Bringing New Technologies to Market: Hurdles and Solutions

Abstract

Over the past few decades, we have witnessed the development of significant advances in medical technology, treatments, and pharmaceuticals that can improve population health. However, the adoption of and payment for these advances must be tempered by the rising costs of health care, the quality of medical care delivered, the call for shared accountability, and the state of public health and access to services that collectively challenge clinical care and overall health.A number of factors constrain the adoption of new technologies. In an era where Medicare, Medicaid, and private (commercial) insurance pays for the majority of costs of health care, one where patients are relatively immune to the true costs of health care and where recent legislation is expected to expand health insurance coverage to 34 million additional people by 2019,1Foster R.S. Centers for Medicare and Medicaid Services, Office of the ActuaryEstimated Financial Impact of the “Patient Protection and Affordable Care Act”, as Amended.April 22, 2010Google Scholar patients themselves have questions such as are the risks acceptable and what are the options if the new technology/treatment fails, if insurance does not cover it what are the costs, and is the new technology unique or are there alternatives that insurance will pay for? Physicians, hospitals, and ambulatory care centers have additional concerns including will they get paid, how hard is it and how long does it take to perform the new procedure, what resources are needed to perform the procedure, and will this new procedure/technology impact malpractice rates? This is borne out by AdvaMed in a survey of member companies, which found that the US Food and Drug Administration (FDA) regulations, research costs, and Medicare and private payor coverage and reimbursement were the top factors affecting the development of new technology.2AdvaMedThe medical technology industry at a glance. Author, Falls Church, VASeptember 7, 2004Google ScholarFor inventors eager to see the fruits of their innovation, these hurdles often come as a surprise. This article provides a brief overview of some fundamental concepts that every person or organization involved in medical innovation must be familiar with.The Importance and Meaning of CoverageCoverage describes the terms and conditions used by payers to determine whether a product, service, or procedure is eligible for reimbursement and under what conditions it will be covered. When FDA review is needed before marketing a medical device, the FDA either “clears” the device after reviewing a premarket notification, otherwise known as a 510(k) (named for a section in the Food, Drug, and Cosmetic Act), that has been filed with FDA, or “approves” the device after reviewing a premarket approval (PMA) application that has been submitted to FDA. To acquire clearance to market a device using the 510(k) pathway, the submitter of the 510(k) must show that the medical device is “substantially equivalent” to a device that is already legally marketed for the same use. To acquire approval of a device through a PMA application, the PMA applicant must provide reasonable assurance of the device's safety and effectiveness.3U.S. Food and Drug AdministrationWhat does it mean when FDA “clears” or “approves” a medical device.http://www.fda.gov/AboutFDA/Basics/ucm194460.htmGoogle ScholarCoverage is not guaranteed when the FDA ‘clears’ or ‘approves’ the technology, does not guarantee a new or favorable billing code, and does not guarantee favorable reimbursement. Payers address whether the information affects the course of treatment of the member, whether the care and treatment are likely to improve the outcome, whether improvements are attainable outside of investigational studies, and whether the services are consistent with plan design. The fundamental question for coverage is whether the technology is medically necessary to diagnose or treat the patient's condition (“medical necessity”). Medical necessity is a legal doctrine related to activities that may be justified as reasonable, necessary, and/or appropriate, and may or may not be based on evidence-based clinical standards of care.4Morreim H.E. The futility of medical necessity.Regulation. 