[Federal Register Volume 60, Number 181 (Tuesday, September 19, 1995)]
[Rules and Regulations]
[Pages 48417-48425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23132]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 405 and 411

[BPD-841-FC]
RIN 0938-AH21


Medicare Program; Criteria and Procedures for Extending Coverage 
to Certain Devices and Related Services

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule with comment period.

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SUMMARY: This final rule establishes in regulations that certain 
devices with an investigational device exemption (IDE) approved by the 
Food and Drug Administration (FDA) and certain services related to 
those devices may be covered under Medicare. Specifically, it sets 
forth the process by which the FDA will assist HCFA in identifying non-
experimental investigational devices that are potentially covered under 
Medicare. 

[[Page 48418]]

    This rule responds to the mandate that Federal agencies streamline 
their regulatory processes to make them less burdensome and more 
customer-focused. It is intended to provide Medicare beneficiaries with 
greater access to advances in medical technology and encourage clinical 
researchers to conduct high quality studies of newer technologies.

DATES: Effective Date: This rule is effective November 1, 1995.
    Comment Date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
November 20, 1995.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address:

Health Care Financing Administration, Department of Health and Human 
Services, Attention: BPD-841-FC, P.O. Box 26688, Baltimore, MD 21207-
0519.

    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-841-FC. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8. As an alternative, you can view and 
photocopy the Federal Register document at most libraries designated as 
Federal Depository Libraries and at many other public and academic 
libraries throughout the country that receive the Federal Register.

FOR FURTHER INFORMATION CONTACT: Sharon Hippler, (410) 786-4633.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Basis

    The Social Security Act (the Act) provides Medicare coverage for 
broad categories of benefits through the hospital insurance program, 
known as Part A, and the supplementary medical insurance program, known 
as Part B.
    The Act does not, however, provide an all-inclusive list of covered 
items, services, treatments, procedures, or technologies. Except for 
certain items of durable medical equipment identified in section 
1861(n) of the Act, some of the medical and other health services 
listed in section 1861(s) of the Act, and exclusions from coverage 
listed in section 1862 of the Act, the statute does not specify devices 
that are covered or excluded from coverage.
    The Congress understood that questions about the coverage of 
specific services would invariably arise and would require a specific 
decision of coverage by the Secretary. Thus, it vested in the Secretary 
the authority to make those decisions. Among the provisions relevant to 
the determination of coverage is section 1862(a)(1)(A) of the Act, 
which states ``Notwithstanding any other provision of this title, no 
payment may be made under Part A or Part B for any expenses incurred 
for items or services which * * * are not reasonable and necessary for 
the diagnosis or treatment of illness or injury or to improve the 
functioning of a malformed body member.'' This is a key provision since 
the words ``notwithstanding any other provision of this title * * *'' 
make this an overriding exclusion that may be applicable in a given 
situation despite the existence of provisions that would otherwise 
permit coverage. Thus, while the Congress provided for the coverage of 
certain services, with limited exceptions specified by HCFA, coverage 
for those services is prohibited unless they are ``reasonable'' and 
``necessary.''

B. Implementation of the Law

    Historically, HCFA has interpreted the statutory terms 
``reasonable'' and ``necessary'' to mean that a device must be safe and 
effective, medically necessary, and not experimental. For most Medicare 
coverage purposes, the term experimental has been used synonymously 
with the term investigational. Therefore, a device categorized by the 
FDA as being investigational served as an indication that it was not 
``reasonable'' and ``necessary'' within the meaning of the Medicare 
program. As a general rule, these devices currently are not covered.
    There is increasing recognition, however, that there are devices 
that are refinements of existing technologies or replications of 
existing technologies by other manufacturers. The FDA places many of 
these devices within the investigational device exemption (IDE) 
category as a means of gathering the scientific information necessary 
to establish the safety and effectiveness of the particular device, 
even though there is scientific evidence that similar devices can be 
safe and effective. Arguably, these devices could be viewed as 
``reasonable'' and ``necessary'' under Medicare and recognized for 
payment if it were possible to identify them in the FDA's process.

C. January 1989 Proposed Rule on Coverage Decision Process

    On January 30, 1989, we published a proposed rule (54 FR 4302) that 
proposed to establish in regulations generally applicable criteria for 
determining whether a service is ``reasonable'' and ``necessary'' under 
the Medicare program, and the coverage decisionmaking process. In 
response to that rule, we received comments pertaining to the coverage 
of experimental procedures and services related to those procedures. In 
this rule, we are choosing to respond to comments on investigational 
devices and services related to those devices and to announce our final 
policy. We have not completed our deliberations on the other issues 
addressed in the January 1989 proposed rule. This rule does not respond 
to comments other than those pertaining to devices.
    Comment: Twenty-two commenters suggested that we revise our 
proposed policy so that we do not automatically exclude from Medicare 
coverage all devices that the FDA considers investigational. Several of 
these commenters recommended that we allow coverage of investigational 
devices when they are used in FDA-approved clinical trials.
    Response: We agree that there are some investigational devices that 
should be considered for coverage if they are used in accordance with 
an FDA-approved protocol. The devices that will be considered for 
possible coverage are those investigational devices for which the FDA 
has determined that the device type can be safe and effective. For 
example, we will consider for possible coverage those investigational 
devices 

