Entrepreneurs fear fallout should Medicare proposal falter

It often takes developers of medical devices years to secure Medicare coverage after products earn Food and Drug Administration approval. A rule proposed by Medicare would speed that process by tying temporary coverage by the national health insurance program to FDA authorization of certain medical devices.

Devices would qualify for four years of Medicare coverage when the FDA deems them breakthrough technologies for treating or diagnosing life-threatening or debilitating diseases. After that period, manufacturers would need to seek permanent coverage to ensure Medicare reimbursement.

Several medtech industry watchers had hoped the proposed rule, Medicare Coverage of Innovative Technology, would go into effect this year.

However, the Centers for Medicare and Medicaid Services this week urged scuttling the proposed rule, published in January, citing objections, including ones over different standards Medicare and FDA use to review devices. CMS will issue a decision on the proposed rule after a 30-day comment period.

Scrapping the proposed rule could discourage investment in promising and early-stage medical technologies, said Justin Klein, co-founder and a managing partner with Vensana Capital, a medtech venture-capital and growth-equity firm.

“From an investment standpoint, it’s going to be a significant setback for medtech innovators," Dr. Klein said.

Medtech venture funding has been rising thanks in part to clarity in FDA-approval reviews, according to investors. U.S. medical-device startups raised $3.01 billion during the first half of this year and are on pace to top the $4.72 billion collected in all of 2020, according to Silicon Valley Bank.

Investors can’t count on quick returns after companies gain regulatory approval. Medtech investors expect, on average, a startup needing to establish reimbursement for a device will need 4.3 years and $60.9 million of additional investment after FDA approval to achieve successful returns, according to a survey by the Advanced Medical Technology Association, the Medical Device Manufacturers Association and the National Venture Capital Association.

Medtech companies and investors had pushed for Medicare’s proposed rule to make Medicare coverage more predictable, said Scott Whitaker, chief executive of the Advanced Medical Technology Association. He added that his organization also supports a bipartisan bill in Congress to require Medicare to temporarily cover technologies approved under the FDA breakthrough devices program for four years.

“It’s very frustrating to innovators to get these products through FDA, and not be able to get them to patients" because of reimbursement hurdles, said Preeya Pinto, a life sciences attorney with law firm King & Spalding LLP.

CMS this week said it developed its proposed rule partly over concerns that delays and uncertainty in Medicare coverage slowed innovation. But it ultimately decided the rule would put Medicare beneficiaries at risk of being treated with devices that haven’t been proven to work in this group of patients.

FDA approves products determined to be safe and effective, while Medicare covers products deemed reasonable and necessary for its beneficiaries. But clinical trials don’t always adequately study Medicare beneficiaries, CMS said, adding that, “We no longer agree that the FDA safety and effectiveness standards alone are sufficient to support open-ended Medicare coverage."

Another concern is that the FDA can grant breakthrough designations to devices well before clinical trials are completed, said Sanket Dhruva, a cardiologist and assistant professor of medicine at UCSF School of Medicine.

“We don’t know if that designation is going to translate into clinical outcome benefits that matter to patients," Dr. Dhruva said. “This is a good decision by Medicare."

Concerns about Medicare’s proposed rule could be addressed by modifying its language, said Brent Vaughan, CEO of Cambridge, Mass.-based digital-therapeutics startup Cognito Therapeutics Inc.

“Ultimately this will come back around, with the strength of a bipartisan effort that brings it across the finish line," Mr. Vaughan said.

Brian Harris, co-founder and chief executive of MedRhythms Inc., a Portland, Maine-based startup with an FDA breakthrough designation for a digital therapy under development for chronic-stroke patients, said his company won’t be able to reach Medicare beneficiaries as quickly if the insurance program repeals its proposed rule.

“It certainly adds a timing risk for any company that’s trying to innovate in this space," Mr. Harris said, adding he expects Medicare will cover MedRhythms’s treatment eventually.