I recently attended a workshop hosted by the National Institute for Health and Care Excellence (NICE), the UK agency that reigns over new technology assessment and drives reimbursement decisions within and sometimes beyond its jurisdictional borders.  Having girded myself for a sermon on British-style healthcare frugality, I was surprised to learn that Solvadi, Gilead’s $94,500 per course Hepatitis C drug, has been recommended by NICE for use in the UK. While Solvadi’s high price tag is controversial to say the least, NICE’s thumbs up got me thinking that medical technology companies are probably too timid when it comes to pricing breakthrough innovations. By leaving too much money on the table, are we crippling the whole med tech innovation ecosystem and dooming ourselves to commoditization and mega-mergers?

There are many examples of medical devices that arguably are priced well below their value.  One of my favorites is Mirena, the levonorgestrel-releasing intra-uterine device from Bayer. Mirena provides 5 years of reversible birth control without many of the risks of dual-hormone oral contraceptives, including the risk of not remembering to take them. So why was it priced lower than the 5-year cost of market-leading birth control pills? The humble pacemaker is another good example; pacemakers can vastly increase the length and quality of life, sometimes for decades, yet they cost less than $5,000.  The list goes on of truly game-changing technologies whose sticker price — even factoring in procedures, tests and device-related complications — doesn’t come close to accounting for the quantifiable direct savings much less the gain in Quality-Adjusted Life years (QALYs) that the health economist wonks at NICE used to justify Solvadi.

Why have med tech innovators been hesitant to bust through conventional device price ceilings and really go after the money they are worth? And more importantly, what can be done to change the paradigm?

Overcoming incrementalism

Most med tech innovations represent incremental advances, building off of existing technology that was revolutionary in its day.  The first coronary stents were unequivocally a breakthrough because they offered a therapy for coronary artery disease without requiring hugely invasive and dangerous open-heart surgery. Drug-eluting stents came along and finished the job, achieving sufficient efficacy to convert a large share of the surgery market (with the help of aggressive interventional cardiologists), and became a rare $4B+ device category. Since then, new stent iterations have made unexciting gains, and both stent prices and reimbursement have come down.  Many other device categories, from orthopedics to vascular to ophthalmics, have also seen a parade of line extensions focused on defending shares and justifying modest price increases to health system purchasers. Incremental medical device advances are crucial to the engineered solutions we develop, and appropriately supported by the FDA 510(k) regulatory pathway, but they rarely change the conversation from the purchaser or payer perspective.

Generating the evidence

Even when a medical technology represents a revolutionary step forward in treatment, device companies often don’t spend the money and time that biopharma does to demonstrate the efficacy and cost-effectiveness of their solutions. Asthmatx received US regulatory approval for their severe asthma treatment Alair with a 300 patient study, and many payors still consider it investigational over four years later.  By contrast, when NICE reviewed Xolair, a leading drug for severe asthma, the agency could draw from 11 randomized trials with data from more than 2,300 patients. Ultimately NICE gave its blessing to Xolair, which can cost up to $40,000 per year and generates $1.3B in revenue for Roche and Novartis. Granted, it can be tough to conduct randomized controlled trials with many devices (creating sham controls for devices is truly an art form), but payers don’t really make that distinction. The clinical development necessary to achieve clinical acceptance and additional reimbursement can be too much for traditional med tech companies and their VCs to stomach, but it’s precisely this evidence that enables pricing to value vs. pricing to existing competition.

Fighting the good fight

Even if we had the evidence we need to justify new reimbursement and get fair value for our innovations, it is just way easier to find a way to fit into current reimbursement than confront the hellish slog to new code. Short-term focused investors even insist on it, having grown allergic to both regulatory and reimbursement risk.  To put medical devices on par with drugs in monetizing demonstrated value, some companies will have to step up and get into the ring with CMS. The manufacturers of transcutaneous aortic valves are going for it, having developed a technology that can avoid major open-heart surgery as stents once succeeded in doing.  Edwards et al are charging more than $30,000 per device, and are building the evidence to demonstrate not just efficacy but also cost effectiveness and yes, QALY gains.  CMS is slowly coming along with a National Coverage Determination that has more conditions than a Hollywood pre-nup, but it’s a start.

Clearly not all new medical devices will, or should be, disruptive innovations that warrant significant allocation of scarce healthcare dollars, and plenty of new drugs are incremental, too (how many erectile dysfunction drugs do we really need?).  However, we med tech people have to resist our inherent urge to endlessly tinker and make some big bets.  We, too, know how to modify disease, though we may not call it that enough, or aim that high often enough. 

Note: Amy Siegel from S2N will be hosting a panel on these topics this Friday, November 7th at the MassMedic MedTech Showcase, featuring Medtech-Biotech crossover executives and investors.