June 14, 2013

WSJ

VC Asks Congress for New Medicare Policy to Help Medical Tech Startups

America is still the world leader in creating new medical technologies that have the potential to save lives. So why is it so tough for the entrepreneurs and investors behind these new products to make a living here?

One reason, according to venture capitalists, is long, costly delays before getting new treatments to market, in some cases caused by health insurers dragging their feet when it comes to agreeing to reimburse doctors for using new medical products.

The hardships facing new medical devices and treatments was addressed this week on Capitol Hill, as the House Committee on Energy and Commerce Subcommittee on Health heard testimony from various players in the health-care industry, some of whom said they are having a tough go of it.

Among those who testified were prominent venture capitalists who focus on medical devices and biotechnology companies, and who spoke as members of the National Venture Capital Association.

Mike Carusi—an investor with Lightstone Ventures and Advanced Technology Ventures—is among the most successful device investors in the industry, having spearheaded investments in hypertension treatment company Ardian Inc., acquired byMedtronic Inc. several years ago for more than $800 million, the largest price tag the industry has ever seen.

But Mr. Carusi told Congress on Wednesday that he has not personally made a device investment for more than a year. And in scouting out new deals, Mr. Carusi is more likely than he was in the past to look outside the U.S., where the path to market is smoother and more predictable for new medical products, he said.

“I’m painting a picture of an industry still in crisis,” he said Thursday. Early-stage funding totals for medical devices are lower than they have been in 20 years, he added.

The main culprit in the downturn, he said, is the long and costly delays that device companies face before getting on the market.

And though the Food and Drug Administration has been identified in the past as a main cause of delays for emerging technologies, another bottleneck has occurred that is keeping startup companies in limbo while they hemorrhage money: delays in getting insurance companies to agree to reimburse for treatments involving new devices, Mr. Carusi said.

Though a good amount of reimbursement is done by private insurance companies that have their own calculus for making such decisions, Medicare—overseen by the government—remains the country’s largest payer.

“The government can encourage Medicare to be more transparent, and more predictable,” Mr. Carusi said. “The biggest challenge right now, with Medicare, is that we don’t know where the bar is [for reimbursement].”

Two of Mr. Carusi’s portfolio companies satisfied Medicare’s requirement on providing clinical data about their products, only to be turned away to go and get more data, and then to have the same thing happen again.

To read the full article, visit:  http://blogs.wsj.com/venturecapital/2014/06/13/vc-asks-congress-for-new-medicare-policy-to-help-medical-tech-startups/