2001; 24: 22-26Google Scholar While under Title XVIII of the Social Security Act, Medicare may only pay for items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” unless there is another statutory authorization for payment, private payers are under no such obligation to establish a contractual cornerstone of medical necessity.542 U.S.C. 1395y. Social Security Act, Exclusions from Coverage and Medicare as a Secondary Payer. Section 1862(a)(1)(A).Google Scholar As a result, Medicare may be taking the lead over third-party payers in adopting an evidence-based framework for coverage decisions, requiring adequate evidence to conclude that the device or procedure improves health outcomes in the population being addressed (commercial, Medicare, Medicaid) and is as good or better than the existing, covered alternatives.The Importance and Meaning of CodingCoverage must be distinguished from coding. Coding is a nomenclature system used to identify diagnoses, procedures, and products. Just because a code exists does not always mean payers will reimburse the procedure, and just because something is FDA approved does not mean it automatically gets a code. The Healthcare Common Procedure Coding System (HCPCS) represents a standardized way to describe the specific items and services provided in the delivery of health care. Although there are many stakeholders in the reimbursement process, including venture capital and investors, device companies, patients, and advocacy groups, there are only 4 players with a seat at the coding and reimbursement table: the Centers for Medicare and Medicaid Services (CMS), the American Medical Association through the Current Procedural Terminology (CPT) Editorial Panel, and the Resource-Based Relative Value System Update Committee process, physician societies, and payors.Level I HCPCS codes are the CPT codes, which are maintained by the American Medical Association. In developing category I CPT codes the Editorial Panel requires that6American Medical AssociationCPT process–how a code becomes a code.http://www.ama-assn.org/ama/no-index/physician-resources/3882.shtmlGoogle Scholar•the service/procedure has received approval from the FDA for the specific use of devices or drugs;•the suggested procedure/service is a distinct service performed by many physicians/practitioners across the United States;•the clinical efficacy of the service/procedure is well established and documented in US peer-reviewed literature;•the suggested service/procedure is neither a fragmentation of an existing procedure/service nor currently reportable by one or more existing codes; and•the suggested service/procedure is not requested as a means to report extraordinary circumstances related to the performance of a procedure/service already having a specific CPT code.Level II HCPCS include C codes, temporary codes that identify items that may qualify for “pass through” payments under the hospital outpatient prospective payment system; only implantable devices are eligible for pass through payments in the ambulatory surgery center setting. Other level II codes include G codes, which are temporary codes used by CMS to identify professional health care procedures and services for which there are no CPT-4 codes, and S codes used by private insurers (not payable by Medicare) to report drugs, services, and supplies for which there are no national codes, but for which codes are needed by the private sector to implement policies, programs, or claims processing. Thus, CMS can establish Medicare coverage and payment for services that are not covered by Medicaid and private payers, and vice versa.7Centers for Medicare and Medicaid ServicesInnovators guide to navigating CMS.Version 1.0. 2008Google ScholarCategory III CPT codes are temporary tracking codes for new and emerging technologies. These codes are intended for data collection purposes in the FDA approval process or to substantiate widespread usage. The level of evidence needed to obtain a category III code has increased, requiring support from the specialties who would use the procedure, availability of United States peer-reviewed literature (not abstracts), and descriptions of current United States trials outlining the efficacy of the procedure.8American Medical AssociationApplying for CPT Codes.http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/cpt/applying-cpt-codes.shtmlGoogle ScholarWhat Determines Reimbursement?Reimbursement is a function of coding and coverage. Medical device entrepreneurs face a number of reimbursement hurdles, including the need to conduct different clinical trials to meet FDA and CPT standards, and an increasing trend by the CPT Editorial Panel to initially assign category III CPT codes to new technologies and procedures. Yet, although coding links coverage and payment, obtaining a code does not guarantee coverage nor does it guarantee favorable reimbursement. In some instances, the payment for a medical device or item is paid separately from other items or services, whereas in other instances the payment for a medical device is bundled with the payment for a medical procedure or some other medical services. The adequacy of the applicable reimbursement level is critical to commercial success, whereas the reimbursement levels adopted by payors may be related to the pricing established by manufacturers for their products. In an environment that increasingly focuses on health care costs and cost effectiveness, a company's pricing strategy must consider potential impacts on reimbursement