Presentation by David Farber, FDA Life Science Partner at King & Spalding, about US Reimbursement. I. Introduction • II. FDA Approval vs. Reimbursement • a. Different Standards b. Clinical Evidence Needed • III. The Three Keys to Reimbursement A. Coverage B. Coding C. Payment • IV. What’s New for 2019 • V. Reimbursement for MedTech AI Solutions • VI. Tips for Successful Reimbursement

1. GETTING PAID!
The Path from Approval to Market and
Navigating the World of Reimbursement
1
David J. Farber
Preeya Noronha Pinto
King & Spalding
dfarber@kslaw.com
mHealth Israel
Tel Aviv
December 27, 2018

2. Agenda
• I. Introduction
• II. FDA Approval vs. Reimbursement
• a. Different Standards
b. Clinical Evidence Needed
• III. The Three Keys to Reimbursement
A. Coverage
B. Coding
C. Payment
• IV. What’s New for 2019
• V. Reimbursement for MedTech AI Solutions
• VI. Tips for Successful Reimbursement

3. Setting Expectations – How Hard Is This?
• “But Despite Israel’s big digital health ambitions, the path to success
will not be an easy one. Digital health companies across the world
are facing … a market marred by reimbursement difficulties.”
MedTech Insight, (April 23, 2018 p.14)
• “As one VC investor noted, Payers are pulling back on paying for
new things. It is difficult to get new technologies covered. It’s taking
companies three to five years…to collect enough data and go
through the processes to obtain coverage following FDA
approval.” Deloitte, Out of the valley of death: How can
entrepreneurs, corporations, and investors reinvigorate early-stage
medtech innovation? (April 2018 p.5)

4. Why are we here? What is our goal?
• FDA approval is NOT the goal – it is a step to
the goal
• Getting to market to get PAID is the goal
• How do we get to market in the US?
― What is the market?
― Who buys our product?
― Who pays the buyer?
― Will they cover it?
― Can they see it?
― How much will they pay?
4

5. CMS vs. FDA
CMS FDA
“reasonable and necessary” “reasonable assurance of safety and effectiveness”
CMS coverage determination (formal or informal) FDA-approved labeling
Focus on health benefits Focus on device function and clinical risk vs. benefits
Economic data is important Economic data is irrelevant
Superiority endpoint required Non-inferiority endpoint acceptable
Focus on Medicare beneficiaries Focus on intended population
Public processes Generally not public processes
Publishes proposed decisions Does not publish proposed decisions
5

6. CMS vs. FDA: Decisions
CMS
• Coverage, Coding and Payment
• Not limited to indications and
uses in the labeling
• CMS HQ and MACs
FDA
• PMA, 510(k), etc.
• Limited to indications and uses in the
labeling
• FDA HQ
6

7. CMS vs. FDA: Information Considered
CMS
• Clinical evidence (including FDA submissions)
• External technology assessments
• Advisory committee recommendations
• Position statements by relevant groups
• Expert opinion
• Public comments
• Economic and other cost-effectiveness data
• Other informal opinion
FDA
• “Well-controlled” clinical investigation data
• Non-clinical laboratory studies
• Quality system controls
• Labeling
• Post-market controls
• Advisory Committee recommendations
• Published and unpublished literature
7

8. So What Do You Need to Get Paid?
• Studies and Evidence
― Two Double Blind Randomized
Control Trials
― Data in 65+ age group
• Published in Credible Journals
• Health Economics Outcomes Research (HEOR)
― Budget Impact Modeling (BIM)

9. The Basics of Reimbursement
Coverage
• Is the item or
service eligible
for payment?
Coding
• How is the item
or service
identified?
Payment
• What are the
payment
methodologies
and amounts?
9

10. Coverage -- Overview of Medicare
Must fall within a defined
benefit category
Must not be excluded
Must be “reasonable and
necessary for the diagnosis or
treatment of illness or injury or
to improve the functioning of a
malformed body member”
• Social Security Act §1862(a)(1)(A)
10

11. Who Makes Medicare Coverage Decisions?
• Determinations by CMS and its Contractors
― National Coverage Determinations (NCDs)
― Local Coverage Determinations (LCDs)
― Individual Consideration
11
National Coverage
Determinations
Local Coverage
Determinations
Most items/services are
covered and paid with NO
formal decision-making

