The Reimbursement Gap Nobody Codes For

On July 31, 2026, CMS finalized the repeal of the New Technology Add-on Payment Alternative Pathway for Breakthrough Devices. The rule takes effect with FY 2028 applications. Every MedTech company that raised a Series B in the last three years planning to use that pathway just discovered the pathway has been closed. The MedTech reimbursement architecture has quietly become the most important commercial decision founders make. Most of them are still treating it as a compliance detail. · Juan Vegarra

A MedTech company can have FDA clearance and no viable commercial pathway. This is not a hypothetical. It is what happens when the company raised capital based on the assumption that Medicare reimbursement would follow FDA authorization automatically, and then discovered too late that the coding infrastructure did not match the clinical use case. The gap between “reimbursed category” and “reimbursed procedure with the modifier that matches your indication” is where good technology dies commercially.

The MedTech reimbursement architecture has three layers that operate almost independently. CPT codes describe what the physician does. Category I codes are permanent and integrated into practice. Category III codes are temporary and provide data collection for eventual Category I status.^[1] ICD-10-PCS codes describe what the hospital does, and are used for inpatient facility reimbursement. MS-DRGs are the payment categories that determine what CMS actually pays hospitals for inpatient stays.^[2] Each layer is governed by a different body on a different timeline with different evidentiary standards. Most Series B pitch decks I have seen treat all three as a single “reimbursement in place” bullet.

The pathway that just closed

To be eligible for the New Technology Add-on Payment, a device historically had to meet three criteria. It had to be new, meaning within roughly two to three years of FDA approval. It had to be costly enough that the standard MS-DRG payment did not cover it. And it had to demonstrate substantial clinical improvement over existing technologies.^[3] The substantial-clinical-improvement standard is the difficult one. It requires clinical evidence that the device produces meaningfully better patient outcomes than the standard of care, and CMS evaluates that evidence with skepticism.

In the FY 2020 final rule, CMS created an Alternative Pathway for devices with FDA Breakthrough Device Designation. Under the Alternative Pathway, a device with Breakthrough Designation was automatically deemed to meet the newness and clinical improvement criteria and only needed to satisfy the cost criterion.^[4] This pathway became the operating assumption for a generation of MedTech founders. Get Breakthrough Designation from FDA, and NTAP would follow. Investors underwrote Series B and Series C rounds on that assumption. Commercial teams built launch plans around it.

On April 14, 2026, CMS released the FY 2027 IPPS proposed rule, which included the proposed repeal of the Alternative Pathway.^[5] The rationale was that the pathway had produced too many approvals with too little evidence of actual clinical improvement. The American College of Cardiology and other stakeholders filed formal objections. On July 31, 2026, CMS finalized the repeal.^[6] Applications submitted on or after October 1, 2026, meaning the FY 2028 cycle onward, must satisfy the full three-criterion test, including substantial clinical improvement, without the Breakthrough shortcut.

The rule includes a limited transition provision. Devices that received FDA Breakthrough Designation by September 30, 2026, remain eligible to use the Alternative Pathway for FY 2028 and FY 2029 applications.^[7] That transition provision is narrow. For any device that had not yet received Breakthrough Designation by the September 30 deadline, the shortcut is closed. Of the 11 cardiovascular-related NTAP Alternative Pathway applications in the most recent cycle, seven were approved, three were withdrawn, and one for the CARA System was denied.^[6] That is the entire cardiovascular Breakthrough NTAP universe. It is a small number of technologies, most of which will not have close analogs in future cycles now that the shortcut has closed.

What this means for founders

The immediate effect is that the reimbursement assumption in Series B and Series C decks pitched between 2020 and 2026 has quietly become invalid for any device that did not lock in Breakthrough Designation before the September 30 deadline. That does not eliminate NTAP as a pathway. Traditional NTAP is still available. It means the substantial-clinical-improvement standard applies to all applicants, and the evidence bar CMS wants to see is higher and takes longer to build than the Breakthrough shortcut required.