and coverage.9Stranne S.K. Reimbursement roadmapMedical product outsourcing.April 2010Google ScholarThe Business PerspectiveAs a result of the above constraints, once FDA clearance is obtained, companies often launch their product with no code and uncertain reimbursement. They need to seek appropriate CMS determination of facility reimbursement, while attempting to determine whether their procedure can be billed “under the radar” using existing codes or “unlisted” CPT codes. Companies may need to build their clinical experience with no reimbursement or conduct additional trials to meet the Editorial Panel's standards for a category I code, which can add an additional 1–3 years to the process and cost millions of dollars. Even when a CPT code is obtained, companies still face obstacles to coverage, which may require conducting new clinical trials to meet shifting standards established by payers.Venture capital, which attempts to reduce risk in investments while identifying technologies that will have a high impact and potentially high exit value, has readjusted as a result of the 2008 market crash and recognized that the time to liquidity and an exit has stretched from 7–10 years as a result of the coverage and reimbursement process becoming more prolonged, which directly impacts their willingness to invest in start-up companies (Table 1).10Dotzler F. Raising venture capital: managing the process for a medical start-up.http://www.denovovc.com/articles/medical_startup_process.pdfGoogle Scholar, 11Lawyer P. Andrew J.P. et al.Medical devices ride the case curve.In Vivo. 2007; 25: 1-7Google Scholar, 12Ferrari R. Keys to creating value for early-stage medical device companies.In Vivo. 2005; 22: 1-6Google ScholarTable 1Venture Capital Expectations at Stages of FundingFinancing roundBusiness objectivesExpected annual return (%)Time to liquidity (yrs)SeedProduct research Market research Preliminary plan75–1008–10Start-upProduct development In vitro/in vivo proof Complete management team50–754–81st, 2nd, 3rd roundsClinical trials Selling Manufacturing Expand work force30–503–5MezzaninePrepare for IPO25–301–2Public offeringMarket development10–20Immediate Open table in a new tab The Perspective of Professional SocietiesBecause technology is widely felt to increase costs,13Kaiser Family FoundationHow changes in medical technology affect health care costs.http://www.kff.org/insurance/snapshot/chcm030807oth.cfmDate: March 2007Google Scholar it is incumbent on physician societies to support a policy framework that ensures quality and safety of care so that society obtains good value for health care dollars spent, providing incentives to use technology appropriately and efficiently, and supporting a robust environment for innovation. Thus, in recognizing the true value of treatments, drugs, and devices, manufacturers need to provide adequate evidence that a treatment strategy using the new therapeutic technology compared with alternatives or the incremental information obtained by the new diagnostic technology compared with alternatives changes physician recommendations, resulting in changes in therapy, and leading to improved and clinically meaningful health outcomes.14Harris R.P. Helfand M. Woolf S.H. et al.Current methods of the U.S. Preventive Services Task Force: a review of the process.Am J Prevent Med. 2001; 20: 21-35Abstract Full Text Full Text PDF PubMed Scopus (1473) Google ScholarThis has led policymakers and payers to the concept of evidence-based medicine (EBM), which “de-emphasizes intuition, unsystematic clinical experience, and patho-physiologic rationale as sufficient grounds for clinical decision making and stresses the examination of evidence from clinical research.”15Guyatt G. Cairns J. for the Evidence-Based Medicine Working GroupEvidence-based medicine A new approach to teaching the practice of medicine.JAMA. 1992; 268: 2420-2425Crossref PubMed Scopus (3479) Google Scholar Although EBM has been castigated as interfering with patient–physician decisions, impeding innovation to control spending and protect payer profits, and limiting access to promising but unproven high-value technologies for which there may be strong demand, there is an opportunity for manufacturers, physician societies, and payers to collaboratively improve evidence for decisions through linking coverage with prospective data collection, building on the concept of medical necessity through showing adequate evidence of benefit and value through appropriately designed studies that retain EBM as the conceptual framework for coverage and payment. Such data-driven approaches can address the economic barriers to good trials, especially for promising technologies, allow payers to promote innovation and access while supporting better evidence, establish a clinical research agenda oriented to decision makers, and channeling strong public/professional demand to improve evidence