12. Who are the MACs

13. Overview of National Coverage Determinations
National and binding
coverage decision by
CMS Coverage and
Analysis Group (CAG)
May be initiated
internally by CMS or
externally by formal
request from an outside
party
May include certain
conditions for coverage
•Device covered only for
patients with specific clinical
or demographic characteristics
•Device covered only when
provided by physicians and/or
facilities that meet specific
criteria
•Coverage with Evidence
Development
13

14. Coverage with Evidence Development
Two Types of CED
SSA §1862(a)(1)(A): Medical evidence is
adequate to conclude that an item or
service is reasonable and necessary for
certain beneficiaries in certain
circumstances, but additional data is
required to demonstrate that the item or
service is furnished as specified in the
NCD (e.g., data registries)
SSA §1862(a)(1)(E): Medical evidence is
not adequate to conclude that an item or
service is reasonable and necessary, but
coverage would be provided if the
beneficiary were enrolled in a clinical
study designed to provide additional
medical evidence regarding the health risks
and benefits of using the item or service
14
Evidence-based coverage paradigm that permits CMS to develop coverage policies for certain items and services that are
likely to show health benefits to Medicare beneficiaries but for which the available evidence base is not yet sufficiently
developed

15. National Coverage Determinination Process
15

16. Overview of Local Coverage Determinations
Issued by Medicare
Administrative Contractors
(MACs)
A new formal process in
2019 to request LCDs –
process is driven by
contractor Medical Directors
•Publish a draft LCD based on review
of medical literature and contractor’s
understanding of local practice
•Public meetings
•Contractor Advisory Committee
(CAC) review
•Comment and notice periods (for all
new LCDs and revisions that restrict
existing LCDs) – minimum 45 days
each
Limited to particular MAC
jurisdiction
16

17. NCD vs. LCD?
17
NCD
• National decision that is binding
on all MACs (“all or nothing”)
• Possibility of CED
• Defined process once accepted
for review
LCD
• Limited to particular jurisdiction
(“multiple bites at the apple”)
• Process driven by MAC Medical
Director

18. Coding – An Overview
Coding is the
language of
reimbursement
Coding
operationally links
coverage and
payment
Having a code does
not guarantee
reimbursement!
18

19. Types of Codes
Type of Code Coding System Who Sets Code? Who Uses Code?
Diagnosis ICD-10-CM, Diagnoses, Vols. 1
& 2
WHO and NCHS All Providers
Procedure or Service ICD-10-CM, Procedures, Vol. 3 WHO and CMS Hospital Inpatient
Procedure or Service CPT-4 AMA Physicians, Hospital Outpatient,
Clinical Labs, etc.
Products and Certain Services HCPCS CMS Physicians, Hospital Outpatient,
DMEPOS Suppliers, etc.
Drugs NDC FDA Pharmacies, etc.
19
ICD-10-CM: International Classification of Diseases, 10th Edition, Clinical Modification
CPT-4: Current Procedural Terminology, 4th Edition
HCPCS: Healthcare Common Procedure Coding System
NDC: National Drug Code
WHO: World Health Organization
NCHS: National Center for Health Statistics at the Centers for Disease Control and Prevention
AMA: American Medical Association
DMEPOS: Durable medical equipment, prosthetics, orthotics and supplies

20. Overview of CPT Codes
Maintained by the AMA CPT Editorial Panel, with recommendations from the CPT Advisory Committee
Identify medical services furnished by physicians and other health care professionals
Typically consist of 5-digit numeric codes
Descriptors are generic and do not identify specific products or brand names
•CPT 33533: Coronary artery bypass, using arterial graft(s); single arterial graft
Three types of CPT codes
•Category I CPT codes
•Category II CPT codes (optional performance tracking codes - ####F)
•Category III CPT codes (emerging technology codes - ####T)
20

21. Process for Obtaining a CPT Code
Applications for
new codes
submitted at least
three months
before next CPT
Editorial Panel
meeting
AMA staff
reviews
application and
refers to CPT
Advisory
Committee for
evaluation and
commentary
CPT Editorial
Panel meets
(February, May
and September)
and votes on
application
AMA staff
informs the
applicant of the
coding decision
RUC reviews and
makes a relative
value
recommendation
to CMS
New code is
effective (January
1)
21
The deadline for applications for the 2018 CPT codeset has passed. June 13, 2017 (for the September 2017 CPT Editorial Panel meeting) is the deadline for
applications for the 2019 CPT codeset.
Category III codes are released on January 1 and July 1 and are effective six months later.

