A financial analyst with Citigroup's SmithBarney unit has authored a detailed report that examines the factors impeding commercial development of neural prostheses. The analyst, Sam Hall, originally wrote the report as a thesis while he was a molecular biology student at Princeton University. The publication is highly critical of government policies that restrict new product development, in particular at the Food and Drug Administration (FDA) and the Centers for Medicare and Medicaid Services (CMS).
The report makes several recommendations that would help the neurotechnology industry commercialize new products at a higher rate. It also presents three detailed case studies of commercial neural prostheses to demonstrate the challenges confronting manufacturers. The three products examined are the cochlear implant, the Freehand hand grasp prosthesis, and the NCP vagus nerve stimulation system.
"The FDA's legislative history has resulted in a regulatory paradigm where gaining approval for a new medical technology frequently costs tens of millions of dollars, and takes more than a decade." Hall writes. "While the FDA has a statutory mandate to act in the interest of public health, the administration's policies are increasingly levying insurmountable burdens against the developers of neuroprostheses. A close examination of current FDA policy and practice suggests that the administration must make a concerted effort to align its commitments to device safety and efficacy with the economic reality of neuroprosthesis markets and the ability of developers to demonstrate the clinical utility of their devices."
Hall also has pointed comments about Medicare. "The burdens placed on commercialization efforts by the Centers for Medicare and Medicaid Services are unpredictable and frequently make questionable healtheconomic sense," he writes. "Intricacies in the way Medicare determines the amount it is willing to pay for emerging technologies have resulted in profound disincentives for the clinical adoption of neuroprosthetic devices, and have curbed neuroprosthesis markets to the point of commercial non-viability. As such, Medicare coverage and reimbursement policies constitute both the most pernicious and most easily changed hurdle faced by neuroprosthesis commercialization efforts."
Hall's first case study, commercialization of the cochlear implant, traces the early research on single-channel devices, and later multi-channel stimulators. He points out that funding was largely unavailable during those early days, in large part because of skepticism about the technology. Even Graeme Clark's efforts in Australia were met with resistance from the clinical communities and government funding agencies during the 1970s
Despite these issues, cochlear implants achieved FDA approval during the 1980s. But even this did not lead to widespread commercial success for the devices. One reason, according to Hall, was the four-year delay from the time of FDA approval to a reimbursement decision from HCFA, the predecessor of CMS. When the HCFA decision did come in 1988, it assigned cochlear implants to a diagnosis-related group (DRG) that provided Medicare reimbursement that was insufficient to cover implantation costs. According to Hall, even today, hospitals incur a loss of about $10,000 for inpatient Medicare implantations and $5,000 for outpatient Medicare implantations. These issues were a major reason why 3M Corp., one of the first developers of commercial devices, decided to abandon the market in 1987.
Hall next turns to analysis of the motor prosthesis market, looking in detail at the NeuroControl Freehand device. The case study examines the history of the device and the founding of NeuroControl Corp. in 1993. Despite raising several million dollars in venture capital funds, the company was unable to make the device a commercial success, withdrawing it from the market in 2002. "The commercialization of the Freehand system and its subsequent withdrawal from the market suggest that implantable upper extremity neuroprostheses may be unmarketable in the current regulatory and reimbursement environment," Hall concludes.
According to Hall, delays in obtaining FDA approval and Medicare reimbursement were key factors in the commercial failure of the Freehand device. NeuroControl spent about $10 million to get through the FDA approval process, and ended up covering much of the unreimbursed device cost. Medicare reimbursement was in the range of $18,000 to $30,000, while the cost of the device and implantation procedure ranged from $55,000 to $70,000.
Hall's third case study in the report chronicles a more successful commercial neural prosthesis device, Cyberonics' NCP vagus nerve stimulation system. He traces the roots of Cyberonics' research at Temple University and commercial outgrowth from cardiac pacemaker devices. Reese Terry, a former executive with Intermedics (now Guidant) played a major role in transforming pacemaker technology to VNS devices. Cyberonics' commercial success in the epilepsy market came in spite of serious burdens placed on the young company by the FDA, Hall reports. The company also had to contend with being placed by Medicare in a DRG that did not fully reimburse device and implantation costs.
Hall concludes his report with several policy recommendations. Among these are to extend the humanitarian device exemption (HDE) review process and modify HDE policies to minimize undue costs and barriers to technology adoption; to establish clearer internal policies and industry guidance on clinical trial expectations for neurological devices; to continue to offer supplementary new technology payments for emerging technologies; and to eliminate multiple cycles of review, and clarify criteria for the demonstration of reasonableness and necessity.
Hall's faculty advisors at Princeton were Sam Wang and Shy Shoham. Hall spoke to executives of Advanced Bionics Corp., NeuroControl Corp., and several other organizations in researching the project.
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