Medical Device Link.

Originally Published MX November/December 2002

GOVERNMENTAL & LEGAL AFFAIRS

Part 2: Striving toward Harmonization

Bradley Merrill Thompson

Although distinct by both authorizing statute and controlling agency, the processes that the U.S. government uses to ensure the safety and effectiveness of medical technologies are in many ways interconnected with the processes used to approve coverage for such products under the federal Medicare program. The first installment of this article (MX, September/October 2002) discussed the interconnections between the FDA approval and Medicare coverage processes, comparing the regulatory procedures and criteria employed by FDA and by the Centers for Medicare and Medicaid Services (CMS; Baltimore). That installment highlighted the overlap that exists between those processes, which includes considerations of safety and effectiveness that underpin both FDA approval and Medicare coverage decisions (see Figure 1).

A key problem with having such an area of overlapping jurisdiction is that it can produce unnecessary delays in decision making, which in turn delay patient access to needed medical therapy. Moreover, such duplication can waste precious government resources and can lead to inconsistencies in decision making between the two government agencies—in spite of the fact that both agencies belong to the same federal department.

This installment explores what might be done to avoid or minimize the effects of that overlap by harmonizing the two regulatory schemes. In particular, the article focuses on a proposal offered by the Indiana Medical Device Manufacturers Council (IMDMC; Indianapolis), and discusses some possible benefits of that proposal.

As noted in the first installment, in order to avoid the pitfalls associated with having two regulatory bodies share joint authority and responsibility over a single activity, this article emphasizes harmonization rather than mere coordination. Recognizing that the fundamental changes needed to achieve harmonization are probably not likely in the near term, however, this installment also offers some practical suggestions for managing a manufacturer's relationships with FDA and CMS under the current system (see sidebar).

Harmonizing the Future

Figure 1. A comparison of FDA approval criteria (a) and Medicare coverage criteria (b) reveals an area of overlapping jurisdiction that results in duplicative reviews and delays in the adoption of new technologies (c). (click to enlarge)

In theory, eliminating the duplication of effort between FDA and CMS is a task that could be accomplished simply, just by asking one of the agencies to stop doing duplicative work. To that end, IMDMC proposes that CMS be asked to stop performing public health assessments. Reducing the scope of CMS activities is the best course of action because determinations of safety and effectiveness—which are at the core of the overlap—are better performed by the agency with responsibility for protecting the health of all American citizens—specifically, FDA.¹

A starting point in getting CMS to relinquish such public health assessments would be to require the agency to better and more precisely define its criteria for making coverage determinations. Such a definition would limit the discretion of CMS reviewers to reexamine issues that have already been examined and decided by FDA reviewers.

Although it seems as though it should be easy to remove the discretion of CMS reviewers in order to eliminate duplicative efforts, in practice such a change is likely to require more than the mere publication of a regulation defining Medicare coverage criteria. Medical judgment is a subtle art, and regulation alone may not be sufficient to prevent CMS reviewers from following their instincts in cases in which their judgments differ from those already made at FDA.

To address this difficulty, IMDMC proposes to reconfigure the process that CMS uses to make coverage determinations into the two-step process described below. Dividing the processes for coverage decision making would enable CMS to sharpen its focus on insurance-related questions that need to be answered, and would impose a beneficial hiatus in the agency's consideration of certain utilization issues until sufficient evidence about them has been collected.

Step 1: Approving Coverage. In the first step of the process, which would take place upon FDA clearance or approval of a new technology, CMS would determine whether the item or service falls into a Medicare benefit category.

For this step to be performed in an ideal way, Congress would first need to redefine the Medicare benefit categories so that they focus more clearly on medical needs (e.g., cancer treatments) and services (e.g., medical imaging services). Such an approach would differ from that of the existing statute, which sets forth very broad benefit categories (and a large number of very specific items and services) and permits CMS to exercise considerable discretion in deciding whether a particular item or service is "reasonable and necessary."

Identifying a basic benefits package to be used under the new approach is a duty for which Congress should take responsibility. It is not a task that should be delegated to unelected officials. Nevertheless, the IMDMC proposal could proceed even if Congress were unwilling or unable to redefine the statutory benefit categories.

This first step in the coverage process would be initiated automatically when a new technology received FDA clearance or approval. Upon that approval, using existing or newly revised benefit categories, CMS would simply need to decide whether the technology at issue falls within a covered benefit category (subject to an appeals process if disagreements arise). The agency would do this by answering the question: "Based on the technology's labeled uses (which FDA assesses) and actual uses, does the use of the technology fit within a benefit category?" If so, such uses would be deemed covered, and access to the technology would begin. Additional review of the technology would then progress to the second step in the process.

