It is widely accepted that reimbursement policies and practices are important considerations in the research and development (R&D) decisions of potential innovators of healthcare technologies, and the investors who finance them. The decision by a public program or health plan to subsidize use of a technology (often referred to as a coverage decision) is a critical determinant of expected, and actual, return on investment (ROI) for developers and investors. In making these reimbursement decisions, payers make formal and informal evaluations of the value that drugs and devices confer. By doing so, they may establish a market that is more conducive to rational, value-based consumer decisions. It is thus important to understand how reimbursement affects actual or expected ROI, and by extension, how ROI may impact innovation, as developer and investor assessments of the market viability of a new product take into account payers' potential actions. This report describes key reimbursement methods and analyzes their impacts on drug and device innovation. Its findings incorporate assessments of the effects of reimbursement on innovation based on economic theory, literature reviews, and consultation with experts.