"Since the inception of the inpatient prospective payment system (IPPS), it has been a challenge to maintain a payment and classification system that accounts for new technologies. 1 Under the IPPS, Medicare pays hospitals a fixed, prospectively determined amount for each inpatient hospitalization based on Medicare severity diagnosis-related groups (MS-DRGs). Each MS-DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that MS-DRG. These fixed, prospective payments encourage hospitals to operate efficiently but also put hospitals at risk for higher costs associated with changes in technology, since new technologies are typically introduced without adjustments to the payment levels. 2 (Conversely, hospitals are in a beneficial position when changes in technology result in lower costs.) Breakthrough medical technologies whose benefits are realized over a period of months or years can be a particular concern because adoption of the innovation might be in the public interest, but the full incremental cost might be incurred during the hospitalization when payment levels do not adequately reflect costs. 3 Without appropriate payment to the hospital at the point of use, technologies that provide value to patients and the health care system over time might not be available to patients. 4
Although the CMS annually revises the MS-DRGs using data from inpatient claims submitted for inpatient services rendered to Medicare beneficiaries, the MS-DRG classifications and weights are generally based on data from claims for inpatient services provided two fiscal years before the fiscal year in which they will be used. This can create a two-to-three-year delay between the market introduction of a new technology and the recalibration of MS-DRG weights to reflect its added cost. During this period, hospitals that adopt the new technology may experience financial losses.
Medicare’s New Technology Add-On Payment Program
In 2000, Congress took steps to ensure that Medicare beneficiaries would have timely access to new, breakthrough technologies that, absent any additional payments, would be inadequately paid for under the existing DRG amount. Section 533 of the Medicare, Medicaid, and State Children’s Health Insurance Program (SCHIP) Benefits Improvement and Protection Act (BIPA) of 2000 mandated an additional payment that “recognize[s] the costs of new medical services and technologies under the [inpatient] payment system.” The intent of the additional payments was to bridge the recalibration delay by providing a temporary payment mechanism for the use of new technologies in addition to the DRG payment amount the hospital would otherwise receive. The new technology add-on payments (NTAPs) were to be provided until the CMS had inpatient claims data for MS-DRG rate setting that reflected the added costs of the new technology.
In 2001, the CMS used its discretionary authority provided under the statute to issue regulations specifying a process and criteria for granting NTAPs. The program definitions established by the CMS provide that only new technologies meeting specific cost thresholds and demonstrating substantial clinical improvement over existing services would qualify for an NTAP. The CMS also established specific limits to the additional payments made under the NTAP program to ensure that Medicare and hospitals would share in the financial risk of providing costly new technologies.
Additional modifications to the underlying statute enacted in the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 required the CMS to update the criteria in 2004. As the NTAP program has evolved, Congress has provided pressure to expand access to new technology, while the CMS has used its authority granted in the statute to establish regulatory criteria requiring that new technologies meet certain criteria to qualify for NTAPs.
Today, for a technology to be eligible for an NTAP, it must meet the following three conditions: the technology must be new, which the CMS generally defines as within two to three years following Food and Drug Administration (FDA) approval or market introduction, if later; the existing MS-DRG payment for the service involving the technology must be inadequate as demonstrated by meeting thresholds calculated annually by the CMS; and the technology must be a substantial clinical improvement over existing services. 5
To determine if the new technology meets the latter requirement, the CMS uses the following set of criteria published in regulation: (1) The technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments. (2) The technology offers the ability to diagnose a medical condition in a patient population where that condition is currently undetectable or diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient. (3) Use of the technology significantly improves clinical outcomes for a patient population as compared to currently available treatments. Some examples of outcomes that are frequently evaluated in studies of medical devices are reduced mortality rate with use of the device; reduced rate of device-related complications; decreased rate of subsequent diagnostic or therapeutic interventions (for example, because of a reduced rate of recurrence of the disease process); decreased number of future hospitalizations or physician visits; more rapid resolution of the disease or treatment process because of use of the device; decreased pain, bleeding, or other quantifiable symptoms; and reduced recovery time. Also, because the NTAP program is for operating costs, the new technology must not be a capital-related expense. 6
Determination of NTAP amount
For technologies that meet the eligibility criteria and receive CMS approval, the determination of the NTAP amount is based on the cost to hospitals for the new technology. The NTAP amount is calculated distinctly for each eligible discharge that includes the technology, and NTAPs are made only when the estimated cost of the case exceeds the payment that would otherwise be made to the hospital (excluding outlier payments but including higher payments resulting from medical education, serving a high proportion of low-income patients, and adjustments for area wage differences).
The NTAP amount is equal to the lesser of 50 percent of the amount by which the total covered costs of the case exceed the MS-DRG payment, or 50 percent of the costs of the new technology. 7 The NTAP formula established by the CMS requires Medicare and hospitals to share in the financial risk of providing costly new technologies. The NTAP limit—which is linked to the price of the technology as reported by manufacturers to the CMS—is established by the CMS when it publishes findings on new technology applications in the IPPS annual final rule."