered items.

As these medical device and application specialists were in the hospital without following any procedure or protocol about getting paid for their wares, what did it matter what the contract said? That was someone else's problem, right? Deal with it when the time comes, right? Figure it out later. At the moment where the app specialist or detail rep was in the building, the objective was get the product in the hand of the surgeon to try it out, see how it works, be delighted, and cause them to order more for future cases.

The hospital or ASC then called me to figure out how to get the device added to the contract and appeal the denied line item or the claim in its entirety. This still continues today. It is difficult to win after the fact.

Established drug or item, new application

Another situation arises when a previously released drug or biological is released after clinical trials for one condition is then found to work on other conditions. Example: Viagra.

In 1989, sildenafil citrate was discovered for use to treat erectile dysfunction. Originally, it was tested as a treatment for hypertension. On March 27, 1998, Pfizer received FDA approval to sell the new drug as Viagra, the first oral treatment for erectile dysfunction. But back then, if a doctor prescribed it as a treatment for erectile dysfunction, the insurer would not pay for the medication. Did you notice the time gap 1989 to 1998 just to get FDA approval? In 1998, pharmacies dispensed more than 40,000 prescriptions for the little blue pills that insurance didn't pay for. But just because the FDA approves something for a specific indication doesn't mean that insurers will cover it for that indication.

Insurers decide what and when they cover drugs, devices and procedures. They have an exception, "EIU" which stands for "investigational", "experimental" or "unproven" that they can apply to any item they like. Only in an appeal might their decision be overturned.

In some cases, I've had to appeal the denial through external review to the insurance commissioner as a denial in "bad faith". In cases where the insured is covered through an ERISA or Taft Hartley Trust (self-funded employer or union sponsored health benefit program) if the plan administrator would not overturn the denial, an appeal could be made to the Internal Revenue Service, not the insurance commissioner.

But there are contracts I've reviewed around the nation where the payer states that the provider may not submit the denied claim for external review to the state, and many doctors overlook this because they really only want to read the pages with the fee schedule, and not all the other mumbo jumbo in the contract language. The language is the part that makes the fee schedule come to life or convert it to an illusory promise of riches and break evens.

Let me count the ways

How insurers, and third-party benefit administrators deny the claim is by sending "reason codes" as an explanation for the non-payment on the remittance advice. You can see how many of these could be applied when you peruse the list. There are well over 300 reason codes from which to choose. Again, the services may have been pre-authorized or pre-certified but the disclaimer stating that payment was not guaranteed by that was the loophole.

Reliance on Pre-auth and Pre-certs --- not so fast!

I've been successful and negotiating terms that "provider may rely on pre-authorization or pre-certification" into some provider contracts. That's a term I try for when leverage is to the advantage of the provider. It is rare. But what that does is button down the issue if Promissory estoppel is the legal principle that a promise is enforceable by law when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment. The argument being that the doctor would have tried a different approach had s/he not been granted "pre-authorization" or "pre-certification", but instead was led to rely on said pre-auth or pre-cert assuming payment would be tendered upon submission of the claim.

Dealing with Disclaimers

The rationale for this is that regardless of what was said on the phone or in an email or online transaction to secure said pre-auth or pre-cert, the message was not applicable because of how I negotiated the "Entire Agreement" terms and conditions on the contract. I used the parol evidence rule is a rule that governs what kinds of evidence parties to a contract dispute can introduce to identify the specific terms of a contract. The rule prevents parties who have reduced their agreement to a final written document from later introducing other evidence, such as the content of oral discussions or declarations like "this does not guarantee payment", after I've negotiated earlier in the negotiation process, that the provider may rely on telephone or electronic pre-authorization or pre-certification as evidence of a different intent as to the terms of the contract.

Dispute Resolution Proceedings

Another place in the contract that I address this is to require in writing, in the contract that the plan must produce the policy against the use of a drug, device or treatment that was in effect on the date that the pre-auth or pre-cert was given, within ten working days of the date of the request for said documentation.

Since most contracts with managed care plans include dispute resolution by arbitration and or mediation, I know as a mediator (certification is currently inactive) that in arbitration, there is no way to compel discovery as there is in litigation. So this requirement serves as my quasi Subpoena Duces Tecum (or subpoena for production of evidence, a court summons ordering the recipient to appear before the court and produce documents or other tangible evidence for use at a hearing or trial) in advance. This also works when they send the matter for review as an independent medical evaluation or "IME" for a peer review, and then won't disclose the credentials, training, and experience and other qualifications of the reviewer. I put the requirement to disclose the name and detailed qualifications of the reviewer in the contract under this same section.

You see, if you proceed to arbitration and you don't have that policy or the lack thereof, it's damn near impossible to get it when you do need it because the plan can simply decline to send it. I build in the compulsion to produce or explain that there was no such policy in effect on the date of the pre-auth or pre-cert before I may ever need it. If there was no exclusion in effect at the time, there is no basis to defend the denial. The insurers is in the business of risk for indemnification (to make the insured whole up to policy limits) for covered services, but not for exclusions. If there isn't an exclusion in place, the item or service should be covered. They can't move the goalpost. Well, they can if you can't prove your case in arbitration.

