Medical Device Pass-Through Payments: The Code Is Only the Start of the Payment

Medical device pass-through payment gives a hospital temporary additional Medicare payment for a qualifying device used in outpatient care. A wrong category, an inflated charge or a credit left off the claim can make Medicare pay too much.

The amount depends on the device category, the hospital’s charge adjusted to cost, and the device allowance already inside the procedure payment. If you work in healthcare reimbursement, purchasing or device sales, you may know how the product’s reimbursement pitch became the claim Medicare paid.

How Does Reimbursement Work for Medical Devices?

Medical device reimbursement usually includes the implant’s cost in Medicare’s payment for the procedure or hospital stay. The institution buys the device, but Medicare pays through the facility’s payment system. A device charge appearing on a hospital bill can therefore sit inside a bundled payment.

Device pass-through payment is a temporary exception under the hospital outpatient prospective payment system. Medicare groups outpatient services into ambulatory payment classifications. Pass-through adds payment for an eligible device above the device amount already included in the procedure payment.

Inpatient new technology add-on payment is a separate exception under the inpatient system. Physician services have their own payment stream.

A Device Category Can Cover Competing Brands

The Centers for Medicare & Medicaid Services establishes device categories. Eligible devices matching a category can qualify for payment. The category’s long descriptor and the agency’s accompanying guidance define what belongs in it. A competing manufacturer’s device can fit the same category.

That is why a product-specific reimbursement pitch needs more than a brand name. The connection runs from the actual device to the category descriptor, then to its use in the patient’s procedure.

The CMS device pass-through rule also requires the device’s use to be reasonable and necessary for diagnosis or treatment. Food and Drug Administration authorization, Medicare coverage, category eligibility and the amount paid each answer a different question. A claim has to connect them to the service the patient received.

What Makes a Device Eligible for Pass-Through Payment?

A qualifying device must be an essential part of the service, used for one patient, and in contact with human tissue. It must be surgically implanted or inserted, temporarily or permanently, or applied in or on a wound or other skin lesion. The category excludes ordinary incidental supplies such as sutures and surgical kits, and equipment paid for through depreciation.

FDA approval or clearance is required unless an exemption applies, including for qualifying Category B investigational devices. The application must arrive within three years of initial FDA approval or clearance. A documented, verifiable delay in U.S. market availability allows CMS to consider an application within three years of market availability instead.

For a new category, the agency asks whether an existing or previously used category already describes the device. It also examines clinical improvement and cost. Those questions reach different records inside a manufacturer: what the product does, how it compares with available treatment, and what hospitals are expected to pay for it.

The Three Cost Tests Use Different Comparisons

For categories subject to the cost tests, all three comparisons must be met. Each uses the estimated average reasonable cost of devices in the category:

1. That cost must exceed 25% of the procedure payment for the related service.
2. It must exceed the device-related portion already inside that procedure payment by at least 25%.
3. The difference between the estimated device cost and the device portion already included must exceed 10% of the procedure payment.

These tests decide whether a new category qualifies. The individual hospital’s additional payment comes from the claim calculation.

What Changes for a Breakthrough Device?

The breakthrough alternative substitutes FDA breakthrough designation and marketing authorization for the separate substantial-clinical-improvement showing. Marketing authorization must cover the indication for which the device received breakthrough designation. The other eligibility and cost requirements still apply.

The rule in force in October 2026 carries specific dates: the alternative applies to devices whose pass-through status began on or after January 1, 2020, and on or before January 1, 2029, with breakthrough designation received by September 30, 2026.

Under the traditional route, the agency compares the device’s improvement in diagnosis, treatment or bodily function with previously categorized devices or other available treatment. For an insider, the clinical evidence and the indication described in the application are part of the payment story, alongside the commercial forecast.

How Is the Pass-Through Payment Calculated?

The hospital’s pass-through payment starts with its device charge adjusted to cost, then subtracts the device amount already included in the procedure payment. That subtraction is the device offset. Medicare has already allowed for a device in the procedure rate, so that allowance comes out of the additional payment.

The agency’s explanation of the payment method describes multiplying the hospital’s charge by its cost-to-charge ratio. The hospital’s charge, the ratio and the offset each affect the result. The manufacturer’s list price is no substitute for those inputs.

The Centers for Medicare & Medicaid Services publishes device offset code pairs through annual and quarterly updates. The pairing connects a device code to a procedure and its device allowance. In its October 2025 instructions, for example, the agency assigned different offsets to an absorbable bone anchor category depending on the ankle or distal tibia fracture procedure performed.

The device selected, the procedure performed and the codes submitted have to tell the same story. Category eligibility alone leaves the hospital-specific calculation unfinished.