[[Page 48419]]
that are of the same type as a device for which a manufacturer has 
received FDA clearance or approval for marketing. We have entered into 
an interagency agreement with the FDA to identify those investigational 
devices that are of a device type for which the underlying questions of 
safety and effectiveness have been resolved. These devices may be 
covered if all other applicable Medicare coverage requirements are met.
    Comment: One commenter recommended that we not change our previous 
policy that excluded coverage of investigational devices.
    Response: We do not agree. We believe that there are certain 
investigational devices that should be covered if all other applicable 
coverage requirements are met. However, the investigational devices 
that we will consider for coverage will not include any device for 
which the FDA is unsure whether the device type in general can be safe 
and effective.
    Comment: A number of commenters requested that we clarify the 
coverage rules concerning the furnishing of services related to 
experimental procedures (for example, a hospital stay).
    Response: As stated earlier, we are limiting the focus of this rule 
to Medicare coverage of certain investigational devices and services 
related to those devices. Also, in the preamble to this rule and in new 
Sec. 405.207, we explain our coverage policy concerning services 
related to a noncovered device.

II. Provisions of This Final Rule

    While the policies contained in this final rule will be effective 
November 1, 1995, we are providing a 60-day comment period for the 
receipt of public comments. We believe it is appropriate to provide an 
opportunity for comment on these policies because we are broadening the 
proposals concerning certain devices contained in the January 1989 
proposed rule. Consequently, beneficiaries, providers, and suppliers 
that may have chosen not to comment because they may have believed they 
were not affected by the 1989 proposals may wish to comment on these 
broadened final policies. If our consideration of the comments we 
receive leads us to a change in these policies, we will publish another 
document.

A. HCFA Coverage Decision Process

    The Administration has set forth a mandate that all Federal 
agencies must streamline their regulatory processes to make them less 
burdensome and more customer-focused. Agencies have been directed to 
review their policies and processes to determine which requirements can 
be reduced or eliminated without lowering health and safety standards. 
In accordance with this directive, the FDA reviewed its regulatory 
processes for devices and HCFA reviewed its Medicare coverage policies. 
This rule results in an improved process for covering certain 
investigational devices that is expected to benefit Medicare 
beneficiaries.
    This new policy will lead to broader coverage of certain 
investigational devices and certain services related to those devices. 
A long-term benefit is to facilitate the collection of information 
about these devices through approved clinical trials, which will enable 
the marketing of these devices. Medicare beneficiaries will have 
earlier access to the latest advances in medical technology.
    To assist HCFA in its coverage decision process, the FDA will 
follow a categorization process that differentiates between the 
clinical assessment of novel, first-of-a-kind devices and newer 
generations of legally marketed devices. The policy changes in this 
rule reflect the categorization of investigational devices that are the 
subject of FDA-approved IDEs.
    The FDA uses the definition of a device that appears in 21 U.S.C. 
321(h). A device, for purposes of the FDA process, refers to an 
instrument, apparatus, implement, machine, contrivance, implant, in 
vitro reagent, or other similar or related article, including any 
component, part, or accessory, which is--
     Recognized in the official National Formulary, or the U.S. 
Pharmacopeia, or any supplement to them,
     Intended for use in the diagnosis of disease or other 
conditions, or in the cure, mitigation, treatment, or prevention of 
disease, in man or other animals,
     Intended for use in the diagnosis of conditions other than 
diseases such as pregnancy,
     Intended to affect the structure or any function of the 
body of man or other animals, or
     Considered an in vitro diagnostic product, including those 
previously regulated as drugs, and which does not achieve any of its 
principal intended purposes through chemical action within or on the 
body of man or other animals

and which is not dependent upon being metabolized for the achievement 
of any of its principal intended purposes.
    When a sponsor (usually a manufacturer) submits a marketing 
application for clearance or approval of a device to the FDA, the FDA 
evaluates the safety and effectiveness of the device. If sufficient 
information exists to determine its safety and effectiveness, the FDA 
may clear the device for marketing. In some instances, for certain 
devices, the FDA may require that clinical trials be conducted to 
obtain clinical information to determine the device's safety and 
effectiveness. Generally, in order for these devices to be shipped 
lawfully for purposes of conducting the clinical trial, the sponsor 
must obtain an approved investigational device exemption (IDE).
    Under the Food, Drug, and Cosmetic Act (21 U.S.C. 360c), devices 
fall into one of three classes:
    Class I--Devices for which the general controls of the Food, Drug, 
and Cosmetic Act, such as adherence to good manufacturing practice 
regulations, are sufficient to provide a reasonable assurance of safety 
and effectiveness.
    Class II--Devices that, in addition to general controls, require 
special controls, such as performance standards or postmarket 
surveillance, to provide a reasonable assurance of safety and 
effectiveness.
    Class III--Devices that cannot be classified into Class I or Class 
II because insufficient information exists to determine that either 
special or general controls would provide reasonable assurance of 
safety and effectiveness. Class III devices require premarket approval.
    Under the new categorization process to assist HCFA, the FDA 
assigns each device with an FDA-approved IDE to one of two categories: 
Experimental/Investigational (Category A) Devices, or Non-Experimental/
Investigational (Category B) Devices. Under this categorization 
process, an experimental/investigational device (Category A) is an 
innovative device in Class III for which ``absolute risk'' of the 
device type has not been established (that is, initial questions of 
safety and effectiveness have not been resolved and the FDA is unsure 
whether the device type can be safe and effective). A non-experimental/
investigational (Category B) device is a device believed to be in Class 
I or Class II, or a device believed to be in Class III for which the 
incremental risk is the primary risk in question (that is, underlying 
questions of safety and effectiveness of that device type have been 
resolved), or it is known that the device type can be safe and 
effective because, for example, other manufacturers have obtained FDA 
approval for that device type. The criteria the FDA will use to 
categorize 

