Modernizing Medicare Coverage Pathways For Prescription Digital Therapeutics

Outpatient visit restrictions imposed in early 2020 due to COVID-19 increased demand for effective virtual health care interventions. Telemedicine visits skyrocketed in the first half of last year. However, while federal agencies have taken significant action to shore up telemedicine use, short of a few regulatory carve outs for remote patient monitoring and mental health, digital therapeutics (DTx) have been left by the wayside.

Digital therapeutics, defined by the Digital Therapeutics Alliance as “evidence-based therapeutic interventions driven by high-quality software programs to prevent, manage, or treat a medical disorder or disease,” have emerged as a new therapeutic modality for the prevention, management, or treatment of chronic, behavior-modifiable disease. DTx can act both as monotherapies—often as step one in a treatment algorithm targeting diet, exercise, behavioral health, or lifestyle—and as combination products with pharmaceuticals. These products are currently regulated under the Food and Drug Administration’s (FDA’s) Software-as-a-Medical-Device framework.

While the Centers for Medicare and Medicaid Services (CMS) policy on telemedicine has been a bellwether of change for commercial payers, the agency has yet to develop guidance for DTx reimbursement. For the duration of the COVID-19 public health emergency, the FDA has relaxed regulatory requirements to increase access to digital health products for remote monitoring and the management of psychiatric conditions. However, the absence of an established, repeatable, and scalable path to commercialization and prescription of DTx has bottlenecked broader uptake. Consequently, current DTx evaluation decisions among commercial payers are largely ad-hoc and based on individual priorities.

Modeling DTx coverage policy on international examples, such as Germany’s Digital Health Care Act, in tandem with such prior innovative approaches to US care delivery as Medicare Advantage and managed care benefits, may allow more patients to benefit from this emerging therapeutic modality until Congress acts to approve a dedicated benefit category for DTx under Medicare.

The Growth And Potential Of Digital Therapeutics

Investments in US DTx companies have increased by an average of 40 percent per year over the past seven years, surpassing $1 billion in 2018. Two factors underlie this growth: one, the increased prevalence of personalized hardware and smartphones, and two, the more than 600 peer-reviewed efficacy and effectiveness studies for digital health as a medical intervention. The majority of DTx to date apply counseling approaches—such as cognitive behavioral therapy, motivational enhancement therapy, and biofeedback therapy—into software to manage or treat behavior-modifiable diseases. Additionally, data collected from DTx may be used by clinicians to prioritize outreach, make medication changes, and improve quality of in-person visits.

Administrative And Legislative Proposals

On January 12 of this year, CMS issued a controversial interim final rule, the Medicare Coverage of Innovative Technology (MCIT) coverage pathway (the rule’s effective date is now delayed until at least May 15), that would automatically provide Medicare coverage for devices receiving FDA breakthrough designation for four years. This change aims to address the current nine- to twelve-month gap between FDA approval and Medicare National Coverage Determinations, as well as the inconsistent coverage by local Medicare administrative contractors.

However, this rule change prohibits breakthrough-designated devices without an existing Medicare Part A or Part B benefit category from receiving automatic coverage. As digital therapeutics are a relatively new invention and do not fall under an existing Medicare benefit category, they would be excluded from coverage. A December 2019 House bill (H.R.5333–Ensuring Patient Access to Critical Breakthrough Products Act of 2019) included specific language to cover devices granted breakthrough designation that don’t fall under an existing benefit category. This language may serve as a framework for future coverage changes that include digital therapeutics. Although this change would only cover breakthrough-designated products, it may provide the initial push that commercial payers need to include DTx products on their own formularies. Furthermore, a March 2020 Senate bill (S.3532–Prescription Digital Therapeutics to Support Recovery Act) would amend the Social Security Act to cover all FDA-cleared or approved prescription digital therapeutics intended to prevent, manage, or treat mental health and substance use disorders under Medicare and Medicaid.

The State Of Reimbursement

Current health care reimbursement models are largely dictated by the site of care. We currently pay for health care products and services in one of two ways: as a procedure or physician-administered drug, or as a retail or prescription product with a National Drug Code (NDC) via the traditional pharmacy benefit. The former is typically reimbursed through either a unique Current Procedural Terminology code established by the American Medical Association or an ICD-10-PCS code maintained by CMS. For the latter, products typically receive an NDC or National Health Related Items Code (NHRIC) number, that is, a unique product identifier, upon—or shortly after—FDA approval. Payers then review the drug’s evidence and make coverage and formulary determinations. The drug appears in an electronic prescribing workflow within the electronic medical record, enabled at scale by the NDC. The drug then can be prescribed through the software, and the script can go to the pharmacy. The pharmacy stocks the drug via a wholesaler, dispenses it to the patient, collects the associated copayment, and files a claim with the patient’s pharmacy benefits manager.

However, neither of these two pathways currently exists for DTx. Furthermore, there are no universal clinical workflows to prescribe and monitor DTx. Pharmaceutical and medical device reimbursement relies on NDC and NHRIC numbers within payers and pharmacies. Per FDA guidance written in 2016, NDC and NHRIC codes will be discontinued for software-as-a-medical-device products, including DTx, starting in September 2021. These will be replaced with unique device identifiers, which may be difficult to wedge into existing information exchange infrastructure.

Pharmacy benefit managers are currently facilitating a pathway for DTx adoption and are likely the optimal entry point for DTx coverage and reimbursement in the near term. In 2019, ExpressScripts and CVS Caremark each announced digital formularies, making it easier for employers and commercial health plan sponsors to find DTx products that best fit their beneficiaries’ needs. ExpressScripts recently expanded its digital health formulary to target five new conditions: women’s health needs, tobacco cessation, muscle and joint pain, caregiver care, and COVID-19 workplace support.