Reliance Upon Market Rumors and Examples

So while Dr Jones has had the foresight or counsel and assistance to negotiate the terms in his or her contract and gets paid for the new drug, device or procedure, Dr Smith, who didn't get these terms in his or her contract that I've mentioned above (the reliance on the pre-auth and/or pre-cert (estoppel), the disregard for the disclaimer made after the negotiation (parol evidence). and the requirement to produce the requested policy in effect at the time of the pre auth and/or pre cert (compulsion to supply the documentation/evidence)). One gets paid and the detail rep gets a copy of the EOB or remittance summary showing the payment and the other gets nothing but the denial and has no real basis or defense for appeal.

Negotiating for new drugs, devices, technology and procedures or new applications of existing items approved for other uses

The above three tactics should be used in conjunction with proper due diligence before deciding to use the items or attempt procedures not clearly specified in the contract.

12 Steps for Due Diligence Prior to Implementation or Procurement

What due diligence should be attempted? Here are some questions to ask:

Before deciding to use the item:

1. Who will eventually pay for the product, e.g., will it be patients, physicians, hospitals, Medicare, private insurance, workers compensation, etc.?
2. What are the current coverage policies of Medicare, private insurance, etc., for the procedures related to the product?
3. If covered, is reimbursement adequate to justify widespread use of the product? If not, how can reimbursement be increased?
4. Will all of the indications for the product be covered?
5. Can the product pass utilization review?
6. Are there existing CPT and ICD-10-CM codes that describe the procedure? If not, how can they be established?
7. Does the product have the potential to reduce health care spending?
8. What federal health care policy changes can be anticipated throughout the product development process and how will they impact eventual product release?
9. How will outcomes evaluation and development of practice guidelines impact use of new products? 
10. Is there an evidence-based guideline in ECRI concerning this drug, supply, device, treatment approach or procedure? If so, what does it say?
11. What does the supplier have on file in terms of published, peer-reviewed evidence or scientific information that they can provide for your negotiation with the payers?
12. If the doctor or facility does not adopt the new approach or item, and their competitor does, will there be a brand disadvantage associated with the decision? If so, what is the economic or brand impact in the community? Will significant market share be lost? Will the non-adopter be deemed "behind the times" by the adopter who mobilizes a public relations campaign to promote their innovative ilk?

I usually ask the above questions when I arrive on scene as a consultant to see what was done prior to implementation. After 38 years, not much has changed. The due diligence wasn't done or was inadequate. The contracts were signed without negotiating the finesse of the three points listed above or the provider didn't attempt or hadn't the necessary leverage to prevail in the negotiation. Chances are low that I will be able to win their appeal. As a result, I give them the option to chase or quit. Most quit.

Capitation Arrangements

Another situation arises when a device, supply or procedure is added without a contract addendum in a capitated arrangement. Years ago, a group of physicians in California where sub-capitated through their IPA for "all services". Five of the seven in the group went to their specialty conference and were convinced to purchase a new imaging technology for $29,000. The procedure took 4 hours of on-body donning of a wiring array, and a capsule that the patient swallowed which contained a camera. The camera recorded images in the form of a video as it traversed the intestinal tract. The capsule cost was $450 per capsule, purchased in boxes of ten capsule camera pills for $4500. The doctors were shown a remittance summary from Blue Cross of California for a Santa Barbara physician that paid $1600 per study.

The doctors used the time on the flight home to make lists of patients who might benefit from the technology and upon arrival to the office, had eighty candidate patients among the five doctors. Two more doctors back at the office made their lists as well. They added their sixteen for a total of 96 patients.

96 patients could be scanned, two per day, with one wiring harness and an hour in between scans. Four patients per day could be scanned with two harnesses. In a month, with 20 scans per week, all 96 could be scanned in 5 weeks' time. One of the doctors was trained in how to read the videos which took 4 hours of viewing, so the rate limiting factor was a single doctor had the responsibility to read all 96 scans for a total of 384 hours of viewing where he wasn't seeing patients in the office or performing EGDs and colonoscopies at the ASC. They billed the IPA for "all services" with all the insurers and also billed Medicare for some of the scans. In all, The machine cost $29,000. The second wiring harness array cost a little money but enhanced throughput in patient volume. Based on the target reimbursement of $1700 and a capsule cost of $450 per study, they had visions of generating $163,200 in billed charges of which $30,000 was the cost of the machine and the extra wiring harness recorder, and $43,200 was capsule cost, leaving 90,000 minus contractual write offs to cover 384 hours of physician review time. The physician salary back then was about $125 per hour, leaving about $75 per study for margins. Wow, all that work and tied up capital for $7200.