[[Page 48420]]
an investigational device is described in the addendum to this rule.
    Currently there are about 1,200 FDA-approved clinical trials of 
devices. The FDA is categorizing those devices as ``experimental/
investigational (Category A)'' or ``non-experimental/investigational 
(Category B),'' a process that is expected to be completed by November 
1, 1995. The great majority of these devices in clinical trials are 
likely to be categorized as ``non-experimental/investigational 
(Category B)''.
    The FDA will notify HCFA, when it notifies the sponsor, either by 
electronic means or written communication, of its categorization 
decisions. Through these categorization decisions, the FDA will be 
advising HCFA as to the similarity of a device that has been approved 
for use in an FDA-approved clinical trial to a device that has been 
approved or cleared by the FDA for marketing.
    HCFA excludes from Medicare coverage a device with an IDE that is 
categorized by the FDA as experimental/investigational (Category A). 
HCFA will continue to view these experimental/investigational (Category 
A) devices as not satisfying the statutory requirement that Medicare 
pay for only devices determined to be reasonable and necessary. HCFA is 
not changing its policy on this issue because essential considerations 
of health and safety are involved.
    This rule does not affect HCFA's policy on services related to a 
noncovered device. That is, services related to the use of a noncovered 
device are not covered under Medicare. We are codifying in the 
regulations a provision explaining that services related to a 
noncovered device are not covered under Medicare. These services 
include all services furnished in preparation for the use of a 
noncovered device, services furnished contemporaneously with and 
necessary to the use of a noncovered device, and services furnished as 
necessary after-care that are incident to recovery from the use of the 
device or from receiving related noncovered services.
    Services furnished to address medical complications arising from 
the use of the device (and that are not incident to normal recovery) 
may be covered. Services not related to the use of a noncovered device, 
which meet all other coverage requirements, can be covered under 
Medicare.
    The following are some examples of services ``related to'' and 
``not related to'' noncovered devices furnished while the beneficiary 
is an inpatient:
     A beneficiary is hospitalized to receive a noncovered 
device and breaks a leg while in the hospital. Services related to care 
of the broken leg during this stay are ``not related to'' services and 
are covered under Medicare.
     A beneficiary is admitted to the hospital for a covered 
service and during the hospital stay received a noncovered 
investigational device. The services related to the admitting condition 
are covered because the reason for the admission was to receive covered 
services and not related to the diagnoses that led to the need for the 
noncovered device.
     A beneficiary is admitted to the hospital for covered 
services related to a condition that led to receiving a noncovered 
device during the same hospital stay. We would review all of the 
services and make a comparison of the date they are received to the 
date the beneficiary is identified as needing the noncovered device. If 
our review reveals that services were required because of receiving the 
noncovered device, the services ``related to'' the noncovered device 
will not be covered.
     After a beneficiary is discharged from a hospital stay 
during which he or she receives a noncovered investigational device, 
medical and hospital services to treat a condition or complication that 
arises as a result of the noncovered device or related noncovered 
services may be covered when they are reasonable and necessary in all 
other respects. Thus, coverage could be provided for subsequent 
inpatient hospital stays or outpatient treatment ordinarily covered by 
Medicare, even if the need for treatment arose because of a previous 
noncovered device or related noncovered services. Any subsequent 
services that could be expected to have been incorporated into a global 
fee, however, will not be covered.
    The related services policy will also apply to experimental/
investigational (Category A) and non-experimental/investigational 
(Category B) devices that are excluded from Medicare coverage. 
Therefore, Medicare policy will continue to preclude coverage of 
certain devices and services related to the use of those devices when 
they are furnished as part of a hospital stay.
    It is our intention that a beneficiary not pay for a noncovered 
device or services related to a noncovered device when a beneficiary 
did not know that the device or related services are not covered. 
Existing regulations concerning limitations on liability in 
Secs. 411.400 through 411.406 will apply to this broader coverage of 
certain investigational devices and services related to those devices. 
Medicare payment may be made for certain assigned claims for a service 
related to a noncovered device if the service was excluded from 
coverage in accordance with Sec. 411.15(k) as not medically necessary 
under section 1862(a)(1)(A) of the Act. A beneficiary who did not know 
and could not reasonably have been expected to know that payment would 
be denied under section 1862(a)(1)(A) of the Act receives protection 
from financial liability in accordance with Secs. 411.400 through 
411.406 under the limitation on liability provision of section 1879 of 
the Act. Similarly, when the beneficiary is protected and the provider 
or supplier also did not know and could not reasonably have been 
expected to know that payment would be denied, the provider or supplier 
also receives protection from financial liability in accordance with 
the limitation on liability provision. Consequently, Medicare payment 
may be made to the provider or supplier.
    For unassigned claims for related physician services excluded from 
coverage as not medically necessary under section 1862(a)(1)(A) of the 
Act, a beneficiary who did not know and could not reasonably have been 
expected to know that payment would be denied as not medically 
necessary may receive protection from financial liability in accordance 
with existing Sec. 411.408 under the refund requirement provision of 
section 1842(l) of the Act. If the beneficiary is found not to have 
known, and the provider or supplier also did not know and could not 
reasonably have been expected to know that payment would be denied, the 
provider or supplier will receive protection from financial liability 
under the refund requirement provision.
    Under changes made by this final rule, HCFA will consider coverage 
of a device with an FDA-approved IDE, categorized by the FDA as non-
experimental/investigational (Category B) for Medicare beneficiaries 
participating in FDA-approved clinical trials. As a general rule for 
all medical care, HCFA has authority to conduct a separate assessment 
of an items or service's appropriateness for Medicare coverage, 
including whether it is reasonable and necessary specifically for its 
intended use for Medicare beneficiaries. Medicare coverage of a non-
experimental/investigational (Category B) device will be subject to the 
same process and criteria used by Medicare contractors when making 
coverage decisions for legally marketed devices. Coverage of the device 
is dependent on it meeting all other Medicare coverage requirements 
contained in the statute, regulations, and instructions issued by HCFA. 


