NTAP Explained: What the FY2027 Medicare Rule Changed

You can usually tell pretty quickly whether a founder understands how hospitals actually get paid.

Ask what happens to a hospital's margin the first time it uses your device. If the answer starts with the price of the device, they're probably missing the bigger picture. If it starts with the Medicare DRG, they've at least done the work.

Most haven't.

That distinction matters because the economics of a new technology are not determined by what the hospital pays you. They're determined by what Medicare pays the hospital for treating the patient.

That is also why the FY2027 rule, released on July 31, has been easy to misunderstand.

No, NTAP Was Not Repealed

The headlines have been a little sloppy on this point.

NTAP was not repealed.

The New Technology Add-on Payment remains in federal law, and Medicare projects roughly $1.7 billion in NTAP payments next year, more than ever before.

What changed is narrower, but still important.

Medicare eliminated one of the ways a technology could qualify.

That is a very different thing. Before we dive deeper, let's take a look into what NTAP is and how it might apply to you.

What NTAP Actually Is

Medicare generally doesn't reimburse a hospital based on the individual products it uses. For an inpatient admission, it pays the hospital a predetermined amount based largely on the patient's DRG.

The hospital submits codes for the diagnosis, procedures, complications, and other relevant factors. The grouper uses that information to determine the applicable DRG, and that DRG carries a payment intended to cover the hospitalization.

Notice what isn't driving that calculation: your device's invoice.

CPT codes are part of a different payment structure, generally associated with outpatient services and professional billing. Your device sits much closer to the hospital's cost structure than it does to the CPT schedule.

And there is another problem for new technology. The DRG system is recalibrated using historical claims data, often from two to three years earlier.

That lag matters.

If your technology costs $30,000 per case and Medicare is effectively paying the hospital $18,000 for the relevant admission, the hospital has a $12,000 problem. Medicare isn't automatically adjusting the payment because your product is new.

Someone absorbs the difference.

Usually, that someone is the hospital.

This is why a hospital can believe your technology works and still decide not to use it. The issue isn't necessarily clinical acceptance. It can simply be that the economics don't work.

NTAP is designed to bridge that gap. It provides an additional payment on top of the applicable DRG for qualifying technologies, generally for up to three years while the underlying payment system catches up.

The policy logic makes sense. A payment system built on historical averages is going to have trouble paying appropriately for something that wasn't in the historical data.

How To Tap Into NTAP

There are three basic tests.

1. Prove the technology is new. In general, Medicare looks at whether the technology has been available for roughly two to three years and whether it represents a meaningful departure from existing technologies.

2. Demonstrate that it is expensive relative to the applicable payment rate. Being new isn't enough. The existing payment has to be inadequate to cover the technology's costs under Medicare's methodology.

3. Demonstrate substantial clinical improvement.

That's the important one.

Medicare wants evidence that the technology meaningfully improves outcomes or otherwise provides a significant clinical advantage compared with existing alternatives, particularly for patients relevant to the Medicare population.

Meet all three requirements and Medicare provides an additional payment equal to 65% of the applicable cost gap.

Not 65% of the device price. Sixty-five percent of the calculated gap.

And then the additional payment goes away.

"But We're Only 510(k)"

Founders sometimes assume a 510(k) pathway automatically makes NTAP unrealistic.

It doesn't.

The FDA pathway and Medicare's definition of a new technology are separate questions. Whether you received a 510(k), De Novo, or PMA is not, by itself, what determines NTAP eligibility. The important question is whether the product is authorized for the applicable use within Medicare's timeframe and whether it satisfies Medicare's own requirements.

That creates an interesting tension.

Your FDA submission may argue that your device is substantially equivalent to an existing predicate. Your NTAP application may need to demonstrate that the technology is meaningfully different from what is already available.

Same company. Different agency. Different test.

Ultromics is a useful example. EchoGo Heart Failure received 510(k) clearance, while the company also had Breakthrough designation and obtained NTAP treatment at $1,023.75 per case.

A 510(k) and NTAP eligibility are not mutually exclusive.

The Shortcut That Just Died

In 2020, Medicare created a faster path for certain technologies.

If the FDA had granted a device Breakthrough designation, Medicare could waive the substantial clinical improvement requirement. The applicant still had to demonstrate that the technology was new and that the existing payment was inadequate, but the third test was effectively removed.

This is where the terminology gets confusing.

Breakthrough designation does not mean FDA has proven that a device works better. It is a designation given during development, before marketing authorization, to devices that FDA believes have the potential to provide more effective treatment or diagnosis for serious conditions.

FDA does not make that determination out of thin air. It can consider preliminary clinical data, published literature, bench testing, animal data, the technical feasibility of the device, its potential clinical impact, and the risks and benefits compared with the existing standard of care. The question is whether there is a reasonable expectation that the device could be more effective, not whether the sponsor has already proven superiority in a definitive clinical trial.

That distinction mattered enormously to Medicare.

A Breakthrough designation was evidence that FDA saw enough potential to justify an accelerated development and review pathway. It was not evidence that the technology had already demonstrated substantial clinical improvement in the Medicare population.

CMS effectively treated the FDA designation as a proxy for that third NTAP requirement.

You can see why they did it. Breakthrough designation is intended for serious unmet needs, and the whole point is to move promising technologies through development and review faster.

