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STAYING AHEAD WHEN POLICY CHANGES

CMS RESHAPES PATHWAYS FOR MEDICAL DEVICES

By William Rogers, MD, FACHE, Chief Medical Officer

A finalized repeal and a proposed coverage pathway mean manufacturers will need to weigh Medicare evidence requirements far earlier in development.

Medical device manufacturers are navigating a shifting Medicare landscape for breakthrough technologies, following two actions by the Centers for Medicare & Medicaid Services (CMS) this summer. In the FY 2027 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System final rule issued July 31, the agency finalized the repeal of the alternative pathway to inpatient add-on payment for Food and Drug Administration (FDA) Breakthrough Devices, restoring the requirement that applicants demonstrate substantial clinical improvement beginning with FY 2028 applications, with a limited transition for certain devices already in development. On August 11, it sought public comment on the Regulatory Alignment for Predictable and Immediate Device (RAPID) coverage pathway, intended to accelerate national coverage for certain breakthrough devices, with comments due October 13.

Coverage and payment are separate determinations, and the two policies affect them differently.

The Origins of the Alternative Pathway

Medicare’s inpatient prospective payment system pays hospitals a largely fixed amount per case based on the patient’s Medicare Severity Diagnosis-Related Group (MS-DRG). When a new technology substantially increases the cost of care, the MS-DRG payment may not adequately reflect those costs. To address this gap, Congress authorized the New Technology Add-on Payment (NTAP) in the Benefits Improvement and Protection Act of 2000, and CMS implemented the program in 2001. NTAP provides a temporary supplemental payment for technologies that are new, are inadequately paid under the MS-DRG, and represent a substantial clinical improvement over existing options.

In the FY 2020 IPPS final rule, CMS established an alternative pathway for certain FDA Breakthrough Devices, effective for FY 2021 applications. Rather than requiring these applicants to independently demonstrate newness and substantial clinical improvement, CMS relied on the FDA’s Breakthrough Device designation for those determinations while continuing to evaluate whether the technology met the applicable cost criterion and other program requirements. CMS also established a comparable alternative pathway for certain outpatient device pass-through payment applicants. Many device manufacturers welcomed the change. In a statement on the FY 2020 rule, AdvaMed president and CEO Scott Whitaker said CMS had made the process “more seamless” for breakthrough technologies to qualify for NTAP and had sent a signal that “taking risks to develop new breakthroughs will be supported.”

AUGUST NVHPF SESSION EXAMINED THE GLOBAL IMPLICATIONS OF U.S. DRUG PRICING POLICY

By Annie Tuttle, Health Policy Associate

Panelists considered how tying U.S. drug prices to lower ones abroad could reshape pricing, drug launches, and patient access worldwide.

On August 27, the Northern Virginia Health Policy Forum convened a discussion on the global implications of the United States’ move toward Most Favored Nation (MFN) drug pricing.

The conversation, which was moderated by Applied Policy President and CEO Jim Scott, paired European pharmaceutical market expertise with U.S. drug policy experience. The panel featured Dr. Stefan Walzer, CEO, President, and Founder of MArS Market Access & Pricing Strategy GmbH, and Brittany La Couture, Health Policy Vice President at Applied Policy and a former member of the team at CMS’s Center for Medicare and Medicaid Innovation (CMMI) that developed the International Pricing Index model during the first Trump administration.

At the center of the discussion were CMMI’s GENEROUS model in Medicaid and the proposed GLOBE and GUARD models in Medicare Part B and Part D, each of which would benchmark U.S. prices against lower international ones. When Scott asked whether the policies would lower U.S. pharmaceutical prices, Walzer was skeptical. He observed that manufacturers might respond by seeking higher prices abroad to narrow the gap, but cautioned that the difference between U.S. and European prices is so large that closing it may be unrealistic.

More consequential, Walzer suggested, is where the policy sends new drugs. If a comparatively low price in one country can reduce reimbursement in the far larger U.S. market, manufacturers may have reason to delay or reconsider launches in lower-priced markets altogether, potentially slowing access to new medicines abroad.

Watch a recording of the event below.

THE FDA CONSIDERS OPTIONS FOR REGULATING GENERATIVE AI

As states move to expand the use of AI in clinical care, the FDA is asking what a regulatory framework would look like.

In August, the FDA released a discussion paper on how the Center for Devices and Radiological Health should regulate generative artificial intelligence (AI)-enabled medical devices and opened a public docket for comment through October 19, 2026.

As a discussion paper, the document represents a request for feedback, not formal regulatory guidance. It is significant in that it signals the agency’s interest in building a regulatory framework for something unlike anything it has regulated before: software that generates open-ended, variable output and may change after it reaches patients.

The paper’s release is particularly timely: recent surveys from Gallup and Pew find that about one-quarter of Americans have turned to AI chatbots for health information or advice. A 2024 survey of U.S. hospitals found that nearly a third reported using generative AI integrated with their electronic health records. At least one state is already piloting the use of AI in prescription renewals.

Yet even as individuals and healthcare organizations embrace AI, there is growing unease. Even some of the technology’s own architects are questioning how far these systems can be trusted. Earlier this summer, OpenAI disclosed that two of its models, run in an internal test with their safeguards disabled, broke out of their sandbox and compromised parts of the AI platform Hugging Face over several days—behavior the company attributed to the models trying to solve a cybersecurity test. In an August essay, Bill Gates, a lifelong champion of the technology, warned that as AI models grow more powerful they “could begin to act against our interests and we could lose control,” and called for new guardrails to manage the risks.

In healthcare, where the stakes could include a patient’s diagnosis, treatment, or prescription, such concerns necessarily raise questions of oversight.