[[Page 48421]]

    The FDA-approved IDE study protocols restrict investigational 
device shipment to a limited number of investigational sites for 
testing on a specific number of patients. To the extent Medicare covers 
a non-experimental/investigational (Category B) device, coverage is 
limited to beneficiaries meeting the protocol requirements. For 
example, coverage of an investigational device may be limited to 
Medicare beneficiaries participating in trials conducted by certain 
health care practitioners in an approved clinical trial.
    Medicare coverage of a non-experimental/investigational (Category 
B) device is predicated, in part, upon the device continuing to meet 
criteria that led to this designation by the FDA. In the event a device 
fails to meet the criteria for Category B designation or its use 
violates relevant IDE requirements necessitating the withdrawal of the 
IDE approval, the FDA will immediately notify the sponsor and HCFA. 
HCFA will re-evaluate the device's continued eligibility for Medicare 
payment.
    Payment under Medicare for a non-experimental/investigational 
(Category B) device will be based on, and may not exceed, the amount 
that would have been paid for a currently used device serving the same 
medical purpose that has been approved or cleared for marketing by the 
FDA. In cases involving a hospital stay, the diagnosis related group 
(DRG) payment under the prospective payment system ordinarily will not 
be affected.

B. Re-evaluation of Categorization Decision

    We anticipate that instances will arise under which a device 
sponsor believes that a device, categorized by the FDA as experimental/
investigational (Category A), should be categorized as non-
experimental/investigational (Category B). In these instances, the 
sponsor may request that the FDA re-evaluate its categorization 
decision. Only after the FDA has completed its re-evaluation, and 
concluded that the device still is an experimental/investigational 
(Category A) device, may a sponsor request review by HCFA. A sponsor 
may request review by HCFA even if no Medicare claims are involved.
1. FDA Action
    Under this process, the sponsor may submit a written request for 
re-evaluation to the FDA (at the same address it submitted its original 
application), together with information and rationale that it believes 
support recategorization. Only the sponsor of a device may seek a re-
evaluation of the FDA IDE categorization decision.
    Time limits on seeking a re-evaluation will not be imposed. The FDA 
will review the request and inform the sponsor, and HCFA, of its 
decision. If the FDA does not agree to recategorize the device, the 
sponsor may seek further review by HCFA.
2. HCFA Action
    Upon written request to the HCFA Administrator from the sponsor of 
a device with an FDA-approved IDE, HCFA will review the categorization 
of the device. As part of this process, HCFA will review all 
information submitted by the sponsor and the FDA's recommendation. HCFA 
will review only information in the FDA record to determine whether to 
change the categorization. HCFA will not accept or review any 
information from the sponsor that was not previously reviewed by the 
FDA. While HCFA, during the re-evaluation process, will be the final 
decisionmaker concerning categorization of a device for Medicare 
coverage purposes, HCFA relies heavily on the FDA review of the 
scientific information related to the device and consequently the FDA 
recommendation. HCFA will issue a written decision and notify the 
sponsor and the FDA. No further reviews will be available to the 
sponsor.
3. Update of Categorization Decision
    If the circumstances that led to the initial categorization 
decision change (for example, a premarket approval application is 
approved for a device similar to one under investigation), the FDA will 
re-evaluate the categorization designation and notify the sponsor and 
HCFA of any change. Neither the FDA categorization and re-evaluation 
nor HCFA's review constitute an initial determination for purposes of 
the Medicare appeals processes under 42 CFR part 405, subparts G or H, 
or parts 417, 473, or 498.

C. Quarterly Announcement of Categorization Decisions

    HCFA publishes quarterly in the Federal Register a notice that 
lists HCFA manual instructions, substantive and interpretive 
regulations and other Federal Register notices, and statements of 
policy that relate to the Medicare and Medicaid programs. HCFA will 
announce in the quarterly notice all IDE categorizations, using IDE 
numbers the FDA assigns. The initial notice will include all FDA-
approved IDE numbers organized by the categories to which the device 
numbers are assigned (that is, Category A or Category B, and identified 
by the IDE number). Subsequent notices will include the additions and 
deletions to the initial list of all devices with an FDA-approved IDE.

