This 19-minute compilation from 2014’s 10x Medical Device Conference features Ed Black, Tom KraMer, Pat Kullmann, Doug Limbach, and Bruce MacFarlane on the tricky path for device innovation.
On one hand, you want to be THE SAME.
- If you’re substantially equivalent to an existing device, you get to save on clinical trials.
- And you likely shorten the time for FDA clearance. On the other hand, you want to be DIFFERENT.
- If you’re materially the same as an existing device, why should CMS give you a reimbursement code?
- If you’re materially the same, do you deserve a patent?
Ed Black: A couple of things about reimbursement fundamentals as you go through your own planning. We always talk about kind of the three essential barriers you have to figure out.
There’s coding, whether or not there’s a healthcare kind of procedure code that really describes a service or the manner in which physicians would use it.
Coverage is that question of whether or not Medicare and third-party payors will cover procedures your devices permit and if so under clinical circumstances.
And on payment, are physicians and hospitals going to be paid enough to encourage product adoption without being too expensive, thereby discouraging government and private insurers from covering it?
And in a reimbursement assessment, I think anyone will say these are the three baselines you really need to account for in your planning.
It was the chief medical officer from UnitedHealth Group headquartered here in Minneapolis speaking to our LifeScience Alley Annual Meeting and Expo three years ago, but he got up in front of 1500 med tech executives who are kind of used to getting this nice rah-rah speech for an opening comment at their big annual meeting.
He came up there and he told these people, “You can’t be seduced by all the wonderful technology, toys and other stuff, because every idea ain’t good. And at the end of the day you have to ask yourself, does the technology work? Will it improve quality, help manage costs, be good for the consumer, and meet a real need?”
He kind of stunned the whole audience of 1500 of people who just love their technology, have invested hundreds of thousands if not millions of dollars in it, and all of a sudden were kind of hit with this like, “Yeah, you’ve got all this stuff but we don’t need them, we don’t want all of it, and you’re going to have to figure out how you’re going to sell it to me so we covered for our multimillion dollars worth of members.
And don’t bring me technology that is comparable to what exists out there today and expect me and my staff to go through all this policy review time, figure out whether we should cover this new technology, which is so similar to everything else that’s out there in the marketplace and doesn’t meet a real consumer need, doesn’t help me manage cost because you said your big problem in this country is managing healthcare cost.
Don’t bring me new technology that just fits in here somewhere but doesn’t help me manage cost. I don’t have the time for it.” And it was just a real awakening experience for these people. But it’s kind of the environment that we’re facing right now.
Think about this. We’re dealing with the left arm and the right arm of the federal government, and med tech entrepreneurs have been dealing with the FDA for products clearance for many years.
Understand it’s a big challenge, but you’re getting to sort of understand how it works. And when you work with the FDA…when you go through to clear your product, you do all these clinical studies among homogenous group of patients who have the same disease, you isolate the fact this is the only condition they have, you take your clinical experiments and you take them to the best universities and the best surgeons in the country to prove that your device is exactly what it’s supposed to do, so you really isolate that treatment effect that you can demonstrate to the FDA that this product really is safe and effective.
But then why in the world then won’t Medicare and third-party payors just automatically cover it? I guess I would pose that as an open question.
I mean, think of it.
The clinical trials happen at the best universities and medical centers and surgeons in the country, but you companies don’t market to just those people.
You market to every doctor and every surgeon, anybody who’s going to buy the product, and they don’t all get the same clinical outcomes that the best university centers in the country do. And health plans know this, medical directors know this.
The variation in the real world is much more dramatic than in a controlled clinical environment. You have a clinically diverse group; you have doctors at all different levels of skill; you have physicians who even though you can’t tell them that you can take this product and use it for off-label purposes, these are smart people, they know they can.
So they’ll take device clearance for one indication and use it for another because they think they can in their practice, they think the art of medicine as well as a science, and these are things that health plan and medical directors have to think through all the time when they’re trying to figure out if they’re going to cover a new procedure or technology. So there are all of these reasons why you’ve got two different sides of the coin. You need to figure them out really at the same time.
Joe Hage: A question for Ed. You showed us the two triangles, one up and one inverted, and there’s the FDA animal and there’s the CMS animal, and you talked briefly about how do we as manufacturers get our code, use more or have the third-party payers be more receptive to it? Maybe you could talk a little bit about that.
Ed Black: I put that under the heading of Marketing to Payers, but you have to get in the mindset of what a health client medical director worries about when a new technology comes out in the market. It is like taking that advice that the product that Elizabeth was talking about, shooting for the world to have this applied to everyone with a related diagnosis. Or Ted mentioned the type 2 diabetes market is huge, and if you think you could treat that whole market with your one new gadget and suggest something to a third party payer, that’s a real fast way to get it denied because there is no device that works well for everybody.