So imagine their shock when all the bills that went to the IPA were returned with zero pay and the reason code "capitated service". I knew their contracts with the IPA. I told them before the machine ever arrived that this was going to be the likely outcome. They told me I was crazy to assume they would not be paid. My argument was that the contract said "all services".

In order to get any payment, the IPA would have to agree to renegotiate its contracts with the payers to include projected utilization of the technology into their master agreements and to agree to appeal the denial of additional payments to cover the tests that had been done. As a reference based price, Medicare was only allowing about $700 for the technology, the capsule and the interpretation (4 hours of physician review time), so ultimately, the payers who agreed used that number; not the number shown to the doctors from the Santa Barbara physician. And not all payers agreed to pay anything. They were not required to do so. It took months to settle the matter, all without anything to show for the expenses, capital outlay and physician labor and overheads.

Having also worked on the payer side, I can tell you that rate filings, actuarial analysis, utilization and underwriting all develop premium rates and submit them as far as two years in advance for vetting by insurance commissioners and underwriters and reinsurance carriers. So even if the FDA approves a drug, device or procedure and the AMA assigns a procedure or item code, it could easily take more than two years to develop a policy for or against payment.

If the payer advances cash on a claim for 96 of those services that it had no way to project, the cost of the services at fee-for-service rates whether at $1700 or at $750 represents a huge risk for excess claims cost. Capitated contractual arrangements allow them to permit the use of the technology as frequently as the provider would like without any financial impact to the claims budget.

You must know how your contracts read in terms of reimbursement for new services that were not originally contemplated under the capitation payment. If your contracts are held by the IPA, PHO, MSO, or ACO and you don't have "standing" to renegotiate directly with the payer (frequently referred to as "Privity of contract") and you are essentially a third-party beneficiary under the contract between the IPA, PHO, MSO or ACO, and the master agreement with the IPA, PHO, MSO or ACO says "This Agreement is not intended to and shall not be construed to give any Third Party any interest or rights (including, without limitation, any Third Party beneficiary rights) with respect to or in connection with any agreement or provision contained herein or contemplated hereby, except as otherwise expressly provided for in this Agreement." then you don't have the standing to call or write to the health plan or employer or union to ask for a new deal or to negotiate payment for the new drug, technology, consumable, or procedure.

You will be at the mercy of the entity that is the party to the Master Agreement. There can be many political or other strategic reasons why they might decline to take on your appeal or attempt to renegotiate. If you have given up your private practice and are now an employee of a larger concern, say a hospital or health system, you don't have the option to contact payers as you may have had when you were independent in private practice with your own direct contracts with the payers.

Conclusion - Next Steps

1. Establish a policy, procedure, protocol and tactics and strategies to procure and implement new drugs, technologies, devices, and treatments and procedures. Take the above recommendations to heart and work out a pathway to procure and implement the new "stuff" and a financial risk assessment for what happens if you deviate from the pathway and let the applications specialist or manufacturer's reps into the OR with their new gadgets and gizmos.
2. Ask the manufacturers to help ease the way to payment for their new stuff and tell you what's been done on that front before getting involved.
3. Answer the 12 questions I shared above for the advance due diligence exercises.
4. Know your contracts and how they might affect reimbursement under bundled case rates, capitation, sub capitation, shared risk, and evidence-based reimbursement formulas.
5. Know if your contracts restrict your ability to transfer financial responsibility to the patient with or without the ABN.
6. Know if your state law on "no surprises" may restrict your ability to bill the patient for a non-covered EIU denied claim.
7. Establish a policy and procedure for Advance Beneficiary Notices in case you can't get paid and still want to use the new items or treatments.
8. Establish a pathway to provide ample time for implementation with the chargemaster compliance team to get up to speed and train the billers, and revenue management team, the denied claims appeals team, and the contract negotiators.
9. Assemble your data and arguments and evidence basis so that the contract negotiator can ask for an amendment to the existing contracts and knows how to negotiate new contracts and has the fluency of these drugs, gadgets, gizmos and treatment approaches, what to say and how to argue the matter.
10. Teach the cash posting team how to handle denial reason codes so they can appeal claims that may have been denied in error.

How to learn more and where to find training on this

If you'd like to learn more about this topic, I cover it in my Master Classes on managed care contracting offered throughout the year in St George, Utah and sometimes in other locations around the country when I have time. I also conduct the same Master Classes and workshops on focused topics such as this for hospital and physician associations, AMDA events, Pharma events, HFMA and MGMA state and regional chapters, and other program sponsors.

I can also come to your hospital or health system and conduct this training for all the stakeholders in a two-day course. In a three-day course, we can accomplish the training for all the departments and staff and write the procedure or protocol to be implemented going forward and have a consensus session at the end to iron out any gaps or clarifications. But you must call me, because I don't cold call anyone to sell training or consulting services. I've never had to and I don't have the time or the inclination to spend my time and effort doing that.