D. Confidentiality of Investigational Device Exemption Information

    Data and information otherwise exempt from public disclosure may be 
revealed in judicial proceedings if the data or information are 
relevant. HCFA will take appropriate measures, or request that 
appropriate measures be taken, to reduce disclosure to the minimum 
necessary under the circumstances. Because HCFA relies on information 
submitted to the FDA under 21 U.S.C. 360j(g), HCFA will consult with 
the FDA to ensure that the confidentiality of the information is 
protected to the extent possible.

E. Contractor Coverage Decisions of Devices With an FDA-approved IDE

1. Current Contractor Functions
    Sections 1816 and 1842 of the Act provide for most claims 
processing and administrative functions for Medicare to be handled by 
public or private insurance organizations (commercial insurers or Blue 
Cross/Blue Shield Associations) acting as fiscal agents or contractors 
for the Medicare program.
    The contractors responsible for the administration of Part A 
benefits are called fiscal intermediaries. The major role of the 
intermediaries is to review and pay claims submitted by providers (such 
as hospitals, skilled nursing facilities, and home health agencies) for 
covered services furnished to Medicare beneficiaries. The intermediary 
makes payments for hospital inpatient services generally under the 
prospective payment system. It makes payments for hospital and other 
provider outpatient services by reviewing submitted cost reports and 
making reasonable cost determinations or payment determinations under a 
fee schedule following policies set by HCFA.
    Under Part B, the contractors are called carriers. Part B services 
are paid on a fee schedule, reasonable charge, or reasonable cost 
basis. One of the major functions of the carriers is to determine the 
appropriate amount of payment for each medical care service paid for 
under the program. Carriers also are responsible for reviewing and 
paying claims to or on behalf of beneficiaries for the services 
furnished.
    The functions performed by Medicare contractors include utilization 
review, beneficiary hearings and appeals, professional relations, and 
statistical activities, in addition to claims review and processing. 
Currently, there are 29 

[[Page 48422]]
carriers, 46 intermediaries, and some other entities under contract 
with HCFA that perform reviews and process claims for Medicare 
beneficiaries.
2. Current Criteria and Procedures for Contractor Coverage Decisions
    Contractors make Medicare coverage decisions within the parameters 
set by statutory authority and regulations and program instructions 
issued by HCFA. If HCFA has issued a national coverage decision, 
contractors are bound by that decision. If no national coverage 
decision has been issued, a contractor must decide whether the service 
in question is reasonable and necessary and therefore covered by 
Medicare.
    Medicare contractors may specifically consider, among other 
factors, whether the service is--
     Medically necessary in the particular case and whether the 
amount, duration, and frequency of use or application of the service 
are medically appropriate;
     Furnished in accordance with accepted standards of medical 
practice; and
     Furnished in a setting appropriate to the patient's 
medical needs and condition (such as inpatient care at a hospital or 
skilled nursing facility, outpatient care at a hospital or physician's 
office, or home care).
3. Changes to Contractor Process
    Under this rule, contractors will review the instructions HCFA 
issues to determine if a non-experimental/investigational (Category B) 
device is potentially covered under Medicare. After determining that a 
device is potentially covered, the contractor will apply HCFA's long-
standing criteria and procedures for making coverage decisions. When 
considering whether a non-experimental/investigational (Category B) 
device is furnished in accordance with accepted standards of medical 
practice, it will consider those standards that relate to an FDA-
approved clinical trial.
    In accordance with HCFA coverage policy, Medicare contractors are 
precluded from covering any device that is an experimental/
investigational (Category A) device.

F. Appeals Under Part A and Part B

    While the categorization decision is not itself an initial 
determination, if HCFA denies a Medicare claim on the basis that the 
device is an experimental/investigational (Category A) device, the 
initial determination denying the claim encompasses the categorization 
decision. A proper party to the denied Medicare claim has a right to 
appeal the experimental/investigational (Category A) categorization as 
an initial determination under 42 CFR part 405, subparts G or H.
    A decision that a device is experimental/investigational (Category 
A) means that the device is experimental and, therefore, excluded from 
coverage as not reasonable and necessary under section 1862(a)(1)(A) of 
the Act. HCFA's acceptance of the FDA categorization of an 
experimental/investigational (Category A) device constitutes a national 
coverage decision and is binding on HCFA's contractors. In accordance 
with section 1869(b)(3)(A) of the Act, national coverage decisions made 
by HCFA under section 1862(a)(1) of the Act may not be reviewed by 
administrative law judges.

