CMS Inpatient Proposal Would Make Designated Devices Prove Clinical Improvement for Add-On Pay

The Centers for Medicare & Medicaid Services has proposed repealing the alternative pathway that allows devices with FDA breakthrough device designation to qualify for Medicare new technology add-on payments without showing that they substantially improve on existing treatments, according to the agency's fiscal year 2027 inpatient prospective payment system proposed rule, published in the Federal Register on April 14.

The proposal would also end the matching alternative pathway for transitional pass-through payments for devices under the Outpatient Prospective Payment System, and the add-on pathway for certain antimicrobial products designated as Qualified Infectious Disease Products or approved under FDA's Limited Population Pathway.

Back to three criteria

New technology add-on payments are extra Medicare payments to hospitals for inpatient cases using qualifying new technologies. Under the proposed rule, every applicant for FY 2028 and later would need to meet all three criteria in the regulations: the technology must be new, it must be costly enough that the standard diagnosis-related group payment is inadequate, and it must demonstrate a substantial clinical improvement over existing services or technologies.

CMS created the alternative pathways in its FY 2020 and FY 2021 inpatient rules and the CY 2020 outpatient rule. The proposed rule says CMS stated at the time that it was prudent to gain experience with the pathway. "As we have gained experience, we have concerns with the limited evaluation process for alternative pathway applications for new technology add-on and OPPS device pass-through payments," the agency wrote.

"By requiring all technologies to demonstrate that they offer a substantial clinical improvement as part of our evaluation process, we believe we will be better able to make evidence-based decisions on which technologies should receive these additional payments," CMS said.

The agency said the change would not affect Medicare coverage of a technology. "Whether a technology receives new technology add-on payments or OPPS device pass-through payments does not affect coverage of the technology or the ability for Medicare providers to provide such technology to patients where appropriate," the rule says.

Who keeps the old pathway

Technologies already under review for FY 2027 add-on payments under the alternative pathway, and those previously approved under it, would remain eligible, according to the proposal. For outpatient pass-through, applications received on or after October 1, 2026, would have to demonstrate substantial clinical improvement, while applications for devices with breakthrough device designation submitted by September 30, 2026, could still be approved under the alternative pathway. CMS also asked for information on other approaches, "such as alternative strategies for leveraging FDA designations."

The proposed rule as first published listed a comment deadline of April 10, 2026. A correction published April 16 called that a typographical error and set the deadline at June 9, 2026. In its fact sheet on the rule, CMS estimated that additional payments for inpatient cases involving new medical technologies would increase by about $464 million in FY 2027, mainly from continuing add-on payments for several technologies.

Industry group AdvaMed said in an emailed statement to MedTech Dive that the alternative pathway policy has worked well and that "it would be disappointing if this progress were rolled back," as reported by Healthcare Dive on April 17. "We are working closely with CMS leadership on what we hope is a misunderstanding of this program and its critical role in American medtech leadership," the group said. The same report said FDA granted 164 breakthrough device designations in fiscal 2025.