Using this approach, the coverage decision would become a matter of legal contract interpretation instead of a discretionary process intended to determine the scientific or medical need for or effectiveness of a new technology. The new approach would therefore more closely resemble the processes used by private insurers.

The new approach would not eliminate the need for claim administrators to carry out individual medical necessity assessments to determine whether a specific beneficiary qualifies for a covered benefit. However, under this proposal, once CMS has determined that the labeled use of an FDA-approved item falls within a covered benefit category, that item would be covered by Medicare for the reviewed uses. Subsequent changes to this coverage decision would be handled as part of the second step of the process.

Step 2: Establishing Utilization Controls. In the second step of the process, CMS would collect and analyze real outcomes data over an appropriate period in order to develop coverage guidelines that address proper utilization.

After the Medicare program has begun paying for the technology and has gained some experience with it, CMS would issue a final determination establishing appropriate Medicare utilization controls. This determination would be expressed in the form of utilization guidelines addressing such classic insurance issues as appropriate clinical setting; appropriate patient condition; and appropriate scope, frequency, and duration of use (if FDA has not already addressed those issues when clearing the labeling for the technology).

Such guidelines would be adopted only after the program had had sufficient experience with the technology for the guidelines to be well supported, and would be based solely on clinical and scientific data examined through an open public process. Sources of the data might include postmarketing studies, large simple trials, patient registries, and clinical experience programs. The guidelines would thus focus exclusively on establishing the circumstances in which the technology works best. Although economic factors might be considered later, as part of CMS's payment determination process, such considerations would play no role in the formulation of utilization guidelines.

Importantly, the utilization guidelines would be designed to provide missing information about technology utilization, but would not be permitted to create obstacles intended to contradict or frustrate prior FDA decisions. The utilization guidelines, in other words, should not have the effect of prohibiting the FDA-approved use of a technology or overriding labeling that FDA considers lawful.

The Benefits of This Approach

As described below, adoption of the IMDMC proposal would be expected to bring benefits in four key areas that have proven troublesome under the current system.

Duplication, Inconsistency, and Delays. Under this proposal, FDA would evaluate the intrinsic safety and effectiveness of a device, as it does currently. CMS would be responsible for focusing on the insurance-related questions of whether the device falls into a benefit category and, from the standpoint of a third-party payer, whether certain limitations should be imposed to ensure its most appropriate utilization. In this regard, each of the agencies would be performing precisely the functions that fall most directly within their core competencies—and nothing more.

Perhaps most importantly, the proposal would also make it possible for important new medical therapies to be available to the Medicare population immediately after FDA has determined that the product is safe and effective.

Better Evidence. In the medical device industry, innovation takes place in ways that are very different from innovation in the pharmaceutical industry. While drug innovation involves the scientific discovery of beneficial new chemical compounds, device innovation is frequently fueled by processes that occur outside of research laboratories.

Device innovation typically results from a continuous process of incremental refinement and change—a "dialogue of innovation" that takes place between the medical professionals who use technologies and the innovators who develop them.² The dialogue begins as health professionals use devices in the day-to-day practice of medicine. From this experience, professionals come to see new applications for improving patient care, and they tell technology developers what they've learned. Based on this expert feedback, technology developers introduce refinements and incremental advances into their devices, which once again undergo real-world use by professionals—and the entire dialogue begins anew.

Because some of the most important medical learning occurs as devices are used in the day-to-day delivery of healthcare, Medicare's delivery settings represent natural places for assessing new medical devices and their appropriate uses. Using such settings for technology assessment would make quality-enhancing new technologies available to Medicare's beneficiaries more rapidly, while also improving the evidentiary bases that underlie Medicare's utilization guidelines.

Unfortunately, device innovators today face a Medicare catch-22. Many new technologies cannot be used until coverage is approved; coverage cannot be approved until outcomes information is produced; and outcomes information cannot be produced until a new technology is used. Thus, by requiring outcomes information about a new technology before healthcare providers have developed a base of clinical experience with it, Medicare short-circuits the ability of technologies to be used in the very practice settings most likely to yield the information the program needs.

The two steps of the IMDMC proposal would create an interim coverage period during which Medicare's need for outcomes data could be addressed, effectively postponing the preparation of utilization guidelines until sufficient real-world data have been collected. Such a process would ultimately lead to better evidentiary bases for Medicare's coverage decisions.

Fiscal Responsibility. To be viable, any reform of the Medicare system needs to be fiscally responsible. This proposal provides such fiscal responsibility by ensuring that every technology meets the following criteria before being adopted by the Medicare program.

• The technology serves a function that Congress has said ought to be covered.
• The technology is safe and effective as determined by FDA.
• The technology must meet the requirements of any applicable Medicare coverage guidelines.

