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January 25, 2021

CMS Implements Significant Changes in Medicare's Coverage Processes



On January 14, 2021, the Centers for Medicare & Medicaid Services (CMS) published a final rule1 that accomplishes two things: (1) speeding Medicare coverage of certain innovative devices and (2) codifying in regulations a definition of a "reasonable and necessary" item or service under the statutory provision governing most Medicare coverage.2 Both provisions represent significant changes to long-standing coverage processes and pathways. Indeed, the definition of "reasonable and necessary" now appears in regulations for the first time in the history of the Medicare program. This provision, which is not limited to devices, largely echoes prior sub-regulatory guidance, but significant details remain open to further development.

The effective date of the rule is March 15, 2021. At the time of this writing, it is unclear whether the Biden Administration will delay the effective date for some period of time as part of a general effort to review regulations published but not yet effective. The new Administration could modify the rule or even withdraw it. This final rule follows a proposed rule, published on September 1, 20203 and summarized in our previous Advisory.

New Pathway to Coverage—Medicare Coverage for Innovative Technology

Achieving Medicare coverage is a lengthy process for some new devices. The rule creates a new pathway to coverage, called Medicare Coverage of Innovative Technology (MCIT), which provides nationwide coverage for a limited period for technologies designated as "breakthrough" and granted marketing authorization by the US Food and Drug Administration (FDA). The MCIT pathway is intended to significantly shorten the coverage process for breakthrough devices by providing immediate, national coverage of devices that: have been designated by the FDA as breakthrough devices; are granted marketing authorization by FDA; and fall within a Medicare benefit category. A device's eligibility for this coverage pathway will last for up to four years, as explained below.

What products will be covered? Under this provision, breakthrough devices will automatically be considered "reasonable and necessary" under section1862(a)(1)(A) of the Social Security Act, which is the general rule for Medicare coverage for items and services for diagnosis or treatment of a disease. Devices that are preventive in nature are not included under this general rule. MCIT coverage will apply to a device's on-label indications only (including indications that might be added after the MCIT coverage period for that device starts). Off-label uses are not covered under MCIT.

CMS clarifies that devices eligible for the pathway include clinical laboratory diagnostic tests, including in-vitro diagnostics, and both implanted and non-implanted devices, as long as they meet the eligibility criteria. Devices that are subject of a Medicare National Coverage Determination (NCD) are excluded from MCIT. CMS notes that, given the nature of breakthrough devices, CMS does not expect that many devices that qualify for MCIT will be the subject of an existing NCD.

Under this pathway, coverage will also extend to any reasonable and necessary procedures to implant and/or use the device; reasonable and necessary items and services to maintain the device; related care and services for the device; and reasonable and necessary services to treat complications arising from use of the device.

The MCIT pathway will be voluntary (that is, manufacturers must affirmatively opt-in); the request for MCIT coverage requires only an email to CMS. Manufacturers will have up to two years following marketing authorization to make this request.

Initiation of coverage. A manufacturer can request that coverage be initiated either at the time of marketing authorization or at a later time, but in any case the eligibility period would end four years after marketing authorization. That is, if a manufacturer requested that MCIT coverage start after the date of marketing authorization, the device would not be eligible for a full four years of coverage under the MCIT pathway.

Lookback. To be eligible for MCIT coverage, a breakthrough device would be required to have received FDA market authorization no earlier than two years prior to the effective date of the MCIT rule. Coverage would begin at the later of the date of FDA market authorization or the effective date of the rule and would expire four years after FDA market authorization. In other words, some breakthrough devices approved by the FDA before the effective date of the rule are eligible for coverage, but coverage available through this pathway for those devices is less than four years.

Exit from the pathway. At the end of a device's MCIT eligibility, coverage of the breakthrough device will be subject to one of Medicare's standard coverage pathways: (1) an NCD providing affirmative coverage (which may include limits based on facility or patient); (2) an NCD resulting in non-coverage; or (3) deferral to Medicare Administrative Contractor (MAC) discretion, operating through by claim-by-claim adjudication or Local Coverage Determinations (LCDs). Which pathway is most appropriate will depend, at least in part, on the clinical evidence base available at the time the MCIT period ends. CMS has set the four-year window to accommodate completion of post-market studies. However, CMS will not obligate manufacturers of breakthrough devices to conduct clinical studies under the MCIT pathway. The MCIT pathway differs from CMS' pathway for Coverage with Evidence Development (CED) in this respect. The CED pathway requires a clinical study that answers specific questions identified by CMS.

CMS encourages early manufacturer engagement, both before and after FDA market authorization, for manufacturers to receive feedback from CMS on potential clinical study designs and clinical endpoints that may produce the evidence needed for a definitive coverage determination after MCIT. CMS also advises manufacturers to consider applying for an NCD well ahead of the four-year expiry date to avoid possible lapses in coverage.

What's not here. CMS did not include a number of provisions that the agency had considered or were urged to consider by commentors to the proposed rule. These include:

  • The MCIT pathway does not extend to devices under an Investigational Device Exception or humanitarian use devices unless they otherwise qualify.
  • Drugs, drug-led combination products, or preventive services that do not otherwise qualify for coverage under the Medicare statute are not included, nor are other CMS-recognized innovative but non-breakthrough technologies, for instance non-breakthrough devices that are eligible for New Technology Add-on Payments or Transitional Pass-Through Payments.
  • Follow-along products (similar to a breakthrough product but not themselves designated as breakthroughs) are not included, though refinements of the initially included device would be included if market authorized through a supplement to the device's initial FDA submission before the end of the four-year MCIT period.

