If you’re in the medical device industry, you may have come away feeling down after the AdvaMed Convention in Chicago, IL earlier this month. Reimbursement and value-based payment trends are legitimate concerns for many manufacturers. And the Affordable Care Act-mandated 2.3% device excise tax is still on the books. See the bulleted list of trends at the end of this article – most of them do not bode well.
But perhaps the most impactful potential upcoming policy change could be positive for the industry. This is the “Breakthrough Pathway” for medical devices, an approach that would provide expedited FDA and CMS review for novel medical devices. Medical technology CEOs and the national trade group (AdvaMed) discussed a potential new breakthrough pathway, which could be included as part of the House of Representatives “21st Century Cures” initiative.
The biopharmaceutical industry has already seen success with its breakthrough pathway process (passed as a part of FDASIA of 2012, also known as the FDA user fee reauthorization). For example, Kalydeco, the first available drug that targets the defective protein responsible for cystic fibrosis, was approved last year after a lightning-quick three-month review for the 4% of people with cystic fibrosis who harbor a particular mutation in the G551D gene and are older than 6 years old.
The medical device industry is seeking to use pharma’s precedent with breakthrough pathway in order to improve the regulatory, coverage and reimbursement pathway specifically for life-saving and complicated medical devices. The key questions become: “How are life-saving devices defined?” and “Would CMS (Medicaid and Medicaid) reimbursement be automatic for devices approved through breakthrough pathway?”
While the details are in flux, here is a quick run-down of how breakthrough pathway could take shape.
Food and Drug Administration (FDA) breakthrough pathway could mean:
- Expanded and clarified definition of breakthrough products;
- New process for obtaining breakthrough definition; and
- Review and pre-review standards and procedures for more consistent and rapid clearance and approval.
Center for Medicare and Medicaid Services (CMS) breakthrough pathway could mean:
- Automatic Medicare and Medicaid transitional coverage of FDA designated breakthrough products for a period of time;
- Expedited assignment of codes and inclusion in Medicare payment systems;
- Assurance of adequate Medicare payment; and
- Modification in risk-sharing programs to prevent adoption disincentives.
The 21st Century Cures initiative would be the most obvious legislative vehicle for such a policy. Industry and other stakeholders are hopeful that the House and Senate can pass a life sciences-enhancing innovation package next year, but the 21st Century Cures ideas may bleed to 2016 or 2017, with 2017 being the deadline for Congress to approve the next FDA user fee reauthorization.
So why is a “win” on breakthrough pathway so important to the medical device industry right now? Let’s run down the list of major trends affecting the industry today:
- Venture capital is down significantly in the space. It used to be that the FDA pathway was the unclear/uncertain part of the process. Now even reimbursement (both government and private pay) remains a hurdle. This increases the investment risk for early-stage medical device companies and turned off many domestic VCs. For the past 7-8 years med tech CEOs have been flying around the world seeking sovereign wealth and other alternative sources of capital.
- Healthcare consolidation is concerning to med tech companies. Consolidation in health plan, hospital and other payer/provider spaces has created negotiating leverage that negatively impacts manufacturers’ pricing power.
- Value-based payment is here to stay. With projections that 50% of payments by 2020 will be value-based – e.g., part of an accountable care organization (ACO), bundled payments, and/or pay-for-performance bonuses – device companies are out of the driver’s seat and therefore are concerned they could be left out in the volume-to-value transition.
- Diagnostic reimbursement is a true concern. While this year’s “PAMA” bill (also known as “Doc Fix 2014”) contained methodology for more generous reimbursement for novel diagnostics, reimbursement is a problem. Companies have to provide a dossier of information earlier and earlier in the FDA approval process so that payment can be assured. Even with clinical utility and analytical validity studies, private and CMS reimbursement is not a slam-dunk.
- Parallel review (FDA-CMS) is more the exception than the rule. Exact Sciences has undergone parallel review. Having received favorable FDA news on Cologuard, a colorectal cancer screening tool, a CMS national coverage determination (NCD) quickly ensued and concluded this month: payment will assured by the Medicare program, however at a lower level than expected. Months of CMS reimbursement scrutiny were shaved off via the company choosing the parallel review route.
- International clinical trials are still the norm because of the slow regulatory process in the U.S. Movement of clinical trials and first product introduction out of the United States continues. For more complex products, the new normal is to conduct the first clinical trials somewhere else. Often, patients in other nations get the second or even third version of a novel treatment or diagnostic while patients in the U.S. are still waiting to get the first version. This essentially means that medical device innovation is moving offshore.
In this age where payers, providers and the government are having to do more with less, all medical device manufacturers – large and small – have reason to be concerned. Without additional financial, approval and reimbursement incentives, medical technology innovation could be a thing of the past. So yes – the industry needs a “win” on breakthrough pathway.