Defining A CMS Roadmap For Reimbursement

Defining a CMS coverage pathway for DTx will require reimbursement rules for the time a clinician spends on remote monitoring of DTx data, akin to payment for a medical service, and the DTx product itself, akin to payment for a medical device or pharmaceutical.

Clinician Service Coverage: Remote Chronic Care Management

Medicare covers remote chronic care management under existing CPT codes, detailed in exhibit 1. Many of these codes could also be used for reimbursing the time the clinician spends on remote monitoring of DTx data.

Exhibit 1: Remote patient monitoring and chronic care management

Source: Federal Register.

Product Coverage: A Dedicated Medicare Benefit Category

There are two avenues for coverage of DTx as a product. The first is by establishing a benefit category for digital therapeutics under Medicare through an act of Congress. Congress has previously established Medicare benefit categories for mammography screening (1988), preventive benefits (2010), home infusion therapy (2016), and, most recently, opioid use disorder treatment services (2018).

As establishing an independent benefit category for DTx requires legislative action, in the interim CMS can, under the MCIT rule, include DTx and software-as-a-medical-device products under the durable medical equipment (DME) benefit category. DME includes products such as hospital beds, wheelchairs, blood sugar monitors, and continuous positive airway pressure (CPAP) devices, and would be an effective temporary category for DTx until Congress establishes a dedicated benefit category. Most DTx products meet the five criteria that make up the regulatory definition of DME per 42 CFR § 414.202. Therefore, any digital therapeutics that receive breakthrough designation would receive Medicare coverage under MCIT.

Product Coverage: A Glidepath Through Capitation

The second avenue for DTx coverage is under Medicare Advantage (MA) and Medicare managed care organizations. Recent coverage changes for nutrition, transportation, and home care illustrate how these organizations have pioneered innovative care mechanisms that weren’t previously covered under the traditional Medicare and Medicaid programs but have been shown to improve patient outcomes and experience. Most DTx to date have been used in commercially covered patients, but, given the operational flexibility and financial alignment of managed care programs, they have a clear path to adoption within managed care.

Most DTx have been cleared by the FDA through the 510(k) or De Novo pathways, as opposed to the premarket approval pathway of biomedical therapeutics. Only about 10 percent of products need clinical data for 510(k) clearance; most simply need to show equivalence to previously commercialized devices. Consequently, commercial payers remain concerned that the evidence base for some DTx is either insufficient to merit coverage or that the results will not generalize from clinical trials to real-world populations. As MA plans track patient outcomes as part of the Star Rating system, other payers may see potential benefits in MA plans as useful real-world evidence for inclusion in commercial fee-for-service plans.

A coverage pathway through managed care would benefit from reviewing two elements of Germany’s regulatory framework for digital health products, established via the late 2019 Digital Healthcare Act (DVG). First, under the DVG, digital health applications that pass a fast-tracked regulatory review are eligible for reimbursement by all of Germany’s statutory health insurance providers, which cover 90 percent of the country’s population; however, annual reimbursement is contingent on the provision of evidence of a medical benefit or patient-related improvement, for example, medication adherence, associated with its use either prior to commercialization or within 12 months of being added to Germany’s central registry of digital health products. Similarly, startups looking for early clinical validation of products prior to raising the funds required for a large-scale clinical trial could collect real-world evidence of their product’s impact on managed care beneficiaries to persuade both MA plans to continue annual reimbursement of DTx and commercial fee-for-service payers to consider their products.

Second, the DVG requires outcome-related components to be a subject of price agreements, which incentivizes both manufacturers and payers to assess digital tools on an ongoing basis. This scheme would both align with the current financial arrangement of managed care plans and allow them to make cost-effective coverage decisions.

Payment Model Design

Commercial payment of DTx may continue through traditional fee-for-service, alternative payment models, or a combination. It’s likely that commercial payers will more quickly cover DTx for short-term indications with easily comparable treatment modalities, such as insomnia and sedative hypnotics. DTx for chronic diseases that require years to show clinical benefit will face a tougher path toward coverage in the absence of creative payment models.

As a financial hedge when considering the commercialization and adoption of DTx for chronic disease, payers may opt for creative contracting structures. These may include traditional pay-for-performance models, that is, to pay DTx manufacturers a base fee per-patient with milestone payments based on measurable patient outcomes, akin to the German DVG model; rebate models, in which manufacturers pay back a portion of the fee if their covered patients do not adhere to a prescription DTx or companion drug; or step therapy, in which DTx are included in a payer’s tiered list of preferential drugs for management of a given condition and would require prior authorization.

The leap in telemedicine and virtual care model adoption during the COVID-19 pandemic merits revisiting our regulatory, commercialization, and reimbursement processes for innovative medical products, including DTx. As the investment appetite and body of academic literature for DTx increases, adapting existing coverage pathways to introduce these new products into the clinic will both improve the fidelity of real-world evidence collection and ensure broader access to care for beneficiaries.

Author’s Note

Nisarg Patel is a cofounder of and shareholder in Memora Health, Inc., and is employed by Bessemer Venture Partners, which invests in health care companies. The author’s employers had no role in the preparation, review, or approval of this work and the decision to submit this work for publication. Thanks to Sanket Dhruva of the UCSF Department of Medicine and Ariel Stern of Harvard Business School for their comments on earlier drafts.