When Does Device Pass-Through Payment Expire?

Device pass-through eligibility lasts at least two years and no more than three, beginning with the first pass-through payment. The clock belongs to the category. A hospital starting to use a device later enters that existing window.

The application deadline, the category’s payment start, its expiration and the patient’s date of service are separate dates. FDA authorization helps determine the application window. The category’s effective and expiration dates determine the temporary payment period. The claim concerns the service furnished within that payment history.

The agency’s calendar-year 2026 final-rule table illustrates the problem with treating an annual list as a live inventory. It included the single-use urinary tract endoscope HCPCS category code C1747 with a December 31, 2025 expiration date.

Categories can also enter through quarterly review. When pass-through expires, the device’s cost moves into the procedure payment. An old sales presentation and a later claim can therefore describe different payment periods for the same device.

How Surgery Center Pass-Through Differs From Device-Intensive Payment

An ambulatory surgery center can receive separate payment for a hospital outpatient pass-through device. Under the CMS ambulatory surgical center claims manual, Medicare’s claims contractor prices the device from its acquisition cost or invoice. This differs from the hospital outpatient calculation using a cost-adjusted charge.

The surgery center procedure payment may also be reduced for a specified device-and-procedure pair. The manual places that offset on the procedure payment, while the device is paid separately.

Device-intensive status works differently. It changes the payment rate for a procedure containing a substantial device cost. The device portion uses the hospital outpatient amount and the service portion uses the surgery center rate. The device remains within the procedure payment.

The surgery center payment rule has used a procedure-code device offset greater than 30% since calendar-year 2019, alongside its device requirements. It replaced the earlier greater-than-40% threshold.

Device Credits Follow the Payment Method

The manual revision effective July 1, 2026 distinguishes devices paid inside a procedure from separately paid pass-through devices. For specified procedures with bundled device payment, FB identifies a device supplied without cost or with full credit. FC applies to qualifying partial credits of at least 50% of the device’s cost.

For separately payable pass-through devices, identified by payment indicator J7, the credit belongs in the device’s own claim information. The manual requires the device line’s charge to reflect the credit and, where applicable, the claim to carry the credit amount and invoice price. It says the associated procedure does not take FB or FC for that separately payable device.

That puts the supplier’s credit and the billing department’s device charge in the same inquiry. Purchasing may see the credit first. The payment question is whether the claim reflects it in the place this payment method requires.

Manufacturer Estimates Become Payment Inputs

Before Medicare has outpatient claims data for a category, the agency can use device cost and projected utilization supplied in the manufacturer’s pass-through application to estimate spending. As claims data become available, it updates its estimates. The application and the eventual hospital claims describe different stages of the same commercial activity.

The manufacturer’s forecast concerns expected cost and use. Acquisition records show what a facility actually bought. Charges and claims show what it presented for payment. Those records let us examine how an application assumption became a reimbursement pitch and how that pitch reached a hospital bill.

The Centers for Medicare & Medicaid Services also uses hospital charge data in updating outpatient payment rates. The temporary payment period sits alongside the collection of information that informs later procedure rates.

Reprocessed Devices Exposed the Cost-and-Charge Problem

The agency’s discussion accompanying the 2002 outpatient payment rule shows why acquisition cost matters. It described moving from its earlier refusal to pay pass-through for reused or reprocessed devices to allowing eligible reprocessed single-use devices that met FDA criteria and fit a payment category. It expected hospital charges for those devices to reflect their lower cost.

The agency explained the incentive: a hospital charging the same amount for a cheaper reprocessed device would keep a larger pass-through margin at Medicare’s expense. The historical example shows why the product’s purchasing history can explain something the category code alone leaves out.

The Evidence Behind a Pass-Through Claim

A pass-through review connects the manufacturer’s description with the device actually used, the applicable category and payment dates, the procedure, and the payment inputs. In the hospital setting, that includes charges, the cost-to-charge ratio and the offset. In a surgery center, the acquisition price and credits can feed the separately paid device line directly.

A health care insider may know where that chain broke: a reimbursement presentation describing the wrong category, a procedure code that does not match the service, or a credit that never reached billing. We work with that knowledge to build a qui tam case around what the claim represented, what Medicare paid and who understood the difference. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When the Reimbursement Pitch Reaches the Claim

If you know how a device’s reimbursement story became a Medicare claim, talk to our whistleblower experts about the category, costs and billing behind it. We build the case with you and bring in medical device fraud whistleblower lawyers who understand hospital and surgery center payment. We stay beside you as the commercial records and claims come together into your strongest case.