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Medical Device Reimbursement Lessons Learned: Up in Smoke

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Your reimbursement strategy can have a critical impact on your medical device success and your company.

Reimbursement is different from approvals by the FDA or another regulatory agency/notified body. Approvals by a payer such as Centers for Medicare and Medicaid Services (CMS) allows you to be reimbursed for the product. While the approvals by regulatory agencies such as the FDA allow you to legally distribute the product.

Because regulators and payers may use different criteria, your company needs to fully understand the requirements for each agency.

A recent article posted on MDDI Online (MDDI Online: CMS Killed My $80M Startup), highlights what can happen when the regulators and payers use different criteria and why you need to create strategies for both in your product development plan.

Background

Sonitus Medical developed a removable bone conduction hearing device, which attached to the jaw. For regulatory approval, the new product was compared to surgical bone conduction devices which are implanted on the skull. The new device was cleared by the FDA based on the comparison to the surgically implanted device and for the same intended use.

Sonitus Medical also approached the CMS to discuss creating a new code in the Healthcare Common Procedure Coding System (HCPCS), so the product would be reimbursed by Medicare. By law, hearing aids are specifically excluded from Medicare coverage, but there was no specific definition for hearing aids.

While Sonitus Medical was in discussions with CMS for their removable bone conduction hearing device, there was a separate effort within CMS to reclassify all bone conduction hearing devices as hearing aids. Based on feedback, surgically implanted bone conduction hearing devices remained covered, but all removable devices, including bone conduction hearing devices, were classified as hearing aids and ineligible for coverage. Although the Sonitus Medical device was for the same intended use as the surgically implanted device, CMS classified the device as a hearing aid, and reimbursement was denied.

Due to this classification, Sonitus Medical began liquidating assets in Jan 2015.

Lessons Learned
• Reimbursement decisions are based on device classifications which may be different from regulatory classifications for comparison to a device with a similar intended use and approval
• Market strategies which rely primarily on CMS approval (or a single payer strategy) for their revenue stream should have been identified as a high risk and alternate strategies developed early in the project, as listed below
• When possible design your product to fit into existing reimbursement category versus planning for a new category. Unfortunately, Sonitus Medical got caught in the middle of the CMS change

Mitigation Strategies
• Work with CMS to understand how it perceives a device since it may be different from the FDA (Sonitus Medical tried this approach)
• Evaluate sales strategies which do not rely on CMS coding only. For example, some healthcare systems or payers may be willing to adopt the new device, even if CMS does not
• Launch in other parts of the world that are more open to new technologies
• Plan to build the health economics case for the value of the product, incorporate that into the project timing and revenue stream, then reapply to CMS based on the additional information

Don’t let your business be destroyed by a single payer strategy. While reimbursement needs to be integrated early in product development (prior to development, and integrated into your business case), you should also have several strategies in place to enable your device to get to market and to begin driving sales.

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