Clearing a Path for Financing by Investors

Angels, venture capitalists and strategic partners don’t want to commit financial resources to help a manufacturer develop a new medical device if they feel they will not get adequate return on investment in a reasonable timeframe. That makes perfectly good sense. Such a manufacturer must first perform a preliminary analysis as to whether their medical device has a good possibility of generating adequate profitability in order to get essential monetary support before a venture capitalist will even consider an investment. Unfortunately, the quality of the reimbursement analyses in most early-stage business plans is poor. It’s easy to understand why. Most companies think they will gain reimbursement using their usual marketing and sales practices, but do not have the special expertise in what must be done according to the principles of reimbursement. They think that once the medical device is in the marketplace, everyone will realize its worth in treating patients and sales will go through the roof. A big mistake!!!

The first thing all venture capitalists ask for is a written reimbursement strategy as to the pathway that will be used to obtain eventual coverage and payment from insurers. The most common misunderstanding is that having FDA approval and a HCPCS or CPT code guarantees coverage from insurers. Not that simple. Coverage is obtained by conducting a randomized controlled clinical trial providing scientific proof that home use or administration by a healthcare worker demonstrates improved clinical outcomes as compared to the current standard of treatment.

It is true that a new medical device or procedure needs to be described for billing and payment purposes by a code. If there is a code already existing that clearly identifies a company’s new medical device or its associated procedure, it can be placed on a claim form to insurers to provide payment. Realize that, if you use the code, you must accept the current payment. On the other hand, if your new device or its procedure is unique, i.e., one of its kind, and the description of an existing code(s) does not match, you can apply for a new code which will allow you to participate in the decision establishing a higher payment, a terrific advantage.

Hope this helps,

Alan Schwartz – MDI Consultants