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Regulatory Chess: Positioning for Competitive Advantage

Blog | 
Innovation | 
Outcomes | 

To entrepreneurs, regulation is the enemy of innovation. That’s especially true in healthcare. Experts agree that healthcare is one of the most, if not the most regulated industry in the U.S. That makes the job of healthcare entrepreneurs even more challenging.

  • The American Hospital Association says hospitals, health systems and post-acute care providers have to comply with 629 distinct sets of federal regulatory requirements at an annual cost of $39 billion. (1)
  • Eighty-six percent of 426 medical group practices surveyed by the Medical Group Management Association say that their overall regulatory burden has increased over the past 12 months. (2)
  • Fifty-two percent of 100 health system executives surveyed by H2C and the Health Management Academy cite the regulatory environment as their pharmacy department’s biggest challenge. (3)

Despite all the regulatory barbed wire, healthcare entrepreneurs are rushing right at it. Healthcare start-ups attracted a record $8.1 billion in venture capital in 2018, according to Rock Health, the San Francisco-based digital health venture capital firm. (4) That’s 42 percent more than the past record of $5.7 billion a year earlier.

Whether it’s naiveté or a blind spot or a belief that their innovation will transcend regulatory oversight and simply float over the Federal Register, I’m not sure.

Regulation as a business model tactic

There’s another possibility. It’s one that you rarely hear from veteran healthcare leaders or healthcare entrepreneurs new to the industry. Regulation can be a business model advantage in a market rife with unregulated competitors.

That’s the approach being taken by a company called metaMe Health. (5) MetaMe Health is a Chicago-based digital therapeutics company that started in the city’s healthcare incubator MATTER. Digital therapeutics are evidence-based interventions that are delivered by high-quality software programs to prevent, manage, or treat a medical disorder or disease. They are non-drug, non-interventional treatments that doctors can prescribe.

MetaMe Health is developing a digital therapeutic called ReguloraTM that treats patients suffering from irritable bowel syndrome, or IBS. According to the company, the program offers “gut-directed hypnotherapy, a behaviorally-focused treatment that addresses the cognitive, behavioral and affective drivers of IBS.”

Behaviorally-focused therapy for IBS was recognized as effective over 20 years ago, metaMe Health says, but few clinicians are certified to conduct it, and few gastroenterologists know how to refer patients to the therapy. Enter the digital entrepreneur.

Once approved by the FDA, patients prescribed Regulora by their gastroenterologists would adhere to seven sessions over three months over a technology platform called metaMe Connect. The sessions are akin to taking courses of medication.

In March, metaMe Health and Regulora won the Sandoz Healthcare Access Challenge. (6) It’s a worldwide competition that honors digital tech entrepreneurs and innovators whose ideas have the “potential to complement—or even positively disrupt—established approaches to driving access to healthcare.”

In May, the National Institutes of Health awarded metaMe Health a $243,000 grant to fund real-world testing of its metaMe Connect technology platform and its effectiveness in administering Regulora to IBS patients. (7)

When you’re on a roll like that, who needs regulation? Keep the dice and don’t pass them to the next shooter. Most start-ups would put more chips on the table and start marketing their award- and grant-winning digital health app directly to consumers.

The Regulatory Path Less Chosen

But that’s not the path that metaMe Health has chosen. Instead, the 3-year-old company is seeking FDA approval for Regulora and its metaMe Connect tech platform. I had the opportunity recently to talk with Danny Bernstein, metaMe Health’s founder, and Tim Rudolphi, the company’s CEO, about why their business model is built on the foundation of regulatory approval.

First, metaMe Health’s primary customers are patients with IBS, but the way to reach those customers is through the patients’ doctors—their GI doctors. The physicians would be the ones prescribing Regulora to their patients in addition to or in place of medications that haven’t relieved symptoms.

“We see Regulora as a substitute for a drug that hasn’t worked well for an IBS patient,” Bernstein says. “What better way to prove ourselves to GI doctors as that one-for-one substitute than with a successful randomized controlled trial and FDA approval.”

To help metaMe Health set up a randomized controlled trial (RCT) and navigate the regulatory maze that is the FDA, the company brought in Charlie Baum, M.D., as its chief medical officer. Dr. Baum is a board-certified gastroenterologist and former vice president of medical and scientific affairs for Takeda Pharmaceuticals, where he helped the drug giant research and develop new drug therapies to treat GI diseases.

In April, metaMe Health had a one-hour pre-submission meeting about its RCT with the FDA.

The FDA’s openness to talk to healthcare entrepreneurs is a strong sign that the agency knows care-delivery transformation is coming and that it needs to learn as much from entrepreneurs as they do from talking with the FDA.

Earlier this month, four health services researchers from the U.S. lauded the FDA’s new approach in a commentary published in the British medical journal, The Lancet.  They said: “The FDA has realised the diminished value of traditional evaluation approaches and the challenge of regulating apps. To solve this problem, the FDA has begun piloting a novel certification programme, Pre-Cert, that shifts the scrutiny from the apps themselves to the developers.”

During pre-submission meetings, companies seeking FDA approval for their drugs or devices typically want to make sure that their products require FDA approval, decide which approval path is most appropriate for their products and that their planned RCTs meet the FDA’s requirements.

Recognizing the Value of Clinical Evidence

Seeking regulatory approval from the FDA was not something metaMe Health had to do. But company leaders said that they felt they should do it. The reason they felt that they should was because their product treats patients, and metaMe is claiming effectiveness in treating patients. Without FDA approval, making a claim of effectiveness in treating a disease is illegal and referred to as misbranding a product. MetaMe leaders are betting that FDA approval is the best way to win acceptance of the therapy from physicians.

