Device and drug makers will lose the shortcut they have used to secure supplemental Medicare payments since 2020, under a provision of the fiscal 2027 Inpatient Prospective Payment System final rule.
Beginning with applications for fiscal 2028, every applicant for a new technology add-on payment must demonstrate substantial clinical improvement over existing treatments, including products carrying an FDA Breakthrough Device designation, a qualified infectious disease product designation or approval through the FDA’s limited population pathway for antibacterial and antifungal drugs.
The same repeal applies to outpatient device pass-through applications received on or after Oct. 1, 2026.
Six things to know:
1. The pathway being closed carried most of last year’s approvals. CMS is approving 19 new technology add-on payments for 2027. Sixteen came through the alternative pathway — all of them FDA-designated Breakthrough Devices — and account for about $418 million in projected 2027 payments. The three traditional-pathway approvals account for about $481 million. Total add-on payments for 2027, including 41 technologies continuing from prior years, come to roughly $1.74 billion.
Application volume tells the same story. CMS received 47 add-on payment applications for 2027: 32 under the alternative pathway and 15 under the traditional pathway. Commenters told CMS that add-on payment applications had risen 161% between 2020 and 2027, which they framed as evidence the pathway was working as designed.
2. All applicants now face the same three tests. Starting with 2028 applications, technologies must show they are new and not substantially similar to an existing technology, that the applicable diagnosis-related group rate is inadequate, and that the technology represents a substantial clinical improvement. The third test is the one Breakthrough Devices, qualified infectious disease products and limited population drugs were previously deemed to satisfy by virtue of their FDA designation.
3. Grandfathering runs through 2029, and the clock has already started. Products designated by the FDA as a Breakthrough Device or qualified infectious disease product as of Sept. 30, 2026, may still use the alternative pathway for fiscal 2028 and 2029 add-on payments, provided they receive marketing authorization for the covered indication by May 1, 2028. Limited population drugs face the same May 1, 2028 authorization deadline.
On the outpatient side, devices with a Breakthrough designation as of Sept. 30, 2026, remain eligible for pass-through payment under the alternative pathway through calendar 2029. Existing device category codes are unaffected and remain in effect for at least two years and no more than three.
Technologies already approved under the alternative pathway, including the 16 approved for 2027, keep their payments.
4. The antimicrobial exception did not survive. Commenters mounted the sharpest opposition here, arguing that antibiotic registration trials use non-inferiority designs, the accepted standard for serious bacterial infections where placebo controls are not ethical and therefore cannot generate the head-to-head superiority data a substantial clinical improvement finding typically requires. They said the repeal would weaken antibiotic research incentives while antimicrobial resistance remains a national security threat and the pipeline is fragile and that few qualified infectious disease products use the pathway anyway, limiting the cost to Medicare.
CMS said it is unclear whether add-on payment is the right vehicle for supporting antimicrobial development absent broader reimbursement reform and noted that its regulations do not require placebo-controlled or head-to-head superiority evidence to establish substantial clinical improvement. CMS also eliminated the conditional approval process that let antimicrobial applicants proceed without FDA authorization by July 1. All applicants must now hold marketing authorization by May 1 of the prior year.
5. MedPAC backed the repeal, and has for seven years. The commission told CMS that Medicare, not the FDA, should adjudicate spending decisions based on the needs of the Medicare population, and that Medicare should not pay more for technologies not yet proven to improve outcomes. MedPAC noted it opposed using the Breakthrough Devices Program to qualify technologies for add-on payment as far back as its comment letter on the 2020 rule, the rulemaking that created the pathway.
Another commenter cited published analyses finding that among Breakthrough Devices approved for outpatient pass-through payment between 2017 and 2023, fewer than two-thirds of the supporting studies met any primary effectiveness endpoint, and half of primary endpoints were surrogate measures.
6. Manufacturers say the timing math does not work. Opponents argued the substantial clinical improvement standard is unreachable inside the add-on payment window. For devices cleared through the FDA’s 510(k) pathway — which requires no premarket clinical trial data — the period needed to build comparative outcomes literature overlaps the same two- to three-year newness window in which the technology must apply. Commenters also flagged cell and gene therapies treating rare conditions, where small populations make conventional trial designs difficult, and objected to CMS treating newer-generation CAR T-cell therapies as substantially similar to first-generation products.
CMS said the regulations are intentionally broad about acceptable evidence, and a technology denied add-on payment is still covered and still paid through the applicable diagnosis-related group or ambulatory payment classification.
Click here to access the final rule.
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