Fixing the reimbursement and coverage divide between ‘breakthrough’ drugs and medical devices

The Food and Drug Administration designates as “breakthrough” technologies certain drugs and devices. This designation helps expedite the development and review of therapies intended to treat serious conditions that may offer improvements over available therapies.

Once breakthrough drugs and devices are approved, however, devices face a far less predictable pathway and a longer timeline to achieving reimbursement, including coverage by payers such as Medicare, compared to breakthrough pharmaceuticals, even though both involve years of development, significant investment, commitment of resources, running of clinical trials, and market launch preparations.

This unpredictable pathway and longer timeline to achieving coverage and reimbursement for breakthrough devices, sometimes lasting years, creates both financing and commercialization challenges for breakthrough device manufacturers. More importantly, it creates an inequitable and indefensible situation for patients with life-threatening or life-altering conditions by limiting and/or delaying their access to breakthrough device-based therapies.

Under Medicare, new physician-administered drugs have access to a specific, consistent payment rate that is driven by the sales price of the drug and is largely consistent across different outpatient settings of care, such as physician offices and hospital outpatient departments. And Medicare’s coverage of drugs typically aligns with the drug’s FDA approved indication, which is established without going through a product-specific review process.

In contrast, most devices do not have specific payment rates under Medicare. Instead, payment for a device is typically combined with payment for the associated medical procedure and the amount paid can vary dramatically by the clinical setting in which the device is used. In addition, the determination for whether a device is considered medically reasonable and necessary — and therefore covered by Medicare — may require a formal national or local coverage determination by the Centers for Medicare and Medicaid Services and its contractors, a process that can take years to complete. Very few drugs are subject to specific national or local coverage determinations.

This coverage and reimbursement divide between drugs and devices — which is likely unintentional despite it being institutionalized and statutorily codified — makes developing and commercializing novel medical devices a more challenging process than developing new drugs. In particular, the uncertainty about Medicare coverage can significantly affect investment into novel device development and ultimately impede patients’ access to breakthrough therapies.

Over the next five to 10 years, medical devices based on breakthrough technologies such as bioelectronic medicine, brain-computer interfaces, and neuromodulation will play a larger and more important role in treating the same serious or life-threatening diseases or conditions as pharmaceuticals, and may treat some conditions that pharmaceuticals can’t. For some indications or populations, devices may be safer, more effective, and potentially cheaper alternatives to medicines. People who need new therapies should be able to access them without regard to the type of therapy — drug or device — involved.

Having spent nearly 20 years in the biotech industry, my current focus as a co-founder and president of a device company working on a breakthrough-designated precision neuromodulation system treating Alzheimer’s disease has taught me stark lessons on the differences between clinical development and regulatory process for devices versus drugs, but more importantly — and with greater impact — the differences between coverage and reimbursement. My experience on the latter differences was confirmed by a 2023 study published in JAMA Health Forum by researchers at Stanford University who showed that, in a selected sample of cleared medical devices based on novel technologies, it took an average of 5.7 years to achieve Medicare coverage. This is in contrast to published data showing that Medicare covers approximately 90% of newly approved drugs within one year of receiving FDA approval.

These differences on coverage and reimbursement can limit access to the investor capital required to finance innovative devices through clearance and commercialization, as well as negatively affect the financial incentives to develop breakthrough devices.

Medical device companies face unique timeline challenges related to competition from within the industry. In some cases, the manufacturers of “similar” competitive devices can become “fast followers” and achieve rapid FDA clearance on a substantially similar basis by using the 510(k) pathway to get to market quickly. This regulatory shortcut is available to manufacturers of low- and moderate-risk devices through a premarket submission to the FDA, which is designed to demonstrate that a device is substantially equivalent (meaning as safe and effective) to an already cleared and legally marketed device. If the FDA deems the predicate device to be substantially equivalent to the competitor’s device, then the competitor’s device is cleared and can legally be marketed. This is in contrast to new chemical entities, whose sponsors are given between three and 12 years of marketing exclusivity upon FDA approval.

