Health insurance cost-cutting climate hampers new devices

You've heard that FDA regulatory challenges and declining venture capital are killing medical device development and innovation. But there is a third leg at play that's poised to hurt medical device companies' advance of new products--insurance companies.

As the Star Tribune details, insurers are increasingly resistant to cover devices. And the Affordable Care Act, which is designed in part to slow down the growth of health care costs, may be emboldening them, according to the article. Edward Black, principal of the consulting firm Reimbursement Strategies, told the newspaper that companies now need to successfully prove that their new device can generate a minimum 20% improvement in costs or clinical outcomes. If they can't, he said, insurance reimbursement or coverage becomes less likely.

A variation of that situation is in play with Torax Medical. The company has raised $70 million in venture investment over the years (despite fundraising challenges in the overall industry). And its Torax Linx implant, a product to treat gastroesophageal reflux disease, gained FDA approval more than a year ago. But co-founder and CEO Todd Berg told the Star Tribune that the company has endured denial of coverage rulings claiming its device is experimental. This forces healthcare providers trying to use the device to file an appeal to gain coverage. Despite eventual decisions to cover the device, the delays and extra bureaucracy limit the income it can generate. As a result, Torax remains in startup mode, according to the story, lacking a significant revenue stream.

Black said he faced similar issues with Cigna, while representing a device industry client, despite the submission of eight clinical studies to encourage the insurer to reverse a coverage decision. The extra data didn't help, he told the newspaper, because the insurer still cited the device as "experimental or investigative" without further explanation.

Berg is quoted as saying that in the current investment/regulatory/insurance environment, he couldn't have launched the company he has today.

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