22. Criteria for Obtaining a Category I CPT Code
Unique and well-defined procedure that (1) is distinguishable from other procedures, (2) is not a fragmentation of an existing procedure, (3) is not currently
reportable as a complete service by one or more codes, and (4) is not a means to report extraordinary circumstances related to the performance of a procedure
already described in the codeset
Descriptor accurately reflects the procedure as typically performed
All devices and drugs used are FDA approved or cleared
Procedure is performed by many physicians across the U.S. with frequency consistent with the intended clinical use, and consistent with current medical
practice
Clinical efficacy is documented in published literature
22

23. Overview of HCPCS Codes
Maintained by the CMS HCPCS Workgroup
Identify items and services not described by CPT codes
Consist of 5-digit alphanumeric codes
•E2402: Negative pressure wound therapy electrical pump, stationary or portable
Product descriptions are generic, to cover more than one brand of product
•Permanent HCPCS codes
•Temporary HCPCS codes (“Q codes”)
•Miscellaneous/Not Otherwise Classified HCPCS codes (E1399: Durable medical equipment, miscellaneous)
Three types of HCPCS codes
23

24. Process for Obtaining a Permanent HCPCS Code
January 3rd
Applications for
new codes or
revisions to existing
codes must be
received for the next
annual update
May/June
Public meetings
(agenda and
preliminary coding
recommendation
posted on CMS
website one month
prior to meeting)
August
Summaries of
public meetings
posted on CMS
website
November
Final coding
decisions are mailed
to requestors and
posted on the CMS
website
January 1st
Final coding
decisions are
effective
24

25. Criteria for Obtaining a Permanent HCPCS Code
There is no existing code that adequately describes the product, or there are therapeutic distinctions between the product and other products
described by existing codes
The product is not used only in the inpatient setting
The product serves a diagnostic or therapeutic purpose
For drugs, the FDA must approve the drug by March 31st after the application deadline, the application is otherwise complete and submitted
by the deadline, and the application for marketing approval was submitted to the FDA by September 30th prior to the application deadline
The date of first sale must be provided, and for items other than drugs and biologicals, 3 months of marketing experience is required
There is a national program operating need for the code, or the code is required by statute
25

26. Payment -- Overview of Medicare
How much will
Medicare pay for
the item or service?
What is the
payment
methodology?
Depends on the site
of service and
provider/supplier
types
• Prospective Payment
System (PPS)
• Fee Schedule
• Competitive
Bidding/Acquisition
26

27. Key Medicare Payment Systems
Site of Service Type of Payment Methodology Codes Claimed to Generate
Payment Amount
New Technology Payment
Program
Hospital Inpatient IPPS MS-DRG Bundle (per
discharge) (Medicare Part A)
ICD-10 Diagnosis Codes, ICD-10
Procedure Codes
Add-On Payment
Hospital Outpatient OPPS APC Package (per
procedure) (Medicare Part B)
ICD-10 Diagnosis Codes, CPT
Codes, HCPCS Codes
Pass-Through Status
New Technology APC
Physician Physician Fee Schedule (Medicare
Part B)
ICD-10 Diagnosis Codes, CPT
Codes, HCPCS Codes
DMEPOS DMEPOS Fee Schedule or
Competitive Bidding (Medicare
Part B)
ICD-10 Diagnosis Codes, HCPCS
Codes
Clinical Laboratory Tests Clinical Laboratory Fee Schedule
(Medicare Part B)
ICD-10 Diagnosis Codes, CPT
Codes
27
IPPS: Inpatient Prospective Payment System
MS-DRG: Medicare Severity Diagnosis Related Group
OPPS: Outpatient Prospective Payment System
APC: Ambulatory Payment Classification

