How CMS Is Killing Breakthrough Medical Device Innovation

IMHO

This week, AdvaMed and 66 other organizations sent an urgent letter to The Centers for Medicare and Medicaid (CMS) about a crisis that's killing breakthrough medical device innovation. The problem? Of the 1200+ devices that have earned FDA's Breakthrough Device Designation since 2016, fewer than 160 have made it to market - and CMS's broken reimbursement system is largely to blame.

I wrote the rest of this article weeks ago but held off publishing while working on my WHOOP analysis. Now that 66+ organizations just sent CMS a letter saying basically the same thing, I'm kicking myself for not hitting publish two weeks earlier…

If you have been following the Device Files, you might have already heard that I cofounded a medical device company, Evren Technologies, and that we very proudly got from initial IP to FDA Breakthrough Device Designation within 3 years. We got BDD because we were able to demonstrate to the FDA that we had a product with the potential to provide better outcomes to PTSD patients than the current standard of care, with fewer side effects. But we have never been able to get to market.

I promise this article isn't about sour grapes. I fully accept that there were many factors at play for why we did not get our funding and the truth is that 9 out of every 10 startups fail – so ok, it was a learning experience. But I think this is a case study of a larger systemic issue that could be a learning experience for everyone.

The Promise vs. Reality of Breakthrough Devices

In 2016, the FDA established the Breakthrough Device Designation program, aiming to speed up the development and review of medical devices that offer more effective treatment or diagnosis for life-threatening or irreversibly debilitating conditions. It has made FDA engagement more accessible to groundbreaking early-stage companies and, in its early days, really gave a boost to early stage medical device companies seeking investment. Since its launch the program has granted over 1200 designations, successfully attracting cutting-edge innovation in areas like AI diagnostics, neuromodulation, and implantable sensors.

Unfortunately, while the FDA has sought to support breakthrough medical technologies, it hasn't resulted in a serious uptick in breakthrough technologies hitting the market. Of the over 1,200 designations, fewer than 160 have made it all the way through the FDA pathway to clearance and market launch. That's a 14% success rate for devices that could significantly improve the lives of people with chronic, debilitating, or life-threatening diseases. These aren't half-baked ideas - these companies already built functioning devices, demonstrated clinical results, and worked with the FDA to earn breakthrough designation.

I don't know about you, but I'd like to see more of those products out there helping people and maybe saving lives.

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The gap isn't FDA - it's CMS. The Centers for Medicare and Medicaid Services has significant influence on insurance coverage nationwide. Private insurers often follow CMS's lead on what they'll cover and how much they'll pay. So, if a medical device doesn't have CMS coding, coverage, and payment it's not going to be sold in any volume.

Breakthrough Drugs vs. Devices: The Reimbursement Gap

The FDA's Breakthrough Device Designation is conceptually similar to the Breakthrough Therapy Designation on the pharmaceutical side – both are designed to accelerate the development and review of technologies that show early promise for serious or life-threatening conditions. However, while the regulatory benefits are comparable, investor confidence tends to be significantly higher for drug programs. This is largely because the CMS reimbursement pathway for pharmaceuticals is far more defined and predictable than it is for devices.

Once a drug is FDA-approved, CMS coverage is often more predictable than it is for medical devices, particularly for Part B (physician-administered drugs like injectables) and Part D (retail prescription drugs). There's no automatic coverage mandate just because a drug is FDA-approved, but in practice, most drugs are covered relatively quickly because the Medicare benefit categories and billing infrastructure are already in place. HCPCS codes exist for nearly all drug types, and there are established pricing methodologies, which makes revenue forecasting more reliable.

Medical devices face a completely different reality. Even FDA approval (including breakthrough designation) doesn't trigger any guaranteed CMS coverage, and companies often face years of navigating coding, payment, and coverage (and additional clinical trials) just to get paid for the product, especially if it's novel. Research shows that for devices requiring new Medicare coverage, the median wait time is 5.7 years, with some taking up to 7 years to achieve coverage.

If you have been following the Device Files, you've received a bit of an education around the medical device "Valley of Death" and how hard it can be for breakthrough medical device startups to get early stage funding. Medical device investors are famously risk-averse and a lot of this is because they know that the evidence and effort needed to build a new reimbursement pathway is too costly and they will never recoup their investment. So, the vast majority of medical devices that get funded are not breakthrough technologies, but incremental improvements on existing products with existing CMS reimbursement pathways.

