Reimbursement Red Flags: The Questions VCs Forget to Ask

FDA clearance proves your device is safe and effective. It says nothing about whether anyone will pay for it.

We've seen too many medical device investments stumble post-clearance because reimbursement wasn't adequately diligenced. The technical assessment was rigorous, the regulatory timeline was realistic, but nobody asked the hard questions about payment.

The Reimbursement Reality Check

Every pitch deck has a slide on reimbursement. Most of them tell a story that's more aspirational than accurate. Here's what we look for—and what you should be asking.

Red Flag #1: "We'll Use Existing Codes"

Many devices claim they'll be reimbursed using existing CPT codes. Sometimes this is true. Often it's wishful thinking.

Questions to ask:

• Which specific codes will be used? (Get the actual CPT numbers, not categories)
• Have similar devices been successfully billed using these codes?
• What's the payment rate in different settings (hospital outpatient, ASC, physician office)?
• Have payers challenged claims for similar devices?

Red Flag #2: Category III CPT Code Reliance

Category III codes are "tracking codes" for emerging technologies. They enable data collection but don't guarantee payment.

The reality:

• Many payers don't reimburse Category III codes
• Those that do often pay at a fraction of Category I rates
• Conversion to Category I typically takes 3-5 years and requires substantial utilization data

Red Flag #3: "The Hospital Will Absorb the Cost"

Some devices are positioned as "hospital cost" items that don't require separate reimbursement. This can work—but only under specific conditions.

Questions to validate:

• Does the device reduce overall procedure costs enough to justify hospital purchase?
• Has this been validated with actual hospital CFOs, not just clinical champions?
• What's the payback period from the hospital's perspective?
• How does this change across different hospital types (academic, community, rural)?

Red Flag #4: No Coverage Policy Analysis

Even with appropriate codes, many devices face coverage restrictions. Payers (both Medicare and commercial) publish coverage policies that determine when they'll pay for specific procedures or devices.

Diligence should include:

• Review of relevant Medicare Local Coverage Determinations (LCDs) and National Coverage Determinations (NCDs)
• Analysis of major commercial payer policies
• Assessment of prior authorization requirements
• Understanding of medical necessity criteria

Red Flag #5: Health Economics Vaporware

Many companies claim their device is "cost-effective" without rigorous health economic analysis.

What you should see:

• Budget impact models with realistic assumptions
• Cost-effectiveness analysis comparing to standard of care
• Real-world evidence of economic impact (if device is on market)
• Engagement with health economists (not just internal projections)

Building Reimbursement Diligence Into Your Process

• Talk to payers early: Formal payer advisory boards can validate reimbursement assumptions
• Engage reimbursement consultants: Independent assessment of coding and coverage strategy
• Reference check with hospitals: Validate willingness to pay from actual purchasing decision-makers
• Model multiple scenarios: What happens if reimbursement is 50% of projections?