28. Payments for New Technology
28

29. Inpatient Add-On Payment (NTAP): Criteria
Must have
received FDA
approval or
clearance by July 1
prior to beginning
of fiscal year for
which the NTAP
would be effective
Must be “new”
(i.e. is not
“substantially
similar” to other
technologies)
Must not be
reflected in data
used to establish
the MS-DRGs
(i.e., the MS-DRG
payment is
inadequate)
Must provide a
“substantial
clinical
improvement”
Determined to be
reasonable and
necessary
(although not a
coverage
determination)
29
“Substantially similar” means that (1) a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) a product is assigned to the same MS-DRG; and (3) the new use of the technology
involves the treatment of the same or similar type of disease and the same or similar patient population.
The MS-DRG payment is inadequate for a new technology if the charges for cases involving the new technology exceed certain threshold amounts.
“Substantial clinical improvement” criterion is evaluated using a number of factors, including whether other treatments are available for the patient population, whether the device enables earlier diagnosis and treatment,
and whether clinical outcomes are improved.

30. Inpatient Add-On Payment (NTAP): Payment
30
Payment rate is equal to the lesser of (1) 50% of the estimated costs of the new
technology (if the estimated costs for the case including the new technology
exceed Medicare’s payment); or (2) 50% of the difference between the full MS-
DRG payment and the hospital’s estimated cost for the case
NTAP is effective for at least two years but no more than three years

31. Outpatient Pass-Through Status: Criteria
Must have received
FDA approval or
clearance within 3
years of application
date, or Category B
IDE that is not yet
approved/cleared
Device must be an
integral part of service
furnished (not
incidental), be used for
one patient only (not
capital equipment),
come in contact with
human tissue, and be
surgically implanted,
inserted or applied
Cost is “not
insignificant” in
relation to the
procedure payment
Must provide a
“substantial clinical
improvement”
Determined to be
reasonable and
necessary (although
not a coverage
determination)
31
“Not insignificant” criterion requires a three-part test: (1) the estimated average reasonable cost of devices in the category exceeds 25% of the applicable APC payment amount for the service associated with the
category of devices; (2) the estimated average reasonable cost of the devices in the category exceeds the cost of the device-related portion of the APC payment amount for the service associated with the category of
devices by at least 25%; and (3) the difference between the estimated average reasonable cost of the devices in the category and the portion of the APC payment amount determine to be associated with the device in
the associated APC exceeds 10% of the total APC payment.
“Substantial clinical improvement” criterion is evaluated using a number of factors, including whether other treatments are available for the patient population, whether the device enables earlier diagnosis and treatment,
and whether clinical outcomes are improved.

32. Outpatient Pass-Through Status: Payment
32
Payment rate is based on the charge on the individual bill, converted to cost by application of a hospital-
specific cost-to-charge ratio (average CCR for its outpatient departments) and subject to a reduction that offsets
the cost of similar devices already included in the APC payment rate for the associated procedure
Device is assigned a HCPCS C code
Pass-through status is effective for three years

33. Outpatient New Technology APC: Criteria
33
Service or procedure
could not have been
adequately
represented in the
claims data being
used for the most
current annual OPPS
payment update
Does not qualify for
transitional pass-
through payment
Cannot reasonably be
placed in an existing
clinical APC group
that is appropriate in
terms of clinical
characteristics and
resource costs
Falls within the scope
of Medicare benefits
Determined to be
reasonable and
necessary (although
not a coverage
determination)

34. Outpatient New Technology APC: Payment
34
Payment rate is based on the midpoint of a range of costs, and not on a relative payment weight
Procedure is assigned to one of 48 New Tech APCs (APC 1491 through APC 1599)
•APC 1491 (New Technology – Level 1A) - $0-$10 (Payment is $5.00)
•APC 1585 (New Technology – Level 48) - $90,001 - $100,000 (Payment is $95,000.50)
New Tech APCs have one of two status indicators:
•S (not subject to the multiple procedure payment reduction)
•T (discounted when furnished with other procedures or services that are also subject to discounting)
Procedure is assigned to a New Tech APC until sufficient claims data have been collected to allow CMS to assign the procedure to a
clinical APC group that is appropriate in clinical and resource terms (approximately 2-3 years from the time a new HCPCS/CPT code
becomes effective)

