Reimbursement Red Flags: The Questions Investors Should Ask

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FDA authorization, whether a 510(k) clearance, a De Novo grant or a PMA approval, says nothing about whether anyone will pay for the device.

A device can come through diligence with a rigorous technical assessment and a realistic regulatory timeline and still stall commercially, because payment was never examined as closely.

The Reimbursement Reality Check

A pitch deck's reimbursement slide deserves the same scrutiny as its clinical data. Here's what to look for, and what to ask.

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 CPT codes are a temporary set of codes for emerging technologies, services and procedures. They support data collection but don't guarantee payment.

The reality:

• They carry no relative value units, so payment is set by each payer or Medicare contractor, and some payers don't pay for them at all
• Coverage decisions are also left to individual payers and contractors
• A Category III code is generally archived five years after publication unless it is extended, and becoming a Category I code takes a separate decision by the AMA CPT Editorial Panel

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?

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