Welcome to our VC Policy Pulse series, where we speak with VC investors on policy issues that are having a major impact on the VC and startup ecosystem. Today, we’re hearing from Justin Klein and Kirk Nielsen, co-founders & Managing Partners of Vensana Capital, about the effects of federal policy on medical device innovation in the U.S. and how reformed coverage policy for innovative technologies from the Centers for Medicare & Medicaid Services (CMS) could help advance new medical devices and accelerate access to these products for Americans.

Background

For quick background on the issue, CMS issued the final rule regarding the Medicare Coverage of Innovative Technology (MCIT), which NVCA supported in a comment submission in November 2020. Originally intended to go into effect March 15, but now on hold pending a second comment and review period, the rule would establish a new MCIT pathway to provide four years of national Medicare coverage as early as the same day as market authorization for FDA-designated breakthrough devices. See the fact sheet and press release from CMS for details.

NVCA has long advocated for reforms to the coverage and reimbursement processes at CMS that are critical to encouraging investors to take the long-term risk of pursuing new medical device innovations that will save and improve patients’ lives and spur U.S. job creation. The MCIT rule has the potential to accelerate patient access to much needed medical technology innovation and would bolster investment by medical device investors who have supported improvements to this complex process of bringing innovative medical products to market.

Q&A with Justin Klein & Kirk Nielsen

What is MCIT and why is it seen as such an important development in the medical technology sector?

At its core, MCIT is all about improving patient access to innovations that can change their lives and save our healthcare system money. MCIT would create a new process by which innovative medical devices and diagnostics, that are addressing significant unmet needs and are designated by FDA as breakthrough technologies, can receive four years of immediate Medicare coverage once they receive FDA approval or clearance for marketing. Unlike novel drugs, which are typically covered as soon as they are approved, obtaining coverage for innovative medical technologies is a process that can take many years and is fraught with challenges. Providing an expedited pathway to coverage not only allows Medicare beneficiaries to immediately benefit from important new medical products, but also encourages more venture capital investment in the companies developing these products – setting up a virtuous cycle to support innovation.

The fact that a rule intended to already be in effect is instead undergoing a second public comment period is frustrating for many entrepreneurs, investors, and the physicians and patients we aim to serve. But the original rule garnered significant support from many stakeholders and was broadly politically bipartisan, so we’re happy to renew our effort to educate people who sought this review.

How might the MCIT pathway from CMS impact VC investors and medical device startups? How will this change to CMS’s coverage and reimbursement processes encourage investment in medical device companies?

Both FDA and CMS have prioritized innovation in medical technology as an important part of improving clinical outcomes for patients at reduced costs to the healthcare system. But demonstrating that a novel medical technology is both “safe and effective” for an intended use (to satisfy FDA’s requirements for approval) and “reasonable and necessary” to be covered by CMS often requires substantial clinical evidence generation. This creates a challenge for companies in the sector, as the clinical trials required to support these dual objectives are often beyond the scope of most investors – in terms of both cost and time horizon. MCIT would streamline the process and allow companies to develop additional clinical evidence over a period of time.

For many years, investors have shied away from truly breakthrough products that would require new reimbursement codes and coverage and have instead largely focused on cheaper-better-faster products in existing categories. However, as a society, we need those breakthrough products that have the potential to dramatically improve our healthcare system, like percutaneous heart valves that turn an open-heart surgery into a minimally invasive procedure, platforms that can diagnose multiple cancer types through a single blood-draw, or therapies that change the way that major chronic diseases are treated. MCIT would be a major step toward making those transformative projects more readily fundable again, particularly at the seed and early stages. In fact, we – like other investors – have already been proactively considering breakthrough products and MCIT as part of our assessment of new opportunities, and we recently made commitments to three companies that have received FDA breakthrough designation (Alleviant Medical, CVRx, Personal Genome Diagnostics).

It is important to point out that MCIT would not change the burden of proof required by any new product. Ultimately, these innovations will still need to demonstrate convincingly that they are reasonable and necessary for Medicare beneficiaries to maintain longer term CMS coverage, and our entrepreneurs know that they must bring the goods when those four years expire. But the MCIT program could provide an earlier window in which they can start to generate revenue, build their businesses, and potentially exit, while they invest in parallel to deliver robust clinical evidence to support permanent coverage.

Who have been some of the key advocates that helped on this issue and pushed to make this reform happen?

This has truly been a team effort with engagement and support from medical technology entrepreneurs, large medical device companies, VC investors, and certainly key advocates for innovation including AdvaMed, the Medical Device Manufacturers Association (MDMA), and NVCA. Significant credit is also due to leaders within CMS, HHS, and the administration for recognizing that medical technology entrepreneurship – especially early-stage innovation – has long struggled against the headwinds created by the serial process for getting products approved by FDA and then covered by insurers, including Medicare. They were proactive in engaging with us, sought to really understand the challenges we face, and worked collaboratively to design a program that could durably tip the scales in favor of accelerating investment in medical technology innovation for years to come.

What advice would you give to VCs or entrepreneurs that are interested in engaging on policy issues that impact the startup ecosystem?

By all means, engage. The best way to improve the policies that impact our ecosystem is to make your voice heard, and to bring your experience and on-the-ground perspectives to bear to help make positive change. Focusing your efforts through the relationships and channels that groups like NVCA have spent years developing is one of the most effective ways to have an impact, whether it’s in healthcare, tax policy, intellectual property, improving diversity in our industry – the list goes on and on. Find the issue that you’re passionate about and engage.

Justin Klein, MD, JD, and Kirk Nielsen are co-founders and Managing Partners of Vensana Capital. Kirk is also a member of the NVCA Board of Directors. Vensana is a venture capital and growth equity investment firm dedicated to partnering with entrepreneurs who seek to transform healthcare with breakthrough innovations in medical technology. Launched in 2019, Vensana invests in development and commercial stage companies across the medtech sector, including medical devices, diagnostics, drug delivery, digital health, tech-enabled services, and life science tools. www.vensanacap.com