LUTHER PROMOTED TO SENIOR HEALTH POLICY ASSOCIATE

STATE INITIATIVES: CLOSING GAPS IN HEALTH DATA PRIVACY

States are expanding privacy protections for health information generated by apps, wearables, consumer technologies, and other sources that fall outside HIPAA’s protections.

Americans overwhelmingly believe their health information should remain private. Yet much of the information that can reveal a person’s health—from smartwatch readings and app entries to location data and inferences drawn from everyday purchases—may fall outside the federal privacy law most closely associated with health information. Protections under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) depend largely on who holds or handles information, leaving much of the data collected outside the traditional healthcare system beyond its reach.

Several states have moved to address this gap. Some have created new protections specifically for consumer health data, while others have expanded safeguards for biometric, genetic, and neural data; restricted the disclosure or use of information related to reproductive and gender-affirming care; or brought health information within broader consumer-privacy laws. The result is a growing state-by-state framework for information that can be deeply revealing about health without ever becoming part of a medical record.

EMPLOYER OVERSIGHT OF PHARMACY BENEFITS IN SELF-INSURED HEALTH PLANS

As scrutiny of PBM arrangements grows, employers are weighing new approaches to managing prescription drug costs, access, and fiduciary responsibilities.

Employer-sponsored insurance (ESI) is the predominant source of health coverage for working-age Americans. For these beneficiaries, decisions made by their employers regarding pharmacy benefit design can directly shape which medications are covered, what utilization controls apply, and how much they pay out of pocket.

Employers frequently contract with pharmacy benefit managers (PBMs) to negotiate with manufacturers, manage formularies and pharmacy networks, and administer utilization management tools intended to help control prescription drug spending. Although employers may delegate these responsibilities to PBMs, employers sponsoring self-funded health plans still generally act as fiduciaries under the Employee Retirement Income Security Act (ERISA). When acting in a fiduciary capacity, they are required to act in the interests of plan participants and beneficiaries when overseeing employee health benefits. However, because PBMs have assumed greater influence over prescription drug coverage and spending, employer oversight of these arrangements has received increasing attention. 

CELEBRATING 20 YEARS OF FISHING FOR HOPE

Organizers present a $524,130 check to the Hope Family Health Center at DHR Health’s 20th annual Fishing for Hope Tournament. (Photo courtesy DHR)

Applied Policy was honored to sponsor DHR Health’s 20th annual Fishing for Hope Tournament. The event, held August 22 in South Padre Island, Texas, raised over half a million dollars for the Hope Family Health Center, a 501(c)(3) nonprofit that serves as the only safety-net clinic in the Rio Grande Valley.

Health Policy Vice President Cheryl Powell, who attended with her son, described it as “an incredibly fun opportunity for us individually and as an organization to honor DHR’s commitment to supporting the Hope Family Health Center’s mission to provide comprehensive medical services to uninsured families and individuals across the Rio Grande Valley.”

Applied Policy is following these regulatory actions currently under review at the Office of Management and Budget:

• Exchange Pre-Enrollment Eligibility Verification (CMS-9873)
• Strengthening the Integrity of Medicaid and CHIP Managed Care, Financing, and Access to Care (CMS-2450)
• Short-Term, Limited-Duration Insurance (CMS-9881)
• Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model (CMS-5546)
• Global Benchmark for Efficient Drug Pricing (GLOBE) Model (CMS-5545)
• Cutting Administrative Requirements for Excellence in Patient Care (CMS-3484)
• Patient Protection and Affordable Care Act; State Innovation Waivers and Health Care Choice Compacts (CMS-9877)
• Contract Year 2028 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and PACE (CMS-4214)
• Clinical Laboratory Improvement Amendments of 1988 (CLIA) Virtual Access, Gynecologic Cytology Proficiency Testing (PT), Personnel Qualification Requirements, and Other Changes (CMS-3478)
• Transparency in Coverage (CMS-9882)
• Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) (CMS-6098)
• Request for Information: Medicare Part D Reasonable and Relevant Pharmacy Contracting Standards (CMS-4217)
• Amendments to Rules Governing Organ Procurement Organizations (CMS-3409)
• Private Health Insurance; New Agent/Broker Registrations for Plan Year 2027 Moratorium Guidance
• HIPAA Privacy Rule: Changes to Support Coordinated Care and Individual Engagement and Reduce Regulatory Burdens

See all rules under OMB review here.

Applied Policy continues to track executive orders that could impact healthcare and health policy. Access our regularly updated page below.

EO REVISES FEDERAL CHILDHOOD VACCINE RECOMMENDATIONS

On August 10, President Trump issued an executive order establishing “Gold Standard Childhood Vaccine Recommendations” and directing federal agencies to implement additional changes to federal childhood vaccine policy following Executive Order 14407. The order categorizes childhood immunizations into vaccines recommended for all children, vaccines recommended for certain high-risk groups, and vaccines recommended through shared clinical decision-making based on an earlier Department of Health and Human Services (HHS) assessment comparing U.S. recommendations with those of peer countries. It directs executive agencies to review and advance the new recommendations where authorized by law and encourages states and territories to consider updating school immunization requirements accordingly.

The order also directs HHS, through its Task Force on Safer Childhood Vaccines, to develop plans for expanding access to single-antigen vaccines beginning with measles, mumps, and rubella (MMR), evaluate vaccine timing and sequencing, develop alternative vaccine adjuvants, strengthen vaccine safety monitoring and research, and conduct ongoing evaluations of vaccine risk-benefit profiles. In addition, the order directs the Departments of Justice, Education, and HHS to support parental choice by taking actions related to religious and medical exemptions, parental authority, disability accommodations, and equal protection under applicable federal law while preserving access to currently available vaccines.

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