Underlying payment and coverage decisions for medical technology is the process of coding. Codes are systems of numbers and descriptors that identify procedures and products. Developed through the efforts of such organizations as the American Medical Association, the American Hospital Association, and the Centers for Medicare & Medicaid Services (CMS) formerly HCFA, codes are important for technology manufacturers and users because they enable an insurer to more easily recognize, process, and pay for claims involving the use of a product.

Because codes drive coverage and payment, if codes do not exist that properly describe procedures related to a new technology, providers will be reluctant to adopt it. However, it can take several years to establish codes that adequately describe a new technology/procedure.

Coverage refers to the process and criteria used to determine whether a product, service, or procedure will be reimbursed. The most powerful and influential entity in the coverage process is Medicare. Given the size and scope of Medicare, this coverage process is often critical to the survival of a new technology. The importance of Medicare coverage policies' influence reaches into the private-sector insurance market. Private payers follow Medicare's lead in developing their coverage polices. In many cases, if Medicare does not cover a new technology, the likelihood of its being covered by other payers is remote.

Once products have established codes and are covered, they may then be eligible for payment. This introduces a new set of methodologies to determine the exact payment amount, as well as a new set of incentives that influence the use and development of medical technologies. These payment methodologies depend on where the technology is used and by whom, and on the kind of treatment or service that is provided.

For instance, if the product is used to treat Medicare hospital inpatients, payment for the technology may be included in the prospectively set rate based on the patient's diagnosis related group (DRG) assignment. The payment is intended to cover all hospital costs associated with the patient's stay. Medicare adjusts DRG payment annually to reflect, in part, changes in technology. In many cases, due to the lack of adequate cost and/or utilization data, new technologies may be underpaid. When this happens, adoption of the technology by providers (hospitals, physicians) will either be slow or non-existent. It can take several years to correct the situation even if the technology provides overall cost savings to the health care system.