Innovation in the medical device sector has the potential to revolutionize healthcare, improve patient outcomes, and reduce overall costs. However, the path from concept to commercialization is fraught with challenges—particularly the risk of securing reimbursement. While technical, regulatory, business, practitioner uptake, and outcomes risks are significant, reimbursement risk stands out as the single most crucial barrier to ensuring that medical devices reach the market successfully and sustainably. To foster a thriving, competitive medical device sector, governments and industry must work together to reduce this risk and create an environment in which innovators can thrive.

The Full Spectrum of Risks in Medical Device Innovation

Before we dive into the importance of reimbursement risk, it’s essential to recognize all the risks that innovators face. These include:

1. Technical Risk
2. Business Risk
3. Regulatory Risk
4. Reimbursement Risk
5. Practitioner and/or Facility Uptake Risk
6. Outcomes Risk

Each of these risks plays a pivotal role in the success or failure of a medical device innovation. While innovators often take on the first three risks willingly (technical, business, and regulatory), reimbursement risk—and its potential to jeopardize the financial viability of a device—can be a game-changer. Let’s explore these risks in more detail and why reimbursement risk is the one that needs the most urgent government support.

1.  Technical Risk:

At the heart of every medical device innovation is a technical challenge. Innovators are often driven by the belief that their device can solve a significant healthcare problem, but the reality is that new technologies are rarely flawless at first. Innovators may underestimate the scale of the technical challenges, which can lead to delays, cost overruns, and even failure.

Mitigation: Collaborating with experts, accessing technical resources (like innovation grants or partnerships with research institutions), and engaging in rigorous testing early in development are key strategies to reduce technical risk. Governments can help by facilitating access to these resources, but ultimately, innovators and investors bear the brunt of this risk.

2.  Business Risk:

Many medical device innovators, especially those with strong technical backgrounds, tend to underestimate the business challenges that lie ahead. The financial realities of managing cash flow, securing investment, and navigating the complexities of commercialization often come as an unpleasant surprise. This can lead to poor financial planning, missed opportunities, or even business failure.

Mitigation: Mentorship and guidance from seasoned business experts, along with formal business education, can reduce the likelihood of business failure. Investors can also play a significant role by demanding a strong business plan and offering strategic support.

Governments can help by offering business development programs, but much of this responsibility falls on the innovators themselves.

3.  Regulatory Risk:

The regulatory approval process is another major risk for medical device innovators. In many cases, innovators consider regulatory requirements as a “final exam” to be completed after the device is developed, rather than an ongoing process that requires attention from the start. This approach can lead to costly mistakes, delays, and compliance failures that could ultimately doom the device’s chances of entering the market.

Mitigation: The best way to mitigate regulatory risk is to engage with experts early, ensuring that the device is developed in compliance with regulatory standards from the outset.

Governments can help by providing clear guidance, supporting innovation-friendly regulatory frameworks, and offering grants to help cover the costs of regulatory compliance.

4.  Reimbursement Risk:

Once a medical device has been developed and approved, innovators still face the immense challenge of securing reimbursement from health systems, which is often the final barrier to market entry. Reimbursement decisions are complex, vary significantly across nations, and can be unpredictable. Delays in reimbursement can cause significant financial strain on innovators and may even result in the failure of a promising product.

Reimbursement risk is the most significant challenge in the commercialization of a medical device, as it directly impacts cash flow, market penetration, and the ability to scale. A delay in reimbursement decisions can be financially catastrophic, especially for small and mid-sized companies that lack the resources to survive extended periods without revenue after the long process of medical device development.

The impact of reimbursement risk cannot be overstated. It introduces a financial bottleneck at the final stage of commercialization—just when an innovator needs to scale up production, distribute the device, and begin generating revenue. Without predictable reimbursement, these essential steps cannot be achieved, leaving even successful products stranded in the approval process.

Why Government Support for Reimbursement is Critical

Governments can play a vital role in reducing reimbursement risk, and in doing so, can significantly enhance the success rate of medical device innovations. Key strategies for government intervention include:

a.     Streamlining Reimbursement Pathways:

By establishing clearer and faster reimbursement pathways, governments can reduce the financial uncertainty for innovators. Clear guidelines, timelines, and transparent, agreed criteria for reimbursement can help innovators plan for and manage reimbursement risks more effectively.

b.     Early Reimbursement Guidance:

Innovators who understand reimbursement requirements from the outset are in a better position to factor them into their product development and financial planning. Government agencies can provide early-stage guidance on reimbursement, pricing strategies, and health economic assessments that will support a smoother path to market.

c.     Risk-Sharing Mechanisms:

Governments can introduce risk-sharing models that allow innovators to access reimbursement while they gather additional clinical evidence to demonstrate the product’s economic value. This would reduce the financial strain on innovators while ensuring that devices are tested in real-world settings, which could expedite the broader reimbursement process.

5.  Practitioner and/or Facility Uptake Risk:

Even with regulatory approval and reimbursement in place, there is still the risk that medical practitioners and healthcare facilities will not adopt the new device. Doctors, hospitals, and clinics may be slow to change, or they may not see the immediate value in a new technology.

Mitigation: Wide consultation with healthcare providers during the development phase can help ensure that the device meets clinical needs, and that decision-makers are aware of its potential.

6.  Outcomes Risk:

Once a device is launched, unforeseen issues or flaws may emerge during actual use. Despite thorough testing, problems can arise once a device is used in real-world settings. Nature sides with the hidden flaw.

Mitigation: Strong post-market surveillance, including patient registries and ongoing monitoring, is essential for quickly identifying and addressing any adverse outcomes. Governments support this through regulations that mandate post-market surveillance and the use of health data to monitor device performance.

A Path Forward: Reducing Risk to Unlock Innovation

While technical, business, regulatory, practitioner uptake, and outcomes risks are all critical, reimbursement risk stands at the intersection of innovation and commercialization. Risk equals cost. The more risk is mitigated at every stage of development, the more efficiently a device can be brought to market, reducing both the time and cost of innovation. A health system that minimizes risks in the medical device development pipeline reduces the overall cost of providing new technologies and makes cutting-edge solutions more affordable and accessible to the community.

A study cited by the MTAA illustrates the linear relationship between time to reimbursement and in-market cost of each device. The longer the regulatory and reimbursement processes in any given market, the more expensive a device becomes for that market’s healthcare system. By reducing time to reimbursement and creating more

predictable pathways for market entry, governments can significantly reduce the cost burden on the health system while enabling local innovators to thrive.

For companies already importing their devices from established international markets, many of the early risks—technical, business, regulatory, and uptake—have been mitigated by the device’s track record in those markets. However, for Australian innovators, these risks are compounded by the need to navigate local reimbursement hurdles.

Government involvement in reducing reimbursement risk, specifically through streamlined and predictable reimbursement pathways, is one of the most effective ways to support Australian innovation. This, however, means that government is taking on the risk that reimbursement is not warranted or is excessive in some cases. The occasional residual risk, of a product that is TGA cleared but underperforms in terms of health economics, remains. If this risk can be viewed by Government as a cost of innovation support, then a completely uncontrollable risk for all innovators is removed and the success of the sector greatly improved.

In conclusion, government and industry collaboration in supporting medical device innovation is essential for the long-term success of the sector. By addressing the full spectrum of risks—from technical to reimbursement—governments can create an environment where innovators are empowered to succeed, driving economic growth, improving patient outcomes, and reducing healthcare costs across the board.