This broken reimbursement system is clearly thwarting breakthrough medical device innovation. There have been efforts to fix it - in fact, one initiative came tantalizingly close to solving the problem.

The Medicare Coverage of Innovative Technology (MCIT) Program

In 2019 I was a very excited startup exec because a new executive order would help medical devices with Breakthrough Device Designation get insurance coverage with CMS. President Trump had signed the order creating MCIT, which was designed to provide national Medicare coverage for breakthrough devices, with coverage lasting for 4 years – allowing time for those medical device companies to build more robust clinical evidence.

Unfortunately, CMS was reluctant to implement the program and slow-walked getting it in place until the next administration was in office.

Next came the Biden administration. They moved quickly to reverse many of their predecessor's executive orders, and MCIT was among them. CMS immediately announced a delay in MCIT's implementation and then rescinded the rule entirely, citing concerns that "the kinds of clinical studies needed for FDA market authorization might not consider the differences in clinical profiles, complexities of medical conditions, or associated treatments of the diverse population of Medicare patients".

To be clear, I don't fault the Biden administration for this - MCIT got swept up in the broader policy reset. But I do think established industry interests, particularly big pharma, saw an opportunity during the transition to kill a program that would have accelerated access to breakthrough medical devices.

The Toothless Replacement: Transitional Coverage for Emerging Technologies (TCET)

CMS eventually created a replacement program: the Transitional Coverage for Emerging Technologies (TCET) pathway. The TCET pathway aims to expedite Medicare coverage of certain FDA-designated Breakthrough Devices, providing faster national coverage (within six months of FDA market authorization) typically lasting 3 - 5 years. Sounds promising, right?

Here's the catch: CMS anticipates accepting up to five TCET candidates per year. Five. Per year. And how they determine who they will pick is completely unclear – so I'm guessing more lobbying money will be required?

TCET officially launched in August 2024 and, despite having four quarterly review cycles since then, CMS has not announced selecting any devices for the program.

This isn't a solution. It's regulatory theater designed to give the appearance of supporting innovation while maintaining the status quo that protects established interests.

Why Investors Won't Fund Breakthrough Devices

This systematic policy failure explains why investors avoid breakthrough medical devices despite their enormous potential. Why would you invest in a company that might spend five to ten years navigating FDA approval, only to face an insurmountable reimbursement barrier?

The risk-adjusted returns simply don't make sense when CMS can arbitrarily decide that breakthrough technologies don't deserve coverage. Even worse, the TCET program's five-device annual limit means that breakthrough designation becomes meaningless for most companies. You can have FDA validation, clinical evidence, and desperate patient need, but if you're device number six in line, you're back to the traditional coverage determination process that can take years.

The most frustrating part? These are exactly the technologies that could reduce long-term healthcare costs by providing more effective treatments for debilitating conditions. Instead of supporting innovations that could transform patient outcomes, CMS preserves a system that rewards expensive, ongoing treatments over potentially curative breakthrough devices.

The Human Cost & Call to Action

The real tragedy about breakthrough devices not being funded isn't just about investment returns or regulatory efficiency. It's about patients with life-threatening or debilitating conditions who can't access treatments that could transform their lives. These aren't hypothetical future innovations - they're real, FDA-cleared technologies that exist today but remain out of reach because of CMS's systematic refusal to create new coverage pathways.

For anyone at CMS or HHS reading this - I'd welcome the opportunity to contribute my experience to help fix this broken system. AdvaMed and those 66+ organizations are making the right case, and I'd love to add my voice to their efforts. The current administration has a chance to restore what was taken away. Want to make America healthy again? Let's work on getting CMS to support medical device innovation.

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Thank you for reading this installment of The Device Files!

When I was CEO of Evren we had a participant in our clinical trial agree to do a patient testimonial video for us. One of the biggest reasons he decided to participate in our study was because the current standard of care can actually lead to increased suicidality and he had seen friends on those drugs kill themselves. Vagal nerve stimulation does not have this side effect. In case you want to take sec to check it out, here's the link:

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