Argenta Advisors has contributed a number of articles to the Medical Device Summit (MDS) “Summit News” (www.medicaldevicesummit.com) since mid-2014. The article below appears as first published by MDS

Reimbursement Report: FDA 510(k) Clearance and Third-Party Reimbursement

Note: Regulatory approval by the FDA is considered a critical goal by manufacturers and their investors, which is understandable, since there can be no commercialization without it. However, adequate payer reimbursement is clearly the final goal. Without it, commercialization stalls. The following blog is the first in a series of posts that examines the relationship between reimbursement and the type of regulatory approval for medical devices, i.e. the 510(k) process, premarket approval process (PMA), humanitarian device exemption process (HDE) and the therapeutic biologics application (BLA).

The U.S. Food and Drug Administration's 510(k) program was introduced 38 years ago, when FDA was first granted regulatory authority over medical devices. The 510(k) process is the most common of FDA regulatory pathways; it is estimated that some 3,000 to 4,000 devices receive FDA clearance through the 510(k) process, compared to about 30 to 40 devices that receive FDA approval through the more rigorous premarket approval (PMA) process.

The 510(k) clearance is granted to those devices that have been shown to be “substantially equivalent” to a previously cleared “predicate” device. Specifically, the device must have the same intended use and technical characteristics of the predicate device. Therefore, clinical data submitted to FDA, if it is required at all, typically focuses on safety and on demonstrating the substantial equivalence between the two devices, rather than the clinical efficacy. It is estimated that only about 10 percent of 510(k) submissions include clinical data.

Many of the 510(k) cleared devices represent next generation devices, such as design modifications to existing devices. It is unlikely that a payer will recognize these types of devices as ‘new,” since they do not result in a change in procedure coding or coverage criteria. However, sometimes a 510(k) cleared device will represent a new use for the technology that will come to the attention of a payer. For example, radiofrequency catheters may be similar in terms of their technical characteristics and their intended use but may have unique procedure differences that result in the need for new CPT codes and/or requests for coverage from providers or facilities. These are the types of devices that will come to the attention of a payer.

While manufacturers may appreciate the shorter pathway to commercialization associated with a 510(k) clearance, in many instances this can also be a direct route to payer non-coverage. If the device is associated with a new code and/or a new indication, many payers will consider a 510(k) cleared device investigational due to the relative lack of clinical evidence required by this process. For example, let’s imagine a new device cleared through the 510(k) process on the basis of data showing substantial equivalence. There are a couple of supporting observational studies, and perhaps a small randomized study that meets some, but not all of its outcomes. The payer begins to receive inquiries from providers about coverage, so the manufacturer distributes a clinical dossier to the payers. The medical policy staff at the payer organization notes the relative paucity of literature and that the device was approved through the 510(k) process. They also note the very large target market population for this device, thus creating implicit concerns about the budget impact.

This is an easy medical policy for the payer to create. There is no need to wade through large volumes of literature - an investigational status can be easy to implement and will say something along the lines of: Initial data are promising, but larger well-controlled trials with long-term follow-up are required to validate the safety and effectiveness of the technology.

The implications of such a policy are ominous. Right at the start of commercialization, the manufacturer is saddled with a very high evidence requirement that would be difficult to meet under the best of circumstances. Furthermore, as the device begins to be used, the narrow window for a randomized trial closes quickly, as physicians may be reluctant to enroll patients. Now manufacturers are in the situation of a negative policy with an evidence requirement that may be very challenging to meet.

The typical next step for a manufacturer is to commit significant resources to a campaign of grass roots support, including a reimbursement hotline, support for an appeal process, and support for the publication of additional observational studies. These efforts are expensive and can take years to turn this situation around.

Over time, the literature base may expand to include multiple observational studies that consistently report positive results. However, each time the payer policy comes up for its annual review, the payer merely notes the ongoing lack of randomized studies with long-term follow-up, and the investigational status remains unchanged. Typically, the manufacturer and the physician champions repeatedly point out to the payer that it is time for the payer to consider the weight of the evidence rather than the limitations of each individual study, but to no avail.

Once established, it is very difficult to get a payer to revise an evidence standard.

This scenario illustrates the adage of “be careful what you ask for.” Yes, regulatory clearance/approval is an important goal in the lifecycle of a medical technology. However, the regulatory path can sometimes make or break a reimbursement pathway for that technology. Randomized trials are expensive to conduct and can delay commercialization for years, but this has to also be balanced with the hefty price tag of a long-term grass roots effort after commercialization, coupled with a potentially multi-year delay in coverage and payment. Reimbursement strategy can no longer be overlooked when planning the regulatory and clinical strategy for a product, particularly if it is a 510(k) product.
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