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 Systems (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. Shortly after, it proposed a new pathway to accelerate national coverage for certain breakthrough devices, with the proposal open for public comment through October 13, 2026.
Coverage and payment are separate determinations, and the two policies affect them differently.
Background
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.”
Elimination of the Alternative Pathway
Support was not universal. Commenting on the FY 2020 IPPS rulemaking, the Medicare Payment Advisory Commission (MedPAC) opposed allowing FDA Breakthrough designation to substitute for a showing of substantial clinical improvement, maintaining that Medicare, “not the FDA, should adjudicate spending determinations” for the Medicare population.
Nearly seven years later, CMS has reached the same conclusion. In the FY 2027 IPPS final rule, CMS repealed the alternative pathway for both NTAP and outpatient device pass-through payments, beginning with FY 2028 applications. Applicants will have to meet all applicable eligibility requirements, including substantial clinical improvement, regardless of FDA Breakthrough Device designation.
CMS finalized the repeal with a limited transition for technologies already in development. A technology that received FDA Breakthrough Device designation as of September 30, 2026, and receives FDA marketing authorization for the covered indication by May 1, 2028, may continue to apply under the alternative NTAP pathway through FY 2029; a parallel exception preserves the outpatient device pass-through alternative pathway through CY 2029. Technologies already receiving payments under the alternative pathway, or approved for FY 2027 under it, remain eligible.
The Proposed RAPID Pathway
In August, CMS issued a proposed procedural notice advancing the Regulatory Alignment for Predictable and Immediate Device (RAPID) coverage pathway it had announced jointly with the FDA in April. Published in the Federal Register on August 11, the notice opened a 60-day public comment period that closes October 13, 2026.
RAPID would create an accelerated national coverage pathway for certain eligible FDA Breakthrough Devices; in vitro diagnostics, for which coverage is set by the Medicare Administrative Contractors (MACs), are not eligible. Rather than relying on FDA designation alone, the pathway emphasizes earlier collaboration among CMS, FDA, and manufacturers during device development. Before pivotal clinical studies begin, CMS and FDA would identify the Medicare-relevant health outcomes that should be evaluated so that evidence generated for FDA review could also support a future Medicare national coverage determination (NCD).
For qualifying devices that satisfy the pathway’s requirements, CMS proposes issuing a proposed NCD on the same day as FDA marketing authorization, with a goal of finalizing coverage approximately 60 days later for eligible Class II devices and 90 days later for eligible Class III devices.
Implications
Although the alternative pathway repeal and RAPID address different Medicare determinations, together they suggest an increased emphasis on earlier Medicare engagement and Medicare-specific evidence development.
Manufacturers pursuing NTAP will no longer be able to rely on FDA Breakthrough Device designation to satisfy the substantial clinical improvement criterion, subject to the limited transition described above. At the same time, RAPID would encourage manufacturers to begin considering Medicare coverage requirements during clinical study design rather than after FDA authorization.
On multiple occasions, we have been engaged by clients who learned too late that a product they believed was ready for market did not meet Medicare coverage criteria. These requirements are far easier to address when coverage and reimbursement considerations are incorporated into the earliest phases of product development.
As Medicare policy for breakthrough devices continues to evolve, Applied Policy will be working with device manufacturers, investors, providers, and other stakeholders to assess how changes may affect individual products, anticipate Medicare evidence requirements, and develop coverage and reimbursement strategies. We are also closely monitoring the RAPID proposal and will continue to assess its implications as the policy develops.
