How Can Healthtechs Navigate the FDA and CMS Regulatory Maze?-The HSB Blog 6/21/21

Healthtech companies have to navigate a complex regulatory process to bring products to market and it’s important they understand the role of different agencies and what they look for. Perhaps the two most important aspects that companies have to deal with are regulatory approval and financial reimbursement which fall under the purview of the Food and Drug Administration and the Center for Medicare and Medicaid Services (CMS). Navigating the regulatory process should be managed in an integrated fashion allowing compliance to create a competitive advantage for startups who do so.

Key Takeaways:

The FDA’s main role is to ensure that drugs/devices/medical products are safe and effective for their intended use. As such, it is imperative for startups to understand that the FDA is by nature a risk-averse, slow-moving entity as mistakes carry significant consequences and are very high profile.
CMS’s main role is to determine whether the cost of the product (medical device or drug) is “reasonable and necessary" for their beneficiaries of the Federal healthcare programs (Medicare, Medicaid, Tricare, etc.) in order to decide whether to extend reimbursement coverage and pay for the products. Commercial insurers typically follow the lead of CMS in extending coverage.
Formulating an integrated regulatory approval and reimbursement strategy early in the startup lifecycle can significantly impact time to market, costs and addressable market opportunity creating a competitive advantage.
Engaging regulatory agencies early on in the process and using expert consultants often has a significantly higher ROI than doing so later in the process as it can both help anticipate and answer potential issues and pitfalls which slow time to market.

The Problem:

Emerging healthtech companies have to balance their desire for bringing an often new and untested product to market as quickly as possible against regulators' responsibility to ensure public safety and value. In addition, rapid changes in regulations in response to events or legislation (either permanent or temporary) can create short term windows of opportunity or demand which may accelerate the tension between the need for digital health innovations and regulatory compliance. As such when designing and creating go to market plans for new technologies companies need to keep in mind that the FDA’s 4-step marketing approval process can take up to 7 years for the approval of medical devices and up to 12 years for drugs. Moreover, gaining FDA approval for a drug or product does not necessarily mean that CMS will cover a drug or product quickly or ever extend coverage to the approved device or drug. In addition, even if innovators see the likelihood of approval and reimbursement as high, they must also figure in the increasing cost of such approvals. For example, according to the Tufts Center for the Study of Drug Development between 2003 and 2013, there was a 145% increase in the costs of getting market approval for prescription drugs while the approval rate increased by only 12%. This is one of the risk reward decisions where founders need to make a careful assessment of their own limitations and understand what they don’t know.

The Backdrop:

The approval process for healthcare products in general can be incredibly burdensome and time consuming. For example, for certain technologies and interventions, including medical devices, and certain medical procedures. CMS issues coverage policy through one of two mechanisms: national coverage determinations (NCDs) or local coverage determinations (LCDs). As noted in the Journal of Law, Medicine and Ethics, “the responsibility for making the reasonable and necessary determination for the vast majority of devices falls to fiscal intermediaries that serve as representatives of different Medicare districts within the US. These contractors assess whether a device meets the reasonable and necessary criteria, resulting in a local coverage determination. LCDs may limit the coverage of items or services to specific diagnoses, or may preclude coverage entirely, with each decision applicable within the contractor’s local jurisdiction.” By contrast, CMS typically reserves NCDs for a select subset of 'big ticket' interventions likely to have a significant impact on costs or quality of care, or those which are associated with safety concerns and typically represent only a small percentage of all CMS coverage determinations.

Add to the complication of going through CMS’s normal approval process the fact that the cutting edge technologies like artificial intelligence are incorporated into many new healthtech products and that process becomes even more confusing and lengthy. For example, the FDA is currently trying to determine the appropriate method of regulating products and devices that employ so-called adaptive AI where the treatment algorithm or protocols change in response to feedback learned by the product as it is actively treating patients. In addition, regulators are working to determine the nature and extent of what informed consent would look like for both practitioners and patients in such situations, including if and under what circumstances it would need to be updated based on changes in treatment protocols. As a result, products that currently use these technologies face an uncertain and potentially changing regulatory environment as they race to take advantage of being early to market (not to mention how this could impact product adoption). Moreover, this issue can create a snowball effect leading to additional questions and delays in reimbursement on top of what is already a median 9-month delay from FDA approval to initiation of a CMS NCD. Complicating all of the above is the fact that startups are often loath to spend precious cash on advisors and consultants who may be able to help them navigate the process, particularly early on in their incubation when course corrections are the least expensive. Often they will rely on friends and family as advisers who may have some experience with the requisite agencies but not in the relevant or appropriate specific area of expertise. This can be a costly mistake.

Implications:

Startups should formulate an integrated regulatory approval and reimbursement strategy early in their lifecycle knowing that it can significantly impact time to market, costs and addressable market opportunity creating a distinct competitive advantage. As noted by Ralph Hall, Principal of Leavitt Partners in a recent panel discussion we moderated at Georgia Bio, you need an upfront integrated strategy that links your FDA regulations, your reimbursement coverages (including private payers), your consumers, your professional societies, your market, your competitors. He also advised that you want to do it so if the FDA wants to change something, you have the foresight and can do a cost-benefit analysis. Given the need for speed to market in healthtech this kind of flexibility can be key. In addition, innovators should keep in mind that the Silicon Valley mindset of growth at all costs is likely to be at odds with the culture of the regulatory agencies which are risk averse. As noted by Mr. Hall, when dealing with regulators it’s important to keep in mind the environment of the agencies and the culture of the organization, “at the FDA, if you approve a product you’re carrying a risk.”

As they wind their way through this process, it’s beneficial to anticipate the needs and requirements of both the FDA and CMS from their point of view and keep their organizational dynamics in mind. When hitting a roadblock companies should actively solicit the feedback of the agencies and if startups realize they are beyond their area or expertise or competency they should strongly consider hiring appropriate consultants or counsel to help them through the process. While it may be tempting to use political connections to go around the agencies, Mr. Hall strongly urges against this as this can irritate the regulators, particularly the FDA, and backfire. All of these strategies will help turn what is often an impediment in bringing products to market into a competitive advantage that should help secure FDA approval and CMS coverage more rapidly and more easily.

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