The effect of medicare's new technology add-on payment policy.

Abstract

The new technology add-on payment (NTAP) is the first payment incentive under Medicare's inpatient prospective payment system (IPPS) related to technology. Implemented in 2001, the NTAP reimburses hospitals up to fifty percent of the cost related to the use of eligible new technologies in addition to the prospective Medicare Severity Diagnostic Related Group (MS-DRG) payment. The NTAP was implemented to ensure access of new clinically beneficial technologies to Medicare beneficiaries while the prospective payment system recalibrated to reflect the cost of new technology. For a technology to be eligible for NTAP, it must meet three criteria: (1) the technology must be considered new, as defined by the Centers for Medicare and Medicaid Services (CMS) as within two to three years following FDA approval; (2) the technology must be considered costly and inadequately reimbursed under the current MS-DRG assignment; (3) the technology must provide a substantial clinical improvement to Medicare beneficiaries. Once a technology is granted new technology add-on payment status, a hospital is eligible to receive NTAPs for up to three years. Upon the sunset of the NTAP, the prospective DRG rates are recalibrated to reflect the utilization of the new technology and a hospital will receive only the associated DRG payment when the technology is used. As of September 30, 2007, seven technologies have been granted NTAP status. With the exception of one pharmaceutical technology, all of the technologies have been implantable medical devices. This research evaluates the effect of Medicare's NTAP program. The NTAP policy offers the unique opportunity to evaluate hospitals' response to payment incentives under a mature prospective system. This research is the first to evaluate the value of the NTAP policy and empirically estimate the effect of the NTAP policy on the utilization of new technology. The thesis is organized around three research questions: 1) does the presence of the NTAP policy affect the probability new technology is used? 2)does the amount of the NTAP affect the probability a new technology is used? 3) what is the value of the NTAP policy? The results increase the understanding of how hospitals respond to payment incentives, which is becoming increasingly important as health care reform seeks to develop incentives to improve the efficiency, quality and safety of health care delivered.