35. Payment for Clinical Lab Tests
35
Current Fee Schedule
• Adopted in 1984 based on charge data
• Updated annually for inflation
• Payment for new tests based on
crosswalking or gapfilling
Fee Schedule Effective January 1,
2018
• Payment based on weighted median
private payer rates paid to applicable
laboratories reported to CMS
• If no information reported to CMS,
payment for test based on crosswalking or
gapfilling
Data Collection Period: January – June 2016
Data Reporting Period: January – March 2017
(recently extended to May 30, 2017)
Public Meeting in July 2017
Payment Rates Published in September 2017

36. Medicare Coverage of IDE Devices
Category A devices are not
eligible for Medicare coverage
• “experimental” investigational devices
where the absolute risk of the device
type has not been established and FDA
is unsure whether the device type can be
safe and effective
Category B devices are eligible
for Medicare coverage
• “non-experimental” investigational
devices where the incremental risk is
the primary risk in question, i.e.,
underlying questions of safety and
effectiveness of the device type have
been resolved
36
FDA Categorization of Approved IDEs
New FDA-CMS Memorandum of Understanding effective June 2016 allows for change from Category A to Category B

37. NCD for Routine Costs in Clinical Trials
• All items and services that are typically covered absent a clinical trial (in both experimental and control arms)
• Required solely for the provision of the investigational item or service (e.g., costs of device implantation)
• Required solely for the clinical appropriate monitoring of the effects of the item or service
• Required solely for the prevention of complications
• Needed for reasonable and necessary care arising from the provision of an investigational item or service,
including for the diagnosis or treatment of complications
COVERED
• The investigational item or service itself, unless otherwise covered outside of the clinical trial
• Items and services provided solely to satisfy data collection and analysis needs and that are not used in the direct
clinical management of the patient (e.g., monthly CT scans for a condition usually requiring only one scan)
• Items and services customarily provided by the research sponsors free of charge for any enrollee in the trial
• Coinsurance/deductibles
NOT COVERED
37

38. And a Word about Drugs/Biologicals….
Those Covered Under Medicare Part B
Furnished “incident to” a physician’s
service
•Must be administered by a physician or
personnel under the physician’s
supervision in the physician office
•The charge, if any, for the drug/ biological
must be included in the physician’s bill and
must represent an expense to the physician
(“Buy and Bill”)
•Drug/biological must be “not usually self-
administered”
•Self-administration is determined through
application of the 50% Test by the MACs
•MACs publish “Self-Administered Drug”
or “SAD” Lists which contain drugs that
are usually self-administered and not
covered by Part B
•If a product is on a SAD List, there is no
Part B coverage, even when administered
by a physician!
Administered through an item of DME
•Inhalation or infusion drugs administered
through a covered item of DME are
covered as “supplies” necessary for the
DME to function
•Self-administered
•Obtained at the pharmacy
•Key issue is whether DME is covered:
•Can withstand repeated use
•Effective with respect to items classified
as DME after January 1, 2012, has an
expected life of at least 3 years
•Is primarily and customarily used to serve
a medical purpose
•Generally is not useful to an individual in
the absence of an illness or injury
•Is appropriate for use in the home
Specifically covered under Part B by
statute*
•Immunosuppressive Drugs
•Oral Anti-Cancer Drugs
•Oral Anti-Nausea Drugs
•Hemophilia Blood Clotting Factor
•Pneumococcal, Influenza and Hepatitis B
Vaccines
•Antigens
•Erythropoietin for Trained Home Dialysis
Patients
•Certain Drugs Separately Billed by ESRD
Facilities
•Osteoporosis Drugs
38

39. Medicare Payment Systems
Site of Service Type of Payment
Methodology
Codes Claimed to Generate
Payment Amount
New Technology Payment
Program
Hospital Inpatient IPPS MS-DRG Bundle (per
discharge) (Part A)
ICD-9 Diagnosis Codes, ICD-9
Procedure Codes
Add-on payment or special MS-
DRG assignment
Hospital Outpatient OPPS APC Package (per
procedure) (Part B)
ICD-9 Diagnosis Codes, CPT
Codes, HCPCS Codes
Pass-through status or New
Tech APC
Physician Physician Fee Schedule & ASP
Methodology (Part B)
ICD-9 Diagnosis Codes, CPT
Codes HCPCS Codes
None
Pharmacy Fee Schedule (Part B) or
Negotiated Rates (Part D)
HCPCS Codes, NDCs None
39
IPPS: Inpatient Prospective Payment System
MS-DRG: Medicare Severity Diagnosis Related Group
OPPS: Outpatient Prospective Payment System
APC: Ambulatory Payment Classification
Note: Medicare Advantage
payment methodologies vary!