III. Regulatory Impact Statement

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless we 
certify that a rule will not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, all 
device manufacturers and providers are considered to be small entities. 
Individuals and States are not included in the definition of a small 
entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    This regulation removes certain investigational devices from being 
presumed excluded by Medicare and places them in a category under which 
they may be covered. On a claim-by-claim basis, Medicare contractors 
verify or determine that devices are covered under the circumstances 
presented by the claim or bill. This regulation does not change that 
process, except the contractors must ascertain whether these devices 
were furnished to beneficiaries participating in, and in accordance 
with the requirements of, approved clinical trials. Once coverage is 
verified, payment is made at the level established for a similar device 
that has been approved as covered by Medicare.
    We anticipate that this regulation will lead to a beneficial but 
not a major expansion of coverage of devices. Each year the FDA 
receives approximately 200 IDE applications for review. The majority of 
these IDEs are approved for study. At the present time, there are 
approximately 1,200 clinical trials underway involving devices, which 
are being conducted under FDA-approved IDEs.
    We expect that this regulation will have a number of beneficial 
effects. It will provide Medicare beneficiaries with greater access to 
advances in medical technology. It will allow Medicare beneficiaries 
faced with a decision of choosing between a fully covered device and 
one undergoing clinical trials to choose the investigational device 
without losing Medicare coverage. Because Medicare payment is based on 
the payment for a fully covered device, that choice would not result in 
increased costs to Medicare for those devices.
    At the present time, device manufacturers and the providers that 
furnish services involving non-experimental/investigational devices 
(Category B) are not eligible for Medicare payments. We estimate that 
this regulation will result in negligible costs to the Medicare 
program. We expect affected entities would receive less than $10 
million per year over the next 5 years.
    Virtually all of these devices replace devices for which Medicare 
coverage is currently available and which would have been furnished to 
beneficiaries if we had not changed the policy. The services are 
primarily furnished on an inpatient basis in hospitals. Hospitals are 
paid on a prospective basis so that prices are not adjusted based on 
changes in the price-components (that is, device costs) of individual 
DRGs. Instead, the payment base under the prospective payment system is 
annually updated based on a host of considerations, including the 
increased cost of inputs. As a result, this change in coverage will not 
significantly affect Medicare's current payments and will only affect 
its future payments in concert with the other factors affecting the DRG 
update decisions.
    For these reasons, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined, and we 
certify, that this rule will not have a significant economic impact on 
a substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget. 

[[Page 48423]]


IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the ``DATES'' 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

List of Subjects

42 CFR Part 405

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements, Rural areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 42 CFR Chapter IV is 
amended as follows:
    A. 42 CFR part 405 is amended to read as follows:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

    1. A new subpart B, consisting of Secs. 405.201-405.215, is added 
to read as follows:

Subpart B--Medical Services Coverage Decisions That Relate to Health 
Care Technology

Sec.
405.201  Scope of subpart and definitions.
405.203  FDA categorization of investigational devices.
405.205  Coverage of a non-experimental/investigational (Category B) 
device.
405.207  Services related to a noncovered device.
405.209  Payment for a non-experimental/investigational (Category B) 
device.
405.211  Procedures for Medicare contractors in making coverage 
decisions for a non-experimental/investigational (Category B) 
device.
405.213  Re-evaluation of a device categorization.
405.215  Confidential commercial and trade secret information.

Subpart B--Medical Services Coverage Decisions That Relate to 
Health Care Technology

    Authority: Secs. 1102, 1862, and 1871 of the Social Security Act 
as amended (42 U.S.C. 1302, 1395y, and 1395hh).


Sec. 405.201  Scope of subpart and definitions.

    (a) Scope. This subpart establishes that--
    (1) HCFA uses the FDA categorization of a device as a factor in 
making Medicare coverage decisions; and
    (2) HCFA may consider for Medicare coverage certain devices with an 
FDA-approved investigational device exemption (IDE) that have been 
categorized as non-experimental/investigational (Category B).
    (b) Definitions. As used in this subpart--
    Class I refers to devices for which the general controls of the 
Food, Drug, and Cosmetic Act, such as adherence to good manufacturing 
practice regulations, are sufficient to provide a reasonable assurance 
of safety and effectiveness.
    Class II refers to devices that, in addition to general controls, 
require special controls, such as performance standards or postmarket 
surveillance, to provide a reasonable assurance of safety and 
effectiveness.
    Class III refers to devices that cannot be classified into Class I 
or Class II because insufficient information exists to determine that 
either special or general controls would provide reasonable assurance 
of safety and effectiveness. Class III devices require premarket 
approval.
    Contractors refers to carriers, fiscal intermediaries, and other 
entities that contract with HCFA to review and adjudicate claims for 
Medicare services.
    Experimental/investigational (Category A) device refers to an 
innovative device believed to be in Class III for which ``absolute 
risk'' of the device type has not been established (that is, initial 
questions of safety and effectiveness have not been resolved and the 
FDA is unsure whether the device type can be safe and effective).
    IDE stands for investigational device exemption. An FDA-approved 
IDE application permits a device, which would otherwise be subject to 
marketing clearance, to be shipped lawfully for the purpose of 
conducting a clinical trial in accordance with 21 U.S.C. 360j(g) and 21 
CFR parts 812 and 813.
    Non-experimental/investigational (Category B) device refers to a 
device believed to be in Class I or Class II, or a device believed to 
be in Class III for which the incremental risk is the primary risk in 
question (that is, underlying questions of safety and effectiveness of 
that device type have been resolved), or it is known that the device 
type can be safe and effective because, for example, other 
manufacturers have obtained FDA approval for that device type.
    PMA stands for ``premarket approval'' and refers to a marketing 
application for a Class III device, which includes all information 
submitted with or incorporated by reference in the application in 
accordance with 21 U.S.C. 360e and 360j and 21 CFR 814.3(e).
    Sponsor refers to a person or entity that initiates, but does not 
conduct, an investigation under an IDE.


