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When being a little bit square is a good thing: CMS AppliedVR decision shows how innovative technology can secure a payment pathway under Medicare’s rigid statute | Hogan Lovells


To its credit, the Centers for Medicare & Medicaid Services (CMS) is working to provide access to innovative technology where it can. For example, in the CY 2023 hospital outpatient rulemaking, CMS created a pathway to separate payment for AI-based diagnostic services, and the agency is expected to issue rulemaking providing a pathway to temporary transitional coverage for certain innovative technologies this Spring. Unfortunately, thus far the agency has struggled to find an avenue for coverage of innovative technologies that do not fall within one of the statutorily defined benefit categories, leaving most digital therapeutics not covered.

That said, this is when it pays to be a little bit square. Developers of innovative health technology may find a path to Medicare coverage and payment if they are cognizant of the restrictions of the Medicare statute while developing their technology, and take those restrictions into account during design development, validation, and clinical testing. For example, AppliedVR, Inc. recently received a CMS determination that the company’s digital therapeutic, RelieVRx, falls within the DME benefit category.[i] According to the information in the CMS decision summary granting RelieVRx a Healthcare Common Procedure Coding System (HCPCS) code and benefit category determination, Applied VR utilizes a dedicated hardware headset that is integral to the immersive nature of the therapy and cannot be replicated on other devices (like a laptop or tablet). The headset itself delivers the medically necessary component of the therapy, and has technology built in that impact the algorithms played by the software housed in the headset. Because the headset also meets the durability requirement of 3 years, CMS determined that the device satisfies the criteria to be considered DME.

Often one of the challenges for many digital therapeutics is that there is no dedicated hardware, or if there are physical components to the technology, they are often disposable and do not have a three year minimum life. These design elements may be done for the sake of patient convenience, but in the case of Medicare, it also results in non-coverage. AppliedVR appears to have cracked this code by developing dedicated hardware for their digital therapy such that the DME benefit category requirements are satisfied, giving the technology a home for purposes of Medicare coverage and payment (though we note that CMS deferred making a payment determination for AppliedVR). While many digital therapeutics do not have dedicated hardware, this is an example of how accounting for the rigidity of the Medicare statute in device development can help with the long-term reimbursement strategy, generating insurance payment and investor interest.

CMS’s decision that RelieVRx falls within the DME benefit category is not groundbreaking. The agency did not apply any new standards to make the determination or deviate from how they’ve treated other products in the past. While the decision may show a willingness on the part of the agency to facilitate coverage and payment for innovative technology, the bigger lesson is in how industry can help put CMS in a position to make those decisions within their existing regulations and statutory limitations. By developing a component of the therapy that clearly falls within a defined statutory benefit category, AppliedVR paved the way for CMS to apply a rigid statute and its longstanding interpretations of that statute to a very innovative technology. Until legislative changes are made to the Medicare statute to provide a new benefit category for digital therapeutics and other innovative technologies, companies should think about how they can be just a little bit more square so as to fit within the benefit categories currently defined in statute.

[i] 2022 HCPCS Application Summary for Biannual Drug and Biological Items and Services, CMS.gov, https://www.cms.gov/files/document/2022-hcpcs-application-summary-biannual-2-2022-non-drug-and-non-biological-items-and-services.pdf (last visited Mar. 23, 2023).

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