You have to think incrementally. You have to think about explaining and encouraging to physicians the most appropriate use for that technology and suggest that you’re going to work with the clinicians on the uses of your product to continue to use it within its defining clinical indication and not stray too far. Be clear and talk about how it replaces other technologies or other therapies, does not add to the cost, add to the treatment continuum. There are all kinds of things that people worry about.
And in certain market areas, if you take the Blue Cross system, these are plans that are pretty state-specific. And these medical policy directors, they know how physicians in their state practice. You may come out with a great new spinal fusion device, but if it’s in a marketplace or a health plan, medical director knows they’ve got a lot of egress with neurosurgeons and the rate of doing spine fusion surgeries is twice the national average.
They aren’t going to let any new product out of the marketplace until they get a better handle on how physicians are using the device already. So it’s being really sensitive about some of the local issues and trying to get an alliance of creating realistic expectations about the populations that these technologies could serve.
Joe Hage: What is an answer that is, “Yes I have a predicate, but I deserve more reimbursement because…” Is there a reasonable route to go to achieve higher reimbursement if you’re not starting with PMA?
Tom KraMer: That may be more of an Ed question than mine because it’s the idea of, do we go out and fight for a new code or do we not? So that example that I gave of that surgical tool using the RF energy, they decided that it was going to be much less burdensome to redesign or re-engineer the device to use it than it was to go and fight for a new code, and I’ve just seen that it takes a lot of effort and a lot of years.
We’ve got another customer who’s fighting for a new code
for a device that they’re trying to put out, and I think they’ve been fighting for that code now for four years, I believe, and they haven’t…I don’t know if there’s light at the end of the tunnel yet. So, from my standpoint as a design engineer, I said, “What can we do to overcome that hurdle? Maybe it’s we design it so we still get the therapeutic benefit we’re looking for and there’s a unique way to design and engineer that so it fits under the old code.” And that’s my challenge. So I take that on as a design challenge to try to do that, but I don’t know. Ed, maybe you want to comment on that?
Ed Black: In referral to codes, I think you’re talking about CPT codes or the codes that physicians use to describe the procedures they do, and there are three…the three components of the new code, the relative value units. It’s:
• the work expense and the manner in which the technology is used,
• the capital expense associated with the device or the technology,
• and the malpractice exposure.
So if any of those are significantly different, then you’ve got an opportunity to make a case. This is not currently covered or anticipated in how they define this particular CPT code.
So this is…dealing with a client right now. They have an enhanced technology for doing colposcopy examinations.
It’s still a colposcopy but it provides digital imaging and mapping systems that provide for more clear and accurate diagnosis and biopsy.
So we’re making the case that, yes, it’s more expensive, there’s a lot more capital expense associated with it, it’s worthy of additional payment because there’s more time required of the physician and there’s more capital expense.
And oh, by the way, we can demonstrate long-term cost-effectiveness by more accurate biopsies and/or fewer biopsies so, yeah, it’s worthy of being covered incrementally, but then we have to get in this case an add-on code for it because it’s something done in addition to standard colposcopy examination.
It gets pretty technical sometimes, but if the approach is different but the technology behind it is different and you can substantiate through clinical evidence that it does what it’s supposed to do, then you have an opportunity.
And if physicians in a medical specialty like it, make it available to those physicians who practice in that specialty, you get their support.
You have to really get them to become your advocates because they’re the ones who carry the weight in talking to the AMA, which controls issuance of these CPT codes, which is why we’re going to Chicago on Thursday and Friday of this week to talk to some of the medical societies on behalf of a couple of clients just so they know what’s coming out of this technology and think about whether they would support elevating this to a category 1 code so it can get paid.
Pat Kullmann: : I’d like to just maybe make a couple of quick comments about your question…I think are important.
I think that in the early-stage medical technology company understanding what your motives and your clients are, not only from an investor’s perspective but from a management or a board’s perspective, are you developing the technology with an exit, some kind of liquidity point to sell the company, get going public?
What are your motives?
Because depending on what your motives are will help to drive you in an ideal or targeted regulatory reimbursement and marketing client to achieve an early objective in milestones that you can arrive at that liquidity point in the timeframe that you want.
So, for instance, in that type of a scenario where—and I think Elizabeth was working with some venture capitalists, and venture capitalists are hungry people who want to see results. They want a 30x return for their money. That’s what they’re in there for, make money, that’s it.
In cases like that when you have a product and let’s say you’re following your 510(k) pathway, the game is to look like the predicate.
When you want to use an existing code, the game is to look like the standard.
