Will Medicare’s Proposed Coverage Standard Align With FDA?

The Centers for Medicare & Medicaid Services’ new proposed regulation to establish a definition for Medicare’s “reasonable and necessary” standard could result in expedited coverage decisions for medical items and services that are already covered by commercial insurers.

Despite this, a number of questions remain, including how the “safe and effective” standard that would be newly-enshrined in Medicare regulations fits with the same standard used by the Food and Drug Administration for products it regulates.

CMS’s ‘Reasonable and Necessary’ Standard

Since the program began in 1965, Medicare has covered items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

The agency has broad authority in deciding whether a particular item or service is “reasonable and necessary,” and there are several ways an item or service can obtain Medicare coverage, including national coverage determinations issued by CMS and local coverage determinations (LCDs) issued by Medicare Administrative Contractors (MACs).

While no regulatory definition for “reasonable and necessary” exists, CMS’s Program Integrity Manual (PIM) offers some guidance. The PIM, which instructs MACs on whether an LCD may be appropriate, provides that an item or service may be “reasonable and necessary” if it is—

• Safe and effective;
• Not experimental or investigational (unless covered under CMS’s Clinical Trial Policy); and
• “Appropriate,” which requires that the item or service be:
  • Furnished in accordance with accepted standards of medical practice;
  • Furnished in an appropriate setting;
  • Ordered and furnished by qualified personnel;
  • One that meets, but does not exceed, the patient’s medical needs; and
  • At least as beneficial as an existing and available medically appropriate alternative.

The Proposed Rule

CMS’s proposal would keep this framework in place, with a few changes. Most notably, an item or service could be deemed “appropriate” if it is covered in the commercial insurance market, unless evidence supports that there are clinically relevant differences between Medicare beneficiaries and commercially insured individuals.

While these changes may help expedite certain Medicare coverage determinations, CMS’s decision to otherwise codify the existing PIM guidance misses a significant opportunity for the agency to clarify certain aspects of that guidance.

Open Issues Remain

The proposal attempts to clarify the “reasonable and necessary” standard, but leaves open a number of questions.

One significant concern is that CMS’s proposed requirement that an item or service be “safe and effective” may be read as equivalent to the FDA’s standard. The FDA considers whether a drug or device is “safe and effective” when deciding if it can be legally sold. This is a separate inquiry from whether an item or service is considered “safe and effective” by CMS or a MAC, and may be covered by Medicare. The agencies’ respective review processes are likewise distinct.

As a result, Medicare covers many, but not all, FDA-approved drugs and devices, and CMS often adds conditions for coverage that extend beyond FDA approval.

Further, Medicare may cover items that fall outside of the FDA’s review requirements (such as laboratory-developed tests), for indications that the FDA has not approved (like off-label uses of approved drugs or devices), or that have otherwise not been approved or cleared by the FDA (including under an Emergency Use Authorization or expanded access).

It’s unclear how these products would be treated under CMS’s proposed “safe and effective” requirement, much less what “safe and effective” may mean in the context of services that are not subject to FDA’s jurisdiction at all.

Potential Interpretations

While the PIM provides little insight into the “safe and effective” standard, the Health Care Financing Administration (HCFA, the previous name for CMS) previously indicated that the term has a distinct meaning when used in the Medicare context.

In 1989, HCFA proposed that a service would be considered “safe and effective” if it is “generally accepted in the medical community as safe and effective in the setting and for the condition for which it is used” or “proven to be safe and effective based on authoritative evidence.” The agency later withdrew this proposal.

In 2000, HCFA announced its intent to issue a new proposal under which an NCD or LCD could cover an item or service that demonstrates “a medical benefit” and “added value to the Medicare population,” thereby shifting away from a “safe and effective” requirement. However, CMS ultimately did not pursue this rulemaking.

More Guidance Likely Forthcoming

Without CMS’s express proposal to incorporate the FDA’s standard, and given the agency’s stated intention of broadening—rather than limiting—its existing coverage standards, it seems unlikely that the agency would require FDA approval as a threshold for obtaining Medicare coverage.

However, given the potential confusion, this issue is expected to generate comments requesting clarification. Additional guidance is critical considering the potential impact on coverage.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Clint D. Hermes is counsel with Bass, Berry & Sims PLC in Knoxville, Tenn. He advises research institutions and life sciences companies regarding biomedical research regulation, funding, and contracting. From 2007-2019, he was chief legal officer at two academic medical centers, where he had operational responsibility for technology transfer, compliance, enterprise risk management, clinical trial regulatory affairs, and institutional review board offices.

Dawn Perez-Slavinski is an associate with Bass, Berry & Sims PLC in Washington, D.C. She advises health-care clients on complex coverage and reimbursement issues. In her previous position, she was an attorney-adviser in the CMS division of the HHS Office of the General Counsel.