How many companies stand to benefit from the FDA Pre-Cert program? Fewer than you might think

About the Author: Bradley Merrill Thompson is a member of the firm at Epstein Becker & Green, P.C. There, he counsels medical device, drug, and combination product companies on a wide range of FDA regulatory, reimbursement, and clinical trial issues. 

In January, FDA released version 1.0 of its Working Model for the agency’s Precertification Program for Software as a Medical Device (SaMD) (i.e. software which functions as a medical device without reliance on hardware). I actually think 1.0 is a bit of a misnomer. It ought to be labeled something like version 0.7, because it’s really about 70 percent of a complete proposal. It lacks many of the details necessary to give an understanding of how it will work.

FDA apparently intends to start filling in the remaining 30 percent during the course of 2019 as it proceeds with the pilot program, involving nine guinea pig companies selected back in 2017, and retrospectively reviews some previously submitted marketing applications for software products. So maybe by the end of 2019 we will see a true version 1.0. Companies beyond those nine will not be allowed to use this program until the pilot is over, presumably in 2020 or after.

While it is too early to fully evaluate the program, FDA has made enough progress since version 0.2 released in June 2018 that parts of it are starting to come into focus. This article summarizes the new developments, and assesses, at least at this juncture, what kinds of companies might find this program valuable in the future.  Spoiler alert: fewer than you might think.

New developments in FDA’s version 1.0

Probably the biggest piece of new information is that, at least for the foreseeable future, the agency has decided that the program will only be available for about one percent of new SaMD products. More specifically, the program will only be available to novel software products that have no forerunner in the marketplace, qualifying for the FDA’s so-called de novo review. This is the same regulatory process Apple used to get marketing authorization – just in time for its marketing event last September – for its two new apps, for use with the Apple Watch.

Limiting the scope of the program to only these novel products obviously diminishes the benefit of the program by about 99 percent. So why did FDA do it? Apparently the agency found that this was the best way to conduct the pilot program in the absence of new legislative authority. A group of senators raised concerns last fall that FDA does not have any authority from Congress to pursue this program, so for the pilot program during 2019 the agency will be reviewing the products two ways in parallel: the old de novo way and the new precert way. This has the benefit of producing some data to show how the two compare. FDA has suggested that after 2019, when the program is more fully baked, they are likely to seek statutory authority from Congress to implement it more broadly.

Beyond that, the other major new information we learned in January is the high-level contents of the streamlined review. We learned, for example, that the information reviewed will include information like the clinical algorithm, a clinical data analysis and interpretation, hazard analysis, instructions for use, labeling, product specific requirements, the software architecture and the validation performed in support of clinical claims. None of that is terribly surprising. What is less clear is the information that normally would be required for review that is no longer required under the precertification program.

Trying to understand the benefits and burdens of the program concretely, I went in search of answers to the following questions:

• What level of achievement does a company need to show in order to demonstrate in the excellence appraisal that it has a culture of quality and organizational excellence?
• How much faster will the precertification program be than the traditional 510(k)?
• Where does any enhanced speed come from?
• Specifically, which data collected as a part of the legally required 510(k) process will FDA not review at all? If FDA is reviewing all the same information that the agency otherwise would, but is simply doing it during a multistep process instead of a singular review, what benefit is there in terms of speed of review?
• Which products that would presently need to go through a 510(k) review would be exempt under the new precertification program?
• What information that FDA collects as a part of the precertification program will the agency in turn share with the public?
• What will happen as companies collect and evaluate real-world evidence, and a company reaches a different conclusion than FDA with regard to whether postmarket corrective action is required? 
• Since the excellence appraisal addresses many areas not covered by the GMPs, will FDA conclude that it has inspection authority to examine those new areas as well?
• Can companies with existing hardware products (e.g., medical imaging) create organizational boundaries between their SaMD divisions (e.g., AI/ML algorithms products) and their hardware divisions in order to allow the SaMD divisions to use different QMS processes and participate in the precert program? 

Unfortunately, I couldn’t find clear answers to any of those. If they exist, they’re buried well.

Recap of the benefits and burdens of participating in the program

Based on version 0.2, last September I analyzed the program to identify the major benefits and burdens. I’m not going to go through all of that again, but only summarize the issues at a high level.

