Medical Device Daily Washington Editor

WASHINGTON — The first day of the reimbursement conference hosted here by the Medical Device Manufacturers Association (MDMA; Washington) focused largely on the economic headaches of pulling in early funding and getting the Centers for Medicare & Medicaid Services (CMS)to cough up for new technology.

While the industry sees these considerations as major barriers, one speaker observed that a full set of clinical trials — even when a device seems substantially equivalent to an existing device or technology — may be the key to profitability rather than a case study of financial waste in a demand economy.

Maren Anderson, president of MDA Consulting (West Newton, Massachusetts), gave attendees an overview of how venture capitalists (VCs) approach small medical device manufacturers, as well as how start-ups should approach VCs, stating that “reimbursement is often the culprit for a bad decision in investment” rather than the technological or clinical feasibility of a device.

Anderson said that among VCs, there is “a tremendous fixation on CMS,” but hastened to point out that “there are other payers” and that the smart manufacturer or VC firm should look beyond the behemoth in Baltimore.

She said that the question of the critical payers is only the first. And she asked, “What clinical studies and labeling are critical for coverage?”

Anderson added that firms with products eligible for a 510(k) filing should not automatically assume that this will get them to market faster or bring them favorable coverage decisions by public or private payers sooner than filing the much more arduous PMA.

In some instances, a firm should write an interim reimbursement strategy, she advised, because payers find it easier to reimburse for a device under a code for miscellaneous procedures in the early going. Some companies have taken as long as two years to get through the CMS minefield into a national coverage decision (NCD) and may not be funded to go that entire stretch without income from operations.

However difficult the process may be, Anderson said, “reimbursement is usually successful, [but] it may take longer than you would like.” The problem is that some of the adoption curves are initially flatter than investors see as desirable, even though the prospects for the device are quite good in the long term.

“When you’re trying to communicate that to an investor, they may not want to hear that,” she said. But the difficulty of getting CMS or multiple private payers on board can make it nearly impossible to boost a new product to full market acceptance in a short span of time.

A strategic reimbursement plan addresses the payer mix, a matter of considerable interest for investors. This kind of plan starts with determining which diagnostic codes apply to the condition the device will treat, and determining which members of the field of potential payers already have codes for that condition (at present, ICD-9 is the standard index for diagnostic codes in the U.S., but ICD-10, a significantly expanded list of diagnostic groups, will likely be in play by the end of 2009).

Anderson said that the web site for the Centers for Disease Control and Prevention (Atlanta) includes data tables that allow the viewer to “find out not only how many people were treated [for each condition], but who paid for it.” She said that the results for payers might be surprising for many users and might rewire the reimbursement expectations for VCs and device makers.

One attendee noted the well-known reality that the burden of clinical proof is greater on smaller rather than large firm and that payers are “more aggressive” in demanding substantial clinical data from small companies.

“The level of clinical evidence that is now required is the same regardless of size,” Anderson replied, but “the classic dilemma” is how large a sample to pull together from how many sites and whether European studies are useful in persuading payers. Anderson stated that studies conducted in Europe are accepted by most payers, but the studies should appear in a U.S. peer-reviewed publication.

A device maker can avoid problems by asking payers a few questions in advance about what kind of evidence those payers expect to see. Given the number of payers one might want to appeal to, “you kind of filter that” information and devise a clinical trial that will yield the desired effect without incurring needless cost, Anderson said.

On the other hand, doing studies “on the cheap” can backfire.

Anderson said, “Unfortunately, I have many small company clients who have had to do more than one study, and [conducting a small initial study] becomes a false economy.”

“I’ll be the first to tell you it’s a mistake to do a study of 40 patients in two sites that don’t have controls” because payers will not respond, she said. She added that investors are reluctant to fund repeated studies that seem to indicate a lack of appropriate planning.

The question of whether to put a device through the full brunt of PMA application rather than the faster-track 510(k) process hinged to some extent on preliminary feedback obtained from payers regarding meaningful data.

However, Anderson seemed bullish on the benefits of the clinical data that comes with the studies required for PMAs. She said, “If you think you might have to [file a PMA], it can get you over the hump of payment.” The reason: “It’s an enormous step forward with payers.”

Further on the subject of PMA clinical trials, Anderson recommended that entrepreneurs talk seriously with VCs about getting “enough money to do justice by this product,” allowing the innovator to “convince very sophisticated medical directors” of the worth of the device.

Start-up companies might also do well to tell a VC representative that the reimbursement plan will start small so as to provide some positive cash flow while company representatives keep working on the rest of the payer population.

As for the overall vitality of venture capital in the U.S. device market, Anderson said that “at the moment, there’s a lot of money in healthcare.”

But she cautioned attendees against putting “all your eggs in the Medicare basket.” Noting the difficulties of dealing with 5,000 payers in the U.S., she said that CMS is “reasonable to work with” but “slow as molasses.”

Anderson recommended that start-up firms look to smaller payers because “some of the little guys are easier to move and you can divide and conquer.”

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