with the key stakeholders.From a scientific basis, we want to believe that better evidence is biologically plausible, internally consistent, demonstrates a durable effect, and minimizes bias and confounding. In general, EBM has established a hierarchy of evidence, where prospective studies are stronger than retrospective studies, controlled studies are stronger than uncontrolled studies, studies with contemporaneous control groups are stronger than studies with historical control groups, randomized studies are stronger than nonrandomized studies, large studies (with enough patients to detect true treatment effects) are stronger than small studies, and blinded studies (patients and physicians do not know which technology is being used) are stronger than unblinded studies.16Centers for Medicare and Medicaid ServicesDecision Memo: Ventricular Assist Devices as Destination Therapy (CAG-00119N).October 1, 2003Google ScholarThe Payors' PerspectiveBecause payers are prudent purchasers of health care services and technology, they respond to systematic efforts to define, measure, and report on quality, and pay attention to studies that show longer life and improved function/participation, demonstrate significant symptom improvement allowing better function/participation, and reduce the need for burdensome tests and treatments.To achieve the goals of value-based purchasing, government and the private sector are investing in health technology assessments to obtain information regarding the safety and efficacy of drugs and devices. Comparative effectiveness research and patient-centered outcomes include systematic reviews of existing literature, decision models based on existing information (registries), retrospective analyses of administrative data, and prospective comparative studies. Unlike private payers, cost effectiveness is not a factor CMS considers in making national coverage determinations; in other words, the cost of a particular technology is not relevant in the determination of whether the technology improves health outcomes or should be covered for the Medicare population through national coverage determinations.The FutureThus, the need for better information about effectiveness and costs will almost certainly redirect manufacturers' research and development activities, and can lead to collaboration between manufacturers, physician societies, and payors under a registry-driven framework that supports coverage under study participation.17Centers for Medicare and Medicaid ServicesNational Coverage Determinations with Data Collection as a Condition of Coverage: Coverage with Evidence Development.July 12, 2006Google Scholar It is incumbent on the physician societies to have a rigorous process for guideline development, such as that developed by the American Gastroenterological Association (AGA), which states that, “Formal recommendations are developed in a defined area of gastroenterology practice, based both on the scientific literature and the collective opinions of expert physicians. In essence, by developing a practice recommendation, the AGA Institute is doing for physicians what they would do on their own if they had the time, expertise and support to compile, compare and evaluate numerous clinical research studies, obtain the opinions of multiple expert consultants, and synthesize the information into a set of policies and procedures.”18American Gastroenterological AssociationPractice Recommendations Development Manual. Author, Bethesda, MDSeptember 2007Google Scholar Such collaboration should address concerns that a lack of integration between public/private efforts and specialty society clinical practice guidelines could otherwise create competitive (if not conflicting) efforts and research that is not effectively translated into practice.In an era of value-driven care, new products that offer no or only incremental benefits will not command high prices. New products that cannot prove their worth should not be assured of market success, whereas those that can should be rewarded. At the same time, although payors need appropriate incentives to use the information in their coverage decisions, hospitals and physicians need incentives to use the information in their treatment decisions.19Emanuel E.J. Fuchs V.R. Garber A.M. Essential elements of a technology and outcomes assessment initiative.JAMA. 2007; 298: 1323-1325Crossref PubMed Scopus (60) Google ScholarThus, to facilitate the coverage, adoption, and reimbursement of new technology, we need to evolve from an ad hoc to a systematic policy approach in setting priorities, methods, funding, infrastructure, roles, and governance in an ethical manner. Early involvement by physician societies can help to design clinical trial studies to minimize bias (perceived and real) and include outcome measures that would fulfill societal and payer support, which can increase the likelihood of coverage