A study published in March in the journal Digital Medicine indicates that the metaMe Health execs made the right choice. (8) Only 14 percent of the 73 consumer-facing mental health apps studied by researchers said their apps’ effectiveness was based on “lived experience,” or users’ actual experiences.

“Scientific language was the most frequently employed strategy for supporting effectiveness claims,” the study said. “However, direct evidence from app-specific studies was lacking.”

And that leads to the second business model rationale for seeking regulatory approval, market differentiation.

In its most recent report on the proliferation of mobile health apps, the IQVIA Institute counted more than 318,000 available through online app stories in 2017, with more than 200 new apps coming online each day. (9) Only 16 percent of the apps help patients manage specific disease states. Fewer than 50 apps underwent RCTs in 2017.

“In the early days of digital health, almost every developer did everything they could to run away from regulation,” Rudolphi explains. “As a result you’ve got hundreds of thousands of health and wellness apps just sitting in the app store claiming value to patients, but with no evidence, and competing for mindshare and market share.”

“We decided that’s a mess that we want to stay away from,” Bernstein adds. “Let’s do a real clinical trial and prove the efficacy of our product.”

The Future as an Approved Drug Benefit

FDA approval will separate metaMe Health’s Regulora from other non-FDA approved health and wellness apps to treat IBS. And it will speed market adoption by doctors by helping win coverage from health plans as either a covered medical benefit or, more likely, a prescription drug benefit.

Digital therapeutics may earn a tier near the top of a health plan’s tiered drug benefits package similar to a tier for brand-name, non-specialty drugs. Or, digital therapeutics may end up with their own tier in an approved drug formulary.

In fact in May, Express Scripts, the pharmacy benefit manager now owned by Cigna, announced the creation of a stand-alone digital health formulary. (10) Express Scripts said the formulary will open in 2020 and feature a “curated list of technology- and software-enabled applications and devices that help patients prevent, manage or treat a medical condition.”

And no time to waste. Of the $8.1 billion in venture capital funding last year, according to Rock Health $1.28 billion went to companies developing digital health tools to help diagnose diseases. Another $1.04 billion went to companies developing digital health tools to monitor diseases.

MetaMe Health is planning to start its RCT by the end of this year and seek FDA approval sometime in 2020.

Lessons for Other Healthcare Innovators

Regardless of the outcome, metaMe Health’s approach to the market adoption of their product offers important lessons for other healthcare entrepreneurs.

First, don’t be afraid to take advantage of the FDA’s willingness to talk to you about your innovation in a safe and collaborative pre-submission forum.

Second, if you decide to go the regulatory route, hire the healthcare and medical expertise that you need to stay focused on patient outcomes, not the technology itself. That will help guide you through the regulatory process.

And when you come out the other side, your healthcare innovation will be a smash clinical and financial success, all with the help of an unlikely friend—federal regulation.

SOURCES

  1. Regulatory Overload: Assessing the Regulatory Burden on Health Systems, Hospitals and Post-acute Care Providers. American Hospital Association. https://www.aha.org/system/files/2018-02/regulatory-overload-report.pdf
  2. Regulatory Burden Survey. Medical Group Management Association. https://www.mgma.com/getattachment/0dcef899-fe2c-4225-ac94-5820df6475cf/MGMA-Regulatory-Relief-Survey-2018.pdf
  3. “Survey: Success in a Transformative Environment Depends on Health Systems’ Ability to Navigate Change.” H2C, The Health Management Academy. https://docs.wixstatic.com/ugd/b7edf3_14b790e81a334bd3a98ec6e69793a051.pdf
  4. “2018 Funding Part 2: Seven more takeaways from digital health’s $8.1B year.” Rock Health. https://rockhealth.com/reports/seven-more-takeaways-from-digital-healths-8-1b-year/
  5. com. https://www.metamehealth.com/home
  6. “metaMe Health Wins Worldwide Healthcare Access Challenge.” MetaMe Health. https://www.metamehealth.com/press/metame-health-wins-worldwide-healthcare-access-challenge
  7. “NIH Awards metaMe Health $243,000 Grant.” MetaMe Health. https://www.metamehealth.com/press/nih-awards-metame-health-243000-grant
  8. “Using science to sell apps: Evaluation of mental health app store quality claims.” Digital medicine. https://www.nature.com/articles/s41746-019-0093-1.pdf
  9. The Growing Value of Digital Health. IQVIA Institute. https://www.iqvia.com/institute/reports/the-growing-value-of-digital-health
  10. “Express Scripts Simplifies Digital Health Technology Marketplace for Consumers and Payers.” Express Scripts. https://www.prnewswire.com/news-releases/express-scripts-simplifies-digital-health-technology-marketplace-for-consumers-and-payers-300851128.html
About the 4sight Health Author
David W. Johnson CEO & Founder

David Johnson is the CEO of 4sight Health, a healthcare advisory company working at the intersection of strategy, economics, innovation and capital formation. Dave wakes up every morning trying to fix America’s broken healthcare system. He writes and speaks on the need to transform to a pro-market healthcare system, based on his experience in health policy, academic medicine, economics, statistics, behavioral finance, disruptive innovation, organizational change and complexity theory. Dave’s book, first book Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare, is available for purchase on www.4sighthealth.com. McGraw Hill will publish his second book, The Customer Revolution in Healthcare: Delivering Kinder, Smarter, Affordable Care for All, in mid-2019.