From both a comparative and competitive standpoint, under these regulatory realities, cleared devices have a potentially shorter commercialization window and life cycle versus newly approved drugs.

I and others in the medical technology community believe that devices deemed to be breakthroughs as designated by the FDA should have a coverage pathway in CMS that puts them on a similar timeline as pharmaceuticals targeting the same disease or condition. Every day a cleared breakthrough device doesn’t have Medicare coverage and reimbursement is a day lost toward achieving market adoption, market share, and patient access, as well as toward recouping the investment made into developing it.

This is why the finalization of the Medicare Coverage of Innovative Technology (MCIT) rule in January 2021 was a welcome development in the medtech industry and why its repeal a few months later came as such a blow. This rule would have required an automatic four years of CMS coverage for cleared breakthrough-designated devices. For my company and many other small, early- to mid-stage medtech companies working to take innovative breakthrough devices through the regulatory process and deliver them to the people who need them, MCIT was potentially transformative and could have helped create a more predictable and reasonable device coverage timeline that would be more in line with the pharmaceutical timeline.

CMS said it rescinded the rule primarily because of concerns that the clinical data necessary for FDA approval of a breakthrough device may not address the question of whether a device is medically reasonable and necessary for the Medicare population or demonstrate evidence that a cleared breakthrough device is both safe and can improve health outcomes for Medicare beneficiaries.

As a replacement for MCIT, CMS proposed the Transitional Coverage for Emerging Technologies (TCET) pathway in June 2023. Since then, it has been the focus of multiple Congressional hearings, pending legislation in Congress, and an open comment period that garnered more than 150 submissions from industry stakeholders, trade groups, advocacy organizations, medical societies and medical device companies, including mine. The majority of this feedback makes clear the need for a better CMS framework and process to ensure that breakthrough devices will be covered within months of FDA clearance, not years.

Editor’s note: The FDA released its final guidance on coverage for emerging technologies on August 7, two weeks after this essay was published. In a LinkedIn post, the author says “it falls short in various areas.”

Medical device companies shouldn’t have to rely solely upon the collective voices of advocacy communities or congressional champions to help secure coverage for breakthrough therapies treating serious diseases like Alzheimer’s.

Putting breakthrough devices on a more equal footing with breakthrough drugs would help ensure that medical device manufacturers have both the needed product development incentives and reasonable market commercialization opportunities as their pharmaceutical peers. It will also help create a more attractive investment environment for devices that achieve breakthrough designation from the FDA, which will ultimately benefit patients through more innovative and effective devices being developed.

While the proposed TCET program has many of the required elements to speed the process to achieve coverage for breakthrough devices, the proposal in its current form doesn’t go far enough. Among other suggested additions and modifications, it needs more flexible requirements on when and how a company’s device can join the program, more definitive and shorter milestone timelines, should include specifications for coding and payment to take effect in conjunction with coverage, and should include more than just five devices per year.

While CMS coverage, coding, and payment processes involve complex issues and a wide array of stakeholders, the agency has the opportunity through TCET to simplify some of this complexity and make a significant advance on coverage for breakthrough devices. Ultimately, from patients’ perspectives, it shouldn’t matter whether a new life-altering or lifesaving therapeutic intervention comes from a breakthrough device or a breakthrough drug.

It’s been two-and-a-half years since the Medicare Coverage of Innovative Technology rule was rescinded, and the medtech industry is anxiously waiting for a viable replacement to be put in place, whether from CMS’s own modifications to the currently proposed Transitional Coverage for Emerging Technologies program or through Congress passing legislation intended to achieve similar goals. Clarity, and drug-device equity, are needed to support medical device innovation, industry investment and patient access to safe and effective new treatments.

Rich Macary is the president, chairman, and cofounder of Sinaptica Therapeutics, a clinical-stage company developing personalized neuromodulation therapeutics to treat Alzheimer’s and other neurodegenerative diseases, and is a managing partner of Macary Advisors, a biotech/medtech consulting firm.