You can also see the problem.

A designation made relatively early in a product's development does not necessarily tell Medicare whether the device ultimately performs better in 74-year-olds with multiple comorbidities, or whether it produces better outcomes once deployed in routine clinical practice.

That distinction became increasingly important as use of the pathway grew.

Applications increased from 18 in 2020 to 47 this year. Researchers have also found that more than half of the technologies approved between 2021 and 2024 came through the Breakthrough-related pathway, prompting questions about whether Medicare was effectively using FDA's designation as a substitute for evidence of clinical improvement.

The shortcut had become a meaningful part of the program.

On July 31, Medicare closed it.

Going forward, applicants will have to satisfy all three requirements.

The Date Nobody Is Talking About

The change doesn't take effect immediately for every technology.

The repeal applies to FY2028 applications and later.

There is also a grandfather provision, and this may be the most commercially important part of the rule for companies that are already in development.

A device with FDA Breakthrough designation by September 30, 2026 can continue using the previous pathway for two additional cycles, provided it receives FDA authorization by May 2028.

That deadline is only six weeks away.

For a company with a technology that has a credible Breakthrough case, this is worth paying attention to now. It is essentially an option that disappears if you wait.

The Consolation Prize

Medicare paired the change with RAPID, which is intended to bring the FDA and Medicare processes closer together.

Under the new approach, the agencies can review the technology in parallel, allowing Medicare coverage proposals to move forward around the time of FDA authorization rather than beginning a separate process afterward.

The goal is to reduce a timeline that could otherwise stretch beyond a year to roughly two months.

That's a meaningful improvement.

But it doesn't replace NTAP.

Coverage and payment are different problems.

Coverage answers whether Medicare considers the technology appropriate for the patient. Payment determines whether the hospital can actually make the economics work.

One helps get the technology into the hospital.

The other determines whether the hospital wants to keep using it.

What It's Worth, and What It Isn't

The potential value of NTAP is significant.

Typical payments are just under $7,000 per case, while cardiovascular technologies tend to perform particularly well, at around $15,000 per case. Because the additional payment sits outside the hospital's existing DRG payment, the economics can be materially different from simply asking the hospital to absorb the cost of a new technology.

There can also be a signaling benefit. If Medicare determines that a technology is clinically meaningful and inadequately reimbursed, that can become useful evidence in conversations with commercial payers.

But NTAP is not a permanent reimbursement strategy. It ends.

The additional payment lasts for three years, and thirteen technologies aged out this year.

There is another limitation: NTAP covers 65% of the calculated gap. The manufacturer or hospital still has to deal with the remaining 35%. This is where your own economics come into play.

It's also an inpatient program. If your product is primarily used in an office, clinic, or ASC, NTAP isn't the mechanism you're looking for. Medicare has a separate outpatient pathway, and the agency has proposed changes there as well.

Then there is coding.

NTAP payments are tracked through ICD-10-PCS, so applications generally need to be considered alongside the process for obtaining an appropriate new procedure code. Without the right coding infrastructure, Medicare has a harder time identifying the cases and collecting the claims data needed to support the payment.

And software presents its own challenge.

AI-related NTAP awards have generally landed in the roughly $1,000 to $1,900-per-case range. One imaging technology this year tops out at only $137.53 per case.

That's a useful reimbursement lesson in itself.

Not every NTAP award creates an attractive business.

The Bottom Line

The criticism of the rule isn't that Medicare suddenly decided evidence matters.

The real issue is that large manufacturers can afford the clinical affairs infrastructure needed to generate that evidence. Smaller companies often relied on the Breakthrough pathway precisely because it reduced the evidence burden.

That's a legitimate concern.

Medicare's argument is legitimate too.

If the government is going to pay a premium for a new technology, it is reasonable to ask whether the technology has actually demonstrated meaningful clinical improvement. Otherwise, the program risks becoming a way to subsidize expensive products simply because they're new.

Both things can be true.

And that's what makes this more complicated than the usual "government killed innovation" story.

The practical implication for manufacturers is straightforward: the evidence strategy for FDA clearance and the evidence strategy for Medicare reimbursement can no longer be treated as completely separate exercises.

Ideally, they should be designed together from the beginning.

The clinical study that gets you through the FDA process should also generate the evidence you will need when Medicare asks whether the technology actually improves outcomes.

Trying to reconstruct that evidence after clearance is a much harder proposition. By then, the patients have been treated, the endpoints may not have been collected, and the study you need may no longer be feasible.

I've written before that FDA clearance is a starting line wearing a finish line's outfit.

Medicare just moved that starting line further back.

That's probably a good thing.

It just means companies need to start planning for reimbursement earlier.

About the author

Robert Law is the founder of Metamorph MedTech, a go-to-market consulting practice built for medical device and healthcare AI companies that have cleared the FDA and now have to figure out what comes next. With a Kellogg MBA and hands-on experience across surgical robotics, implantable devices, and AI-powered platforms, Robert works in the space where great technology meets commercial reality: health economics, hospital sales strategy, VAC navigation, reimbursement positioning, and the kind of go-to-market infrastructure that turns pilots into revenue. He started Metamorph because too many good technologies were losing to bad commercial strategies, and that bothered him more than he could ignore. Learn more here.