By analogy, those criteria might be thought of as setting the parameters of a room. To be covered under Medicare, the item or service must be above the floor of safety and effectiveness determined by FDA. It must also be below the ceiling set by CMS to ensure that the safe and effective technology is not overutilized. Finally, it must be within the walls that Congress has set to define covered benefits.

Together, these criteria prevent medically inappropriate utilization of new technology. If the Medicare trust fund is spending too much money despite the fact that the technology is not being overutilized, it should be up to Congress to redefine the benefit categories to bring spending in line with resources.

Clarity and Predictability. Because so many factors currently underlie Medicare reimbursement coverage decisions—often including a reevaluation of the safety and effectiveness of the device—those who invest capital in the development of new medical technologies are unable to predict with any confidence how coverage decisions will be made. Separating the public health function from the insurance decision will make the system more transparent and thus more predictable.

Achieving such clarity and predictability is of critical importance for the future availability of medical technology to patients. To fund innovation, the medical technology industry depends to a very large extent on the availability of venture capital. If clarity of process does not exist, those venture funds will dry up, and with them will go many of the most remarkable and important innovations in medical technology. The impact of a lack of clarity and predictability on venture capital was documented recently in a study released on Capitol Hill.

Federal government policy, and regulatory burdens and uncertainties are important factors in venture capitalists' decisions about where to invest. There was a strong consensus among the venture capitalists we interviewed that the regulatory burdens imposed on medical technology innovators by the [FDA] and the [CMS] are excessive. Venture capitalists indicated that these burdens reduce the flow of capital to medical technology ventures, and also reduce economic efficiency by distorting private investment decisions in this sector. Investors in the medical sector often steer their money toward ventures that are safer bets from the perspective of obtaining marketing approval and Medicare reimbursement, because of (1) cost and time burdens of the regulatory and reimbursement approval processes, and (2) uncertainty about the requirements and standards that must be met to obtain approval. A perceived increase in regulatory risk in recent years has influenced the investment decisions of venture capitalists to the extent that some are no longer willing to invest in the type of experimental technologies that have traditionally produced the greatest advancements in medicine. Instead, they are inclined to invest in companies whose products have both good market prospects and a reasonably predictable and not excessively burdensome path to FDA approval and Medicare reimbursement.³

The overlap between the review criteria of FDA and CMS contributes substantially to the lack of clarity and predictability in those agencies' respective processes. It creates the risk that different decision makers will view the same data differently. It also prolongs the process, which inherently discourages investment. For all of these reasons, innovation would be substantially aided by separating the FDA and Medicare processes and, in so doing, clarifying the processes and criteria that each agency applies.

Conclusion

Three conclusions about the current FDA approval and Medicare coverage processes seem clear. First, FDA approval of a new medical technology does not ensure Medicare coverage. Medicare looks at factors that go beyond the safety and effectiveness of the device established through the FDA approval process.

Second, the regulatory status of a device at FDA has a significant impact on whether the device will be covered under Medicare. For example, a device that goes through the premarket approval process, rather than the premarket notification process, is more likely to be covered under Medicare sooner.

Third, the overlap in the review criteria between FDA approval and Medicare coverage can lead to delays, wasted government resources and, in some cases, inconsistencies in government decisions.

There does seem to be a better way to construct these two governmental medical technology reviews. Harmonizing the review criteria to avoid duplication would enable the two agencies to focus on their respective missions without frustrating one another. In particular, adoption of the IMDMC proposal would more neatly separate the following key issues and agency responsibilities.

• Allocation of scarce resources (Congress and the marketplace).
• Safety and effectiveness (FDA).
• Establishing utilization controls for insurance purposes (CMS, using good science).

Until such harmonization is attained, manufacturers will have to take the lead in ensuring that the regulatory processes of FDA and CMS are least coordinated. One day, hopefully, that will not be necessary.

References

1. "The FDA Approval and Medicare Coverage Processes, Part 1: Current Interconnections," MX (September/October 2002 [expanded version on-line]).

2. The Dialogue of Device Innovation: An Overview of the Medical Technology Innovation Process (Alexandria, VA: Health Care Technology Institute, 1993).

3. Venture Capital and Medical Technology: The Impacts of Public Policy on Capital Flows and Innovation (McLean, VA: KPMG Consulting, 2001).

Bradley Merrill Thompson, Esq., is a partner and chair of the drug and medical device law practice at the law firm of Baker & Daniels (Indianapolis). He is also chairman of the board of Aventor, a global, multidisciplinary consulting firm that helps medical technology companies and investors navigate regulatory and reimbursement requirements worldwide.

Copyright ©2002 MX