CMS acknowledges the importance of enhanced coordination of coding and payment for MCIT devices but provides no substantive information about of how this will be accomplished.

Changes to "Reasonable and Necessary" Determinations

The Medicare statute generally prohibits coverage of items and services that "are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member."4 In making NCDs, CMS determines whether an item or service is reasonable and necessary, including for what indications, and for what patient populations, and under what circumstances. Medicare Administrative Contractors (MACs) do the same for LCDs, applicable in the individual MAC jurisdictions.

In this rule, CMS codifies in regulations a definition of "reasonable and necessary" that is based on guidance CMS has previously provided to the MACs for them to apply in developing LCDs.5 Specifically, CMS defines "reasonable and necessary" at 42 CFR § 405.201(b) to mean that the item or service is considered:

(i) Safe and effective;

(ii) . . . [N]ot experimental or investigational;


(iii) Appropriate for Medicare patients, including the duration and frequency that is

considered appropriate for the item or service, in terms of whether it meets all of the following criteria:

(A) Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient's condition or to improve the function of a malformed body member;

(B) Furnished in a setting appropriate to the patient's medical needs and condition;

(C) Ordered and furnished by qualified personnel;

(D) Meets, but does not exceed, the patient's medical need; and

(E) Is at least as beneficial as an existing and available medically appropriate alternative; or

(F) Not later than March 15, 2022, CMS will issue draft subregulatory guidance on the methodology of which commercial insurers are relevant based on the measurement of majority of covered lives. For national and local coverage determinations, which have insufficient evidence to meet paragraphs [(iii)(A) through (E)] of this section, CMS will consider coverage to the extent the items or services are covered by a majority of commercial insurers. As part of CMS' consideration, CMS will include in the national or local coverage determination its reasoning for its decision if coverage is different than the majority of commercial insurers.6

The language in factors (i) through (iii)(E) mirrors the current instructions to the MACs, and this language will now be explicitly incorporated into the NCD process. The addition of factor (iii)(F) would provide a new and alternative opportunity for coverage to be expanded or, possibly, contracted based on coverage by commercial insurers, a factor that has not been applied to either NCDs or LCDs in the past. CMS emphasizes that factors (i) and (ii) would apply in all cases.

CMS backed away from a proposal to allow commercial policies to be the sole determinant of whether coverage is appropriate for an item or service. The language under (iii)(F) above provides for CMS consideration of coverage affecting a majority of covered commercial insurer lives. CMS commits itself to issue, by March 15, 2022, a draft for public comment of a sub-regulatory guidance that will describe a methodology by which commercial insurers' policies will be determined to be relevant to the question of appropriateness of coverage, based on the measurement of the majority of covered lives. It appears that CMS does not intend to evaluate commercial insurer policies until it has issued such guidance.7 The agency notes that it will review commercial insurers only in the event a device does not meet the appropriateness criterion (apparently meaning factors (iii)(A) - (E) quoted above).

CMS clarifies that the new reasonable and necessary definition applies to all items and services that Medicare covers under Parts A and B, including drugs, devices, and biologics. CMS notes that those devices that qualify for the MCIT coverage pathway will automatically meet Medicare's "reasonable and necessary" standard. CMS reiterates its general policy that Medicare Advantage plans must offer coverage of these items and services on terms at least as permissive as those under Parts A and B.

CMS, citing statutory limitations, declines to adopt suggestions of commentors to extend the definition of reasonable and necessary to include prevention and screening items and services. CMS further does not further extend coverage for experimental or investigational items or services, citing existing provisions that cover certain investigational items. CMS states it does not intend to revise its current LDCs and NCDs as a consequence of adopting the new rule.


CMS presents illustrative estimates of the costs of the reasonable and necessary provision ranging from $51 million to $880 million a year.

CMS concludes that it cannot develop a point estimate of the impact of the MCIT, in part because how new technologies would otherwise come to market and be paid is unknown.8 Instead, CMS presents three hypothetical scenarios that differ in assumed increases in Medicare costs (based on payments and utilization observed under the New Technology Add-on Payment provision under the Inpatient Prospective Payment System). For each scenario, CMS assumes that the MCIT pathway would draw two candidates in the first year, three in the second, four in the fourth and five in the fifth. By FY 2024, the range of cost estimates is from $0 to just over $2 billion for a single year.9

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Please contact the authors or your Arnold & Porter attorney if you would like to discuss the possible effects of this rule. 

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. "Medicare Program: Medicare Coverage of Innovative Technology (MCIT) and Definition of 'Reasonable and Necessary,'" 86 Fed. Reg. 2987 (January 14, 2021).

  2. Section 1861(a)(1)(A) of the Social Security Act.

  3. 85 Fed Reg 54327.

  4. Social Security Act (SSA) 1862(a)(1)(A).

  5. Medicare Program Integrity Manual (100-08), Chapter 13, section 13.5.4.

  6. 86 FR 3009.

  7. "To ensure we have full stakeholder engagement before we evaluate all commercial insurance policies, we will issue sub-regulatory guidance for the public to comment {sic}." Emphasis added. 86 FR 2996.

  8. Id.

  9. 86 FR 3007-3008.