and reimbursement. Registries containing retrospective and prospective data from government and private payors, such as the AGA's Digestive Health Outcomes Registry, can support outcomes-driven quality improvement, provide a data framework for the adoption and payment of new technology, and facilitate efforts to improve digestive health care, quality, and safety. Over the past few decades, we have witnessed the development of significant advances in medical technology, treatments, and pharmaceuticals that can improve population health. However, the adoption of and payment for these advances must be tempered by the rising costs of health care, the quality of medical care delivered, the call for shared accountability, and the state of public health and access to services that collectively challenge clinical care and overall health. A number of factors constrain the adoption of new technologies. In an era where Medicare, Medicaid, and private (commercial) insurance pays for the majority of costs of health care, one where patients are relatively immune to the true costs of health care and where recent legislation is expected to expand health insurance coverage to 34 million additional people by 2019,1Foster R.S. Centers for Medicare and Medicaid Services, Office of the ActuaryEstimated Financial Impact of the “Patient Protection and Affordable Care Act”, as Amended.April 22, 2010Google Scholar patients themselves have questions such as are the risks acceptable and what are the options if the new technology/treatment fails, if insurance does not cover it what are the costs, and is the new technology unique or are there alternatives that insurance will pay for? Physicians, hospitals, and ambulatory care centers have additional concerns including will they get paid, how hard is it and how long does it take to perform the new procedure, what resources are needed to perform the procedure, and will this new procedure/technology impact malpractice rates? This is borne out by AdvaMed in a survey of member companies, which found that the US Food and Drug Administration (FDA) regulations, research costs, and Medicare and private payor coverage and reimbursement were the top factors affecting the development of new technology.2AdvaMedThe medical technology industry at a glance. Author, Falls Church, VASeptember 7, 2004Google Scholar For inventors eager to see the fruits of their innovation, these hurdles often come as a surprise. This article provides a brief overview of some fundamental concepts that every person or organization involved in medical innovation must be familiar with. The Importance and Meaning of CoverageCoverage describes the terms and conditions used by payers to determine whether a product, service, or procedure is eligible for reimbursement and under what conditions it will be covered. When FDA review is needed before marketing a medical device, the FDA either “clears” the device after reviewing a premarket notification, otherwise known as a 510(k) (named for a section in the Food, Drug, and Cosmetic Act), that has been filed with FDA, or “approves” the device after reviewing a premarket approval (PMA) application that has been submitted to FDA. To acquire clearance to market a device using the 510(k) pathway, the submitter of the 510(k) must show that the medical device is “substantially equivalent” to a device that is already legally marketed for the same use. To acquire approval of a device through a PMA application, the PMA applicant must provide reasonable assurance of the device's safety and effectiveness.3U.S. Food and Drug AdministrationWhat does it mean when FDA “clears” or “approves” a medical device.http://www.fda.gov/AboutFDA/Basics/ucm194460.htmGoogle ScholarCoverage is not guaranteed when the FDA ‘clears’ or ‘approves’ the technology, does not guarantee a new or favorable billing code, and does not guarantee favorable reimbursement. Payers address whether the information affects the course of treatment of the member, whether the care and treatment are likely to improve the outcome, whether improvements are attainable outside of investigational studies, and whether the services are consistent with plan design. The fundamental question for coverage is whether the technology is medically necessary to diagnose or treat the patient's condition (“medical necessity”). Medical necessity is a legal doctrine related to activities that may be justified as reasonable, necessary, and/or appropriate, and may or may not be based on evidence-based clinical standards of care.4Morreim H.E. The futility of medical necessity.Regulation. 