Is Your Startup Prepared to Navigate the Intersection of Regulation and Reimbursement?

by | Apr 5, 2024 | Education, Fogarty Innovation

While startups used to focus their initial strategy exclusively on the regulatory front, FDA approval is no longer the only mountain they must climb. Right behind is another peak—reimbursement—that is much steeper and more difficult. The good news is young companies can save considerable cost and time by proactively developing a strategy that will address them both.

To help entrepreneurs navigate these intertwining paths, Fogarty Innovation recently hosted a seminar on “The Intersection of Regulatory and Reimbursement Strategies” as part of its educational series, featuring speakers David Farber and Jeffrey Shapiro, partners in the FDA and Life Sciences practices at King & Spalding law. 

Drawing on their extensive expertise in this field, the speakers offered a comprehensive overview of how to prepare for both sets of requirements from the very beginning. Topics covered included understanding the differences between obtaining clearance from the FDA and the reimbursement data needs of the Centers for Medicare & Medicaid Services (CMS). They also discussed issues to consider in product development and clinical testing that ensure that submissions and studies address the needs of both agencies simultaneously. 

Understanding the landscape

The speakers emphasized that the two agencies are driven by different government mandates, which explains why their data demands can vary widely and frustrate early-stage companies. The FDA bases its approvals on a “reasonable assurance of safety and effectiveness” whereas CMS wants companies to prove that their technologies are “reasonable and necessary” for Medicare beneficiaries. Accordingly, while the FDA may focus on technology function and clinical risks and benefits without considering economic data, CMS is looking at overall health benefits and the cost-effectiveness of the technology compared to other available options. 

Navigating the FDA’s approval process requires an understanding of the classification of medical devices (Class I, II, and III) and the approval pathways to market, which include 510(k), De Novo and premarket approval (PMA). FDA applies the lowest classification necessary to achieve a “reasonable assurance of safety and effectiveness.” 

On the other hand, completing the reimbursement journey involves securing three requirements: coverage, coding and payment. Obtaining coverage means determining if a technology or service is eligible for payment and, if so, under which circumstances of use. Codes are unique alphanumeric identifiers that link coverage to payment. Having coverage and coding still does not guarantee that the provider of the device or service will get paid. Payment is the specified amount to be reimbursed and can vary by site of service and provider type. 

By carefully planning their strategy to satisfy the requirements for both agencies, small companies can save considerable time and resources. For example, both FDA and CMS require clinical studies. However, trying to save time and money by seeking a “non-inferiority endpoint” – which is acceptable to the FDA – can result in additional costs and delays to commercialization when seeking reimbursement, since CMS often demands a superiority endpoint. The use of published clinical data as a building block for reimbursement is a wise strategy.

Unfortunately, it is getting more difficult to garner reimbursement for new technologies. According to a report from Deloitte Center for Health Solutions, it takes companies three to five years to complete the process to obtain coverage following FDA clearance. The path can be even more challenging for many preventative or digital therapeutics. 

Strategic integration: A holistic approach

The key to success lies in integrating regulatory and reimbursement strategies from the outset. 

Externally, a startup should engage early with the medical societies appropriate to its technology. Most societies will be supportive of new technologies if their members and key opinion leaders understand it and can get behind planned clinical studies. These same societies also have dedicated personnel working with the AMA to determine coding and other elements of reimbursement strategy. Thus, these physician societies can help coordinate both efforts.

Internally, companies should plan for reimbursement early, applying the same care and foresight as in their FDA strategy work. Suggestions from the King and Spalding team included:

  1. Coordination. Bring the entire team together early in the product development process to discuss goals and objectives so that endpoints are clear (e.g. determine if you are aiming for non-inferiority or superiority, per the example above). Engage jointly with regulatory and reimbursement consultants to align the FDA approval strategy with reimbursement requirements. 
  2. Product use case. The intended patient population and site of care will affect payment levels. Those choices will have an impact on product design and cost-of-goods goals which affect company profitability. Also, ensure from the start that labeling will be consistent with reimbursement strategy.
  3. Clinical trials. Structure and conduct clinical studies that not only satisfy FDA efficacy and safety requirements but also generate data that underscore the device’s economic value to payers. Can comparative effectiveness be used to demonstrate the value proposition? If seeking Medicare reimbursement, are those beneficiaries sufficiently represented in the study population? Determining a publication strategy is critical – while the FDA may not care if your study is published in a peer-reviewed journal, CMS demands it.
  4. FDA pathway choices. Companies should be cognizant of the downstream implications when selecting a regulatory pathway. For example, a 510(k) which claims to be equivalent to a predicate device will make it more difficult to justify a new code and higher payment whereas a PMA route will hamper the use of existing codes. Additionally, technologies that “prevent” a condition are rarely covered by Medicare.

Thoughtful early choices have a major impact

For medical device startups, understanding the dual challenges of FDA approval and reimbursement is more than a regulatory requirement—it’s a strategic imperative. As the landscape continues to evolve, startups that adopt an integrated approach, engaging with both regulatory bodies and payers early and often, will be the ones that climb these twin peaks successfully. By understanding the intricacies of both pathways and integrating them into a cohesive strategy, startups can increase their chances of bringing innovative, life-changing devices to market—and to the patients who need them most. 

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