Sec. 405.203  FDA categorization of investigational devices.

    (a) The FDA assigns a device with an FDA-approved IDE to one of two 
categories:
    (1) Experimental/Investigational (Category A) Devices.
    (2) Non-Experimental/Investigational (Category B) Devices.
    (b) The FDA notifies HCFA, when it notifies the sponsor, that the 
device is categorized by FDA as experimental/investigational (Category 
A) or non-experimental/investigational (Category B).
    (c) HCFA uses the categorization of the device as a factor in 
making Medicare coverage decisions.


Sec. 405.205  Coverage of a non-experimental/investigational (Category 
B) device.

    (a) For any device that meets the requirements of the exception at 
Sec. 411.15(o) of this chapter, the following procedures apply:
    (1) The FDA notifies HCFA, when it notifies the sponsor, that the 
device is categorized by FDA as non-experimental/investigational 
(Category B).
    (2) HCFA uses the categorization of the device as a factor in 
making Medicare coverage decisions.
    (b) If the FDA becomes aware that a categorized device no longer 
meets the requirements of the exception at Sec. 411.15(o) of this 
chapter, the FDA notifies the sponsor and HCFA and the procedures 
described in paragraph (a)(2) of this section apply.


Sec. 405.207  Services related to a noncovered device.

    (a) When payment is not made. Medicare payment is not made for 
medical and hospital services that are related to the use of a device 
that is not covered because HCFA determines the device is not 
``reasonable'' and 

[[Page 48424]]
``necessary'' under section 1862(a)(1)(A) of the Act or because it is 
excluded from coverage for other reasons. These services include all 
services furnished in preparation for the use of a noncovered device, 
services furnished contemporaneously with and necessary to the use of a 
noncovered device, and services furnished as necessary after-care that 
are incident to recovery from the use of the device or from receiving 
related noncovered services.
    (b) When payment is made. Medicare payment may be made for 
services, ordinarily covered by Medicare, to treat a condition or 
complication that arises because of the use of a noncovered device or 
from the furnishing of related noncovered services.


Sec. 405.209  Payment for a non-experimental/investigational (Category 
B) device.

    Payment under Medicare for a non-experimental/investigational 
(Category B) device is based on, and may not exceed, the amount that 
would have been paid for a currently used device serving the same 
medical purpose that has been approved or cleared for marketing by the 
FDA.


Sec. 405.211  Procedures for Medicare contractors in making coverage 
decisions for a non-experimental/investigational (Category B) device.

    (a) General rule. In their review of claims for payment, Medicare 
contractors are bound by the statute, regulations, and all HCFA 
administrative issuances, including all national coverage decisions.
    (b) Potentially covered non-experimental/investigational (Category 
B) devices. Medicare contractors may approve coverage for any device 
with an FDA-approved IDE categorized as a non-experimental/
investigational (Category B) device if all other coverage requirements 
are met.
    (c) Other considerations. Medicare contractors must consider 
whether any restrictions concerning site of service, indications for 
use, or any other list of conditions for coverage have been placed on 
the device's use.


Sec. 405.213  Re-evaluation of a device categorization.

    (a) General rules. (1) Any sponsor that does not agree with an FDA 
decision that categorizes its device as experimental/investigational 
(Category A) may request re-evaluation of the categorization decision.
    (2) A sponsor may request review by HCFA only after the 
requirements of paragraph (b) of this section are met.
    (3) No reviews other than those described in paragraphs (b) and (c) 
of this section are available to the sponsor.
    (4) Neither the FDA original categorization or re-evaluation 
(described in paragraph (b) of this section) nor HCFA's review 
(described in paragraph (c) of this section) constitute an initial 
determination for purposes of the Medicare appeals processes under part 
405, subpart G or subpart H, or parts 417, 473, or 498 of this chapter.
    (b) Request to FDA. A sponsor that does not agree with the FDA's 
categorization of its device may submit a written request to the FDA at 
any time requesting re-evaluation of its original categorization 
decision, together with any information and rationale that it believes 
support recategorization. The FDA notifies both HCFA and the sponsor of 
its decision.
    (c) Request to HCFA. If the FDA does not agree to recategorize the 
device, the sponsor may seek review from HCFA. A device sponsor must 
submit its request in writing to HCFA. HCFA obtains copies of relevant 
portions of the application, the original categorization decision, and 
supplementary materials. HCFA reviews all material submitted by the 
sponsor and the FDA's recommendation. HCFA reviews only information in 
the FDA record to determine whether to change the categorization of the 
device. HCFA issues a written decision and notifies the sponsor of the 
IDE and the FDA.


Sec. 405.215  Confidential commercial and trade secret information.

    To the extent that HCFA relies on confidential commercial or trade 
secret information in any judicial proceeding, HCFA will maintain 
confidentiality of the information in accordance with Federal law.

Subpart G--[Amended]

    2. The authority citation for subpart G continues to read as 
follows:

    Authority: Secs. 1102, 1151, 1154, 1155, 1869(b), 1871, 1872, 
and 1879 of the Social Security Act (42 U.S.C. 1302, 1320c, 1320c-3, 
1320c-4, 1395ff(b), 1395hh, 1395ii and 1395pp).