Benefits

Remember the primary advertised benefits of the program include:

1. FDA has said that it will review fewer initial launches of new software products. Exactly which ones will be reviewed and which ones will not has not been shared.
    
2. FDA has said that for the products they will review, the review will cover fewer topics. While FDA has identified the topics they will review, they haven’t identified the topics that they will not review. It’s unclear from where the time savings will come.
    
3. FDA has said that they will review fewer changes to marketed software medical devices. They haven’t said which changes they will review and which ones they won’t.

One of the problems I have in assessing those benefits is the complex accounting that goes into FDA’s claims regarding the speed with which products are approved. For purposes of justifying the agency’s performance under the user fee agreements with Congress, FDA periodically releases data on how quickly its product reviews are conducted. But the problem is that many of those metrics focus on narrow activities like exactly how much time FDA is actively reviewing a 510(k) submission. Industry has a different interest, getting products on the market quickly.

So this can be a bit of a shell game. FDA might be saying that it can quicken the premarket review, but it accomplishes that by moving some of the activities from the “review process” to a pre-review process. FDA may be moving from a singular premarket review into a three-step process that requires (1) an initial excellence appraisal and then (2) a determination of the review path and then (3) a streamlined premarket review. Hypothetically, if previously companies got a particular type of software through an FDA premarket clearance in 150 days, and under the new precertification program the company spends 60 days getting through an excellence appraisal, then waiting 30 days for a pathway determination and then gets its streamlined premarket review process completed in 60 days, what has it really achieved in terms of speed to market? 

Burdens

From the prior article, recall that the burdens include:

1. The time and cost associated with the excellence appraisal.  Remember that FDA has said that the excellence appraisal is aspirational, and very few companies today would meet the new standard – whatever it is – for a culture of quality and organizational excellence.  Companies will have to invest a lot of time and money to satisfy this requirement.
    
2. Postmarket decision-making.  FDA has said that the price for faster approvals is more agency involvement postmarket. This means they want a constant stream of data to assure both that the culture of quality and organizational excellence is being maintained, and the performance of the medical devices in the marketplace is meeting expectations. If either of those two things disappoint FDA, the agency will have the power to demand changes to its satisfaction. Further, FDA says that this entire program depends on trust which requires transparency, so much of this information will be shared with the public as well.
    
3. Expanding scope of regulation. FDA says that this program will be so good, there will be no reason to exempt software products from FDA oversight. The agency plans to use this in lieu of exercising enforcement discretion for low risk products, contrary to the agency’s prior plans to exempt low risk clinical decision support software. FDA did an about-face on this issue when it started the precertification program in 2017.
    
4. Expanded FDA inspections. By expanding the scope of the agency’s oversight to address issues well outside of a quality system, in order to assure there is evidence of a culture of quality and organizational excellence, FDA will need broader inspectional oversight.
    
5. User fees. These excellence appraisals won’t conduct themselves. FDA will have to find resources, including potentially third parties, to do them. And that most likely means the companies will have to pay for this oversight.

With that broad overview of the benefits and burdens of participating in the program, the question is, what types of companies would benefit from participating?

Profile of companies that might find value in the program

While this is a bit simplistic, at a high level here are the characteristics that I think might steer companies toward or away from the program. I explain how I arrived at these in the next section.

Analysis of those profile factors

Company characteristics

1. Capitalization

This may be the biggest factor, because participation in the precert program is going to be expensive. Getting a company in shape to meet the excellence appraisal criteria is typically going to take money. It will require investment in lots of policies, procedures, training and auditing.

With startups, the typical approach is to implement a quality system when the product is nearly complete, just prior to the clinical study that is required before a 510(k).  They do this to conserve cash early in the development process. Indeed, from a business risk standpoint, investors may insist that companies focus on more fully developing the product before investing in a quality system. Trying to qualify for the precert program would require a much earlier focus on quality systems and the other elements of the excellence appraisal, burning cash earlier and creating un-welcomed business risk.  So investors will have to agree to invest more money earlier in the lifecycle of a startup if they want the company to take this route.