When you go to the market, you don’t want to look like the predicate because now you got to go compete against the predicate and the other benchmark for CMS.
So it’s kind of like wearing the two-sided face of a human, you know what I’m saying? The smiley and the sad. At different times you’re going to wear a different face, depending on what your objectives are. Does that make sense?
Doug Limbach: I’ll just follow up on that on the patent perspective, this notion of wanting to be just like a predicate device. It runs in the problems when you’re trying to get a patent on something, you’re telling the patent office, “We’re nothing like that predicate device. We’re completely different.”
And then you got the regulatory folks saying, “Oh, we’re completely like this predicate device.”
There’s a duty of disclosure that patent applicants have to the patent office to make them aware of all of the closest prior art that you’re aware of. And so it’s very important for you regulatory folks to be talking to your patent folks because you’ve got one side talking to one federal agency, the FDA, saying, “Oh, we’re just like this device,” and another side of your company talking to another federal agency, the patent office saying, “Oh, we’re nothing like that.”
That’s probably more than a few companies where you’ve reached your duty of disclosure. If you’re a patent guy, just talk to your FDA person and knew what was being said and make sure consistent things were being said at the patent office. It would have violated the duty of disclosure, which invalidates the patent if you’re not coming completely clean with the patent office.
Bruce MacFarlane: That’s great, man.
Ed Black: And then you tell CMS you want to be paid a third way. You tell the patent office it’s X, you tell the FDA it’s Y, you tell CMS it’s Z.
Pat Kullmann: : Welcome to your government.
Bruce MacFarlane: We thought this might be a follow up question to you, actually. I mean, in the FDA regulatory world, in terms of determining substantial equivalents. When you say it’s similar, you’re saying it’s substantially equivalent.
Well, I’ve had an FDA category that was defined as a plastics-based tissue patch, a surgical patch. The definition was plastic and I got a bovine material that was brought into the market.
Under the category, it was defined as plastic patch, and cows ain’t plastic yet. They’re not plastic yet.
And so my point is that the concept of substantial equivalence that drives how regulatory people say this is similar to that, it has some leeway.
So I guess the question is, does that help us…? If we can say that non-plastic is plastic, does that help you being able to say in a patent, “Aha, I’m like any other patch of animal, so we’re patenting animal-based patch.”
So I don’t know if you have any other comments you’re going to have. I haven’t actually dealt with bumping into this with patents, but I just know that there’s a substantial equivalence, can be very broad, and other times the slightest difference the FDA will say it’s not substantially equivalent.
Doug Limbach: Well, I used to be able to be when citing prior references to the patent office, you know, explain all the differences and the similarities and talk about it.
Now we just keep the record clean, just cite them.
“Here, you need to be aware of this predicate device or maybe even statements or maybe the FDA need to be aware of it. Really it
’s a case-by-case basis of what you do there, but from the patent side of things it’s just the standard is materiality.
Is this predicate device material to the patentability of the claims you’re going after in the script patent application? If you’re anywhere close, it seems material, you just cite it to the patent office and you don’t have to make much of distinction.
Bruce MacFarlane: The other thing about FDA’s regulatory standpoint is you need to be substantially equivalent, which could be interpreted narrowly or broadly by the agency, and then any differences do not raise new questions of safety and effectiveness that you haven’t addressed, you know, the potential problems with testing.
So you can be different and you can even be better as long as you’re not raising new kinds of safety and effectiveness questions. So I’m just again talking here about how that might still, you know, you can still be different in regulatory, support different in a patent and not have the agency immediately reject your product.
And then the other thing though is you can…because there’s De Novo. So you can have absolutely brand new technology. I mean, it can be made out of brand new materials, brand new intended use, everything could be different, and you can still be a De Novo 510(k).
So in some ways I think the issue has dissipated, because obviously with the PMA you can be as different as you want because FDA is brand new, but now with the De Novo 510(k) I suppose the point is it doesn’t matter how different you are as long as you can be a Class I, Class II in risk level.
So maybe to some extent, since the De Novo has come out, maybe this issue…the only reason the issue wouldn’t dissipate is sometimes you can still be very different and still be within the traditional 510(k) where you’re still doing the dance of “we’re the same.”
But again, I think there are ways maybe to give an interpretation of the substantial equivalence from the regulatory standpoint in terms of the impact, in terms of how you’re different and do you raise new questions of safety and effectiveness.
Well, if you do, you’ve got to put them to rest, in which case you’re still different but you’re saying the differences don’t create a problem from the agency’s standpoint.
And again, I haven’t bumped into this in my own practice where I’ve had patent people interacting with me, but it just seems like there could be a way that you can be different for the patents and still not be so different that you get in trouble with the agency.
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