2001; 24: 22-26Google Scholar While under Title XVIII of the Social Security Act, Medicare may only pay for items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” unless there is another statutory authorization for payment, private payers are under no such obligation to establish a contractual cornerstone of medical necessity.542 U.S.C. 1395y. Social Security Act, Exclusions from Coverage and Medicare as a Secondary Payer. Section 1862(a)(1)(A).Google Scholar As a result, Medicare may be taking the lead over third-party payers in adopting an evidence-based framework for coverage decisions, requiring adequate evidence to conclude that the device or procedure improves health outcomes in the population being addressed (commercial, Medicare, Medicaid) and is as good or better than the existing, covered alternatives. Coverage describes the terms and conditions used by payers to determine whether a product, service, or procedure is eligible for reimbursement and under what conditions it will be covered. When FDA review is needed before marketing a medical device, the FDA either “clears” the device after reviewing a premarket notification, otherwise known as a 510(k) (named for a section in the Food, Drug, and Cosmetic Act), that has been filed with FDA, or “approves” the device after reviewing a premarket approval (PMA) application that has been submitted to FDA. To acquire clearance to market a device using the 510(k) pathway, the submitter of the 510(k) must show that the medical device is “substantially equivalent” to a device that is already legally marketed for the same use. To acquire approval of a device through a PMA application, the PMA applicant must provide reasonable assurance of the device's safety and effectiveness.3U.S. Food and Drug AdministrationWhat does it mean when FDA “clears” or “approves” a medical device.http://www.fda.gov/AboutFDA/Basics/ucm194460.htmGoogle Scholar Coverage is not guaranteed when the FDA ‘clears’ or ‘approves’ the technology, does not guarantee a new or favorable billing code, and does not guarantee favorable reimbursement. Payers address whether the information affects the course of treatment of the member, whether the care and treatment are likely to improve the outcome, whether improvements are attainable outside of investigational studies, and whether the services are consistent with plan design. The fundamental question for coverage is whether the technology is medically necessary to diagnose or treat the patient's condition (“medical necessity”). Medical necessity is a legal doctrine related to activities that may be justified as reasonable, necessary, and/or appropriate, and may or may not be based on evidence-based clinical standards of care.4Morreim H.E. The futility of medical necessity.Regulation. 2001; 24: 22-26Google Scholar While under Title XVIII of the Social Security Act, Medicare may only pay for items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” unless there is another statutory authorization for payment, private payers are under no such obligation to establish a contractual cornerstone of medical necessity.542 U.S.C. 1395y. Social Security Act, Exclusions from Coverage and Medicare as a Secondary Payer. Section 1862(a)(1)(A).Google Scholar As a result, Medicare may be taking the lead over third-party payers in adopting an evidence-based framework for coverage decisions, requiring adequate evidence to conclude that the device or procedure improves health outcomes in the population being addressed (commercial, Medicare, Medicaid) and is as good or better than the existing, covered alternatives. The Importance and Meaning of CodingCoverage must be distinguished from coding. Coding is a nomenclature system used to identify diagnoses, procedures, and products. Just because a code exists does not always mean payers will reimburse the procedure, and just because something is FDA approved does not mean it automatically gets a code. The Healthcare Common Procedure Coding System (HCPCS) represents a standardized way to describe the specific items and services provided in the delivery of health care. Although there are many stakeholders in the reimbursement process, including venture capital and investors, device companies, patients, and advocacy groups, there are only 4 players with a seat at the coding and reimbursement table: the Centers for Medicare and Medicaid Services (CMS), the American Medical Association through the Current Procedural Terminology (CPT) Editorial Panel, and the Resource-Based Relative Value System Update Committee process, physician societies, and payors.Level I HCPCS codes are the CPT codes, which are maintained by the American Medical Association. In developing category I CPT codes the Editorial Panel requires that6American Medical AssociationCPT process–how a code becomes a code.http://www.ama-assn.org/ama/no-index/physician-resources/3882.shtmlGoogle Scholar•the service/procedure has received approval from the FDA for the specific use of devices or drugs;•the suggested procedure/service is a distinct service performed by many physicians/practitioners across the United States;•the clinical efficacy of the service/procedure is well established and documented in US peer-rev