40. Part B vs. Part D Coverage Issues
Who Administers the
Product
•Not usually self-administered
Condition for Which
Product Is Prescribed
•Immunosuppressives in
connection with a Medicare-
covered transplant
Form of the Product
•Inhalation drugs self-administered
through a nebulizer
Who Administers the
Product
•Usually self-administered
Condition for Which
Product Is Prescribed
•Immunosuppressives prescribed
for other reasons
Form of the Product
•Inhalation drugs self-administered
through a metered dose inhaler
MedicarePartB
MedicarePartD
40
Medicare Part D covers most prescription drugs/biologicals
obtained at the pharmacy and does not cover any
drugs/biologicals covered under Medicare Parts A and B
Medicare Part B provides limited coverage for drugs/biologicals

41. Medicare Part D – Formulary Design
• Cannot discriminate against groups of
beneficiaries
• Must offer at least two drugs within a
particular therapeutic class or category
• “Safe harbor” if PDPs use the Model
Formulary developed by the United
States Pharmacopeia
• Must offer “all or substantially all”
drugs in six protected classes:
• Antidepressants
• Antipsychotics
• Anticonvulsants
• Immunosuppressants
• Antiretrovirals
• Antineoplastics
• CMS cannot “interfere in
negotiations” between manufacturers,
PDPs and pharmacies
PDPs design their own
formularies and benefit designs
within certain parameters
(formularies must be approved by CMS)
41

42. What’s New for 2019
― CPT 99091 -- Remote Patient Monitoring is now…
― 99453 -- remote monitoring of physiologic parameters
(weight, blood pressure, pulse oximetry, respiratory), initial
set up
― 99454 – same, device supply and daily recordings, each 30
days
― 99457 – same, 20 minutes of staff review
― G2010 – Remote Evaluation of Pre-Recorded Patient Information
(store and forward)
― G2012 – Brief communication technology-based service; virtual
check in – existing patient

43. Where Does An AI MedTech App Fit?
• Think of a MedTech App as a “Diagnostic tool:
• Reimbursement will be through the physician’s
office, hospital or other treatment center
• Medicare (MACs) or others will still have to agree
on coverage
• There will need to be a billing code available
• There will need to be agreement on correct
payment to the physician to create the market

44. Tips for New Product Development
• Clinical, Regulatory, Reimbursement,
Marketing, R&D
Bring the entire team
together early in the
product development
process to discuss
goals and objectives
• In what settings of care will be device
be used?
• Are there special payer rules that will
be applicable?
• Will device labeling be consistent with
reimbursement strategy?
Consider the
intended patient
population and the
payer mix for the
product
44

45. Tips for New Product Development
• Comparative effectiveness studies important to
demonstrate value proposition
• Medicare requires its beneficiaries to be part of study
population
• Must demonstrate an improvement in overall
outcomes (safe and effective is not enough)
• Quality of life, reduced medications, return to
activities of daily living, reduction in follow up
procedures and medical services, faster recovery
• Payers are increasingly looking to evidence of cost
savings to justify coverage, particularly for
expensive treatments
Clinical trials
should be
structured to
maximize
reimbursement
objectives
45

46. Tips for New Product Development
• 510(k) may make it difficult to
persuade CMS that a device needs a
new code and new payment amount
• PMA may make it difficult to use an
existing code and payment amount
• 510(k) submission may not provide
the clinical outcome data required by
payers
• Be wary of “prevention” – Medicare
rarely covers “prevention”
The FDA
regulatory
pathway can and
usually will affect
coverage, coding
and payment
46

47. Tips for New Product Development
• Can influence payer coverage,
coding and payment
Build physician
society and patient
group support for
the product
• Fee for service is being
replaced by bundled/packaged
payments, transfer of risk,
value-based payments
Consider the
changing payer
landscape
47

48. Key Takeaway
It is never too
early to plan
your
reimbursement
strategy!
48