    3. In subpart G, a new Sec. 405.753 is added to read as follows:


Sec. 405.753  Appeal of a categorization of a device.

    (a) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
a national coverage decision under section 1862(a)(1) of the Act.
    (b) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
an aspect of an initial determination that, under section 1862 of the 
Act, payment may not be made.
    (c) In accordance with section 1869(b)(3)(A) of the Act, HCFA's 
acceptance of the FDA categorization of a device as an experimental/
investigational (Category A) device under Sec. 405.203 may not be 
reviewed by an administrative law judge.

Subpart H--[Amended]

    4. The authority citation for subpart H continues to read as 
follows:

    Authority: Secs. 1102, 1842(b)(3)(C), and 1869(b) of the Social 
Security Act (42 U.S.C. 1302, 1395u(b)(3)(C), 1395ff(b)).

    5. In subpart H, a new Sec. 405.877 is added to read as follows:


Sec. 405.877  Appeal of a categorization of a device.

    (a) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
a national coverage decision under section 1862(a)(1) of the Act.
    (b) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
an aspect of an initial determination that, under section 1862 of the 
Act, payment may not be made.
    (c) In accordance with section 1869(b)(3)(A) of the Act, HCFA's 
acceptance of the FDA categorization of a device as an experimental/
investigational (Category A) device under Sec. 405.203 may not be 
reviewed by an administrative law judge.
    B. 42 CFR part 411 is amended as set forth below:

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE 
PAYMENT

    1. The authority citation for part 411 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In Sec. 411.15, the introductory text is republished and new 
paragraph (o) is added to read as follows:


Sec. 411.15  Particular services excluded from coverage.

    The following services are excluded from coverage.
* * * * *
    (o) Experimental or investigational devices, except for certain 
devices--
    (1) Categorized by the FDA as a non-experimental/investigational 
(Category B) device defined in Sec. 405.201(b) of this chapter; and 

[[Page 48425]]

    (2) Furnished in accordance with the FDA-approved protocols 
governing clinical trials.
    3. In Sec. 411.406, paragraph (e) is revised to read as follows:


Sec. 411.406  Criteria for determining that a provider, practitioner, 
or supplier knew that services were excluded from coverage as custodial 
care or as not reasonable and necessary.

* * * * *
    (e) Knowledge based on experience, actual notice, or constructive 
notice. It is clear that the provider, practitioner, or supplier could 
have been expected to have known that the services were excluded from 
coverage on the basis of the following:
    (1) Its receipt of HCFA notices, including manual issuances, 
bulletins, or other written guides or directives from intermediaries, 
carriers, or PROs, including notification of PRO screening criteria 
specific to the condition of the beneficiary for whom the furnished 
services are at issue and of medical procedures subject to preadmission 
review by a PRO.
    (2) Federal Register publications containing notice of national 
coverage decisions or of other specifications regarding noncoverage of 
an item or service.
    (3) Its knowledge of what are considered acceptable standards of 
practice by the local medical community.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: September 11, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: September 12, 1995.
Donna E. Shalala,
Secretary.

    Note: This addendum will not appear in the Code of Federal 
Regulations.

Addendum--Criteria for Categorization of Investigational Devices

Category A: Experimental/Investigational

    Category A devices include the following:
    (1) Class III devices of a type for which no marketing application 
has been approved through the premarket approval (PMA) process for any 
indication for use. (For pre-amendments1 Class III devices, refer 
to the criteria under Category B).

    \1\Pre-amendments devices are devices that were marketed before 
the enactment of the 1976 Medical Device Amendments to the Food, 
Drug, and Cosmetic Act; that is, in commercial distribution before 
May 28, 1976.
---------------------------------------------------------------------------

    (2) Class III devices that would otherwise be in Category B but 
have undergone significant modification for a new indication for use.

Category B: Non-experimental/Investigational

    Category B devices include the following:
    (1) Devices, regardless of the classification, under investigation 
to establish substantial equivalence to a predicate device, that is, to 
establish substantial equivalence to a previously/currently legally 
marketed device.
    (2) Class III devices whose technological characteristics and 
indications for use are comparable to a PMA-approved device.
    (3) Class III devices with technological advances compared to a 
PMA-approved device, that is, a device with technological changes that 
represent advances to a device that has already received PMA-approval 
(generational changes).
    (4) Class III devices that are comparable to a PMA-approved device 
but are under investigation for a new indication for use. For purposes 
of studying the new indication, no significant modifications to the 
device were required.
    (5) Pre-amendments Class III devices that become the subject of an 
IDE after the FDA requires premarket approval, that is, no PMA 
application was submitted or the PMA application was denied.
    (6) Nonsignificant risk device investigations for which the FDA 
required the submission of an IDE.

    Note: Some investigational devices may exhibit unique 
characteristics or raise safety concerns that make additional 
consideration necessary. For these devices, HCFA and the FDA will 
agree on the additional criteria to be used. The FDA will use these 
criteria to assign the device(s) to a category. As experience is 
gained in the categorization process, this addendum may be modified.

[FR Doc. 95-23132 Filed 9-13-95; 4:00 pm]
BILLING CODE 4120-01-P