For founders currently pitching or currently raising, three specific implications follow. First, the timeline between FDA clearance and reimbursement adequate to support commercial launch just extended by 12 to 24 months for most Breakthrough-designated devices whose evidence portfolio was designed for the shortcut. That extension has to be modeled into the capital plan and the runway assumption. Second, the clinical evidence portfolio needs to be re-scoped. Trials that were designed to support FDA clearance under the Breakthrough framework may not carry sufficient weight for the substantial-clinical-improvement analysis at CMS. Third, the reimbursement narrative in investor materials needs to be rewritten. “NTAP-eligible through Breakthrough Designation” is no longer a defensible claim for anything not already grandfathered.

CMS also announced on April 23, 2026, a new proposal called Regulatory Alignment for Predictable and Immediate Device (RAPID), designed to accelerate nationwide Medicare coverage for eligible Breakthrough Devices by potentially issuing a proposed National Coverage Determination on the same day the device receives FDA marketing authorization.^[8] RAPID is a coverage mechanism, not a payment adequacy mechanism. It solves for whether Medicare covers the device. It does not solve for whether the payment level is adequate to support the cost of the device. Founders reading the RAPID announcement as a replacement for NTAP are misreading it.

The gap that was already there

The NTAP repeal is not the reimbursement problem. It is the visible edge of the reimbursement problem. The underlying issue is that most MedTech founders have never worked through the specific coding and payment pathway their device will actually use in commercial launch. They know their FDA pathway. They know their KOLs. They usually know their reimbursement consultant. What they often do not know is which specific CPT code will be billed for their procedure, which MS-DRG the hospital will assign, and whether the payment adequacy of that combination supports their gross margin assumptions.

The gap looks like this in practice. A cardiovascular device gets FDA clearance for use in a procedure that would normally bill under an existing CPT code. But the existing CPT code was priced for a procedure using an older, cheaper technology. When the hospital bills the code for the new procedure, the MS-DRG payment does not cover the device cost, the procedure loses money for the hospital, and adoption stalls regardless of clinical evidence. This is what “cleared but not commercially viable” actually looks like.

The 2026 coding cycle produced a notable example. CMS finalized CPT code 75577 as a new Category I code for AI-assisted coronary plaque analysis performed with cardiac CT angiography.^[9] That code replaces temporary Category III codes and provides permanent recognition for widely adopted platforms. It took years to get from Category III to Category I. Companies whose commercial launch depended on Category I permanence had to survive the intervening years with less certain reimbursement. The ones that survived were the ones whose capital plan modeled the reimbursement transition. The ones that did not survive assumed the transition would happen faster.

The commercial decision buried in the coding

The predicate device you choose for your 510(k) does not just determine your regulatory pathway. It determines your reimbursement pathway. It determines which CPT codes are available for the procedure. It determines which MS-DRG assignment the hospital will use for facility payment. It determines whether the payment adequacy analysis at CMS will treat your device as an incremental variant of an existing category or as a new category with its own coding and payment mechanics.

Founders who understand this early make different predicate decisions than founders who treat the 510(k) as a regulatory question in isolation. The predicate decision is the first commercial decision most MedTech companies make. It happens years before the reimbursement conversation starts. It cannot be changed once the 510(k) is filed. Getting it wrong costs eighteen months and a Series C round to recover.

What operators are learning to do differently

The MedTech operators I know who have survived multiple launch cycles now build the coding and payment analysis into the Series B pitch, not the pre-commercial gap analysis. They identify the specific CPT code, the specific MS-DRG, and the specific hospital economics of the procedure before they finalize the trial design. They design the clinical evidence portfolio to support both the FDA submission and the substantial-clinical-improvement standard, on the assumption that one or the other will require it. They budget the timeline between clearance and adequate reimbursement realistically rather than optimistically.

The NTAP Alternative Pathway repeal is the specific event that made this discipline mandatory rather than optional. Every founder who raised a Series B based on the Alternative Pathway assumption has already been exposed to the risk. The founders who will raise Series B in the next 24 months will have to model the reimbursement pathway in a way that is defensible without the shortcut.

That is a harder conversation, but it is a more honest one. And it produces companies that survive the gap between FDA clearance and commercial viability rather than discovering the gap eighteen months too late to raise the round that would bridge it.

Juan Vegarra is the author of An Outsider’s Playbook (2026). He is CRO and acting CFO at a pre-commercial medical device company navigating the current reimbursement architecture. More essays · Free toolkits · Advisory · Write me