Throughout this spring, I’m visiting top engineering schools across the country to meet with startups to talk with them about, among other things, the precert program. While we are just getting started with the so-called Startup Roadshow: FDA Regulation of Artificial Intelligence Used in Healthcare, I’m learning quite a bit from the attendees. In the first program in Ann Arbor, in the panel of industry experts, there was a clear split in their view of the precert program on the basis of the level of capitalization they enjoyed. Those entrepreneurs who are trying to get a medical device company started by being very careful with their funds seem to have no interest in pursuing precertification. Those that had a high level of funding felt like they would potentially benefit.  My concern is that the program may be a barrier to entry deterring those who don’t have the resources.

2. Company Size

FDA says they want to make the program available to large and small companies alike. But when you read the FDA’s discussion of its excellence appraisal, and look at some of the questions that, for example, focus on a company having a proactive culture, if you are a couple of folks in a garage developing your medical device, you might have to laugh. The FDA’s approach to requiring systematic policies and procedures simply doesn’t fit the culture of a small startup. FDA’s concept is very focused on large organizations and the need for highly-structured policies and procedures designed to achieve organizational excellence.

3. Experience Level

In talking with entrepreneurs coming out of universities, many of them are engineers who are trying to learn the regulatory requirements as they go. For them, the precertification program makes no sense. The precertification program assumes that the company has wide and deep knowledge of regulatory requirements, and that the company institutionalizes that knowledge in policies and procedures, as well as human resources. So if, for example, a startup relies on consultants for regulatory expertise, as many of them do, it will be very difficult for that company to participate in precertification.

This issue was the focus of several questions directed at FDA during an agency webinar on February 7, 2019. Members of the audience were concerned that the program did not appear to be practical for startups.

The FDA officials on the call said that they, in fact, want the program to be useful to startups, and that they believe that while startups may not have a lot of traditional documentation required by the program, they may well have information “in other forms” that would be sufficient to prove a culture of quality and organizational excellence.  FDA did not elaborate on what that would be.

FDA pointed to the fact that a nonprofit called Tidepool is among the pilot participants. Tidepool has about 30 employees profiled on their website.  Among other sources of funding, in December 2018 the Helmsley Charitable Trust and JDRF granted Tidepool with the initial funding it needs – $6 million – to begin developing Tidepool Loop, a hybrid closed loop automated insulin delivery app.

FDA’s definition of a startup does not seem to include a handful of folks coming out of a university with little money and little experience to develop a new technology. The agency’s hope that the program will be useful to startups is mostly just that, hope. There is very little reason to believe that true startups will be able to navigate the program practically.

4. Nationality

One of the themes of the precertification program is that regulation is all about trust. If FDA can trust companies more, they can in theory give them more leeway. So the program requires trust, and uses things like transparency to create an assurance that FDA can trust that the patient is protected.

There is no politically correct way to say this, but FDA has inherently less trust of foreign firms because the agency has inherently less authority over them. This is true both because of the legal difficulties of bringing enforcement actions against foreign firms, but also the budgetary limitations that make it difficult for FDA to inspect and otherwise work with foreign firms.

The pilot program does not include any foreign establishments. It’s difficult to understand right now exactly how practical this will be for firms overseas. It’s quite possible that the program will not treat foreign firms equally with domestic ones.

5. Company Age

There are drug, device and biologics companies that have been around for quite some time and are heavily invested in their current quality management systems. Many of these organizations are large and these legacy quality management systems are extremely complex, and interwoven throughout the company’s business processes. The new excellence appraisal process upends that traditional quality management system, and requires radical revision to it. Older companies that are heavily invested in their existing quality management systems may not view the cost and disruption that would be required to dramatically those systems as worth the uncertain benefits.

Frankly this might seem like a bit of a contradiction from the discussion above regarding large companies favoring the precert program, and to some degree it is. Large companies stand to benefit more in some ways from the program, but the precert program also in some ways will cost large companies more. So in a sense, both are true. 

But this also means that new large entrants into the industry will stand to benefit the most. So, for example, Apple may well have future plans that include a scale of medical devices that would benefit significantly from participating in precert, and at the same time, Apple doesn’t have a lot of legacy good manufacturing practice policies and procedures from years of medical device operations that will need to change. So in a sense, a company like Apple stands to benefit most from the new program.  In contrast, large medical device companies that have been in the industry for a long time will have to weigh the benefit against the large cost of revamping their extensive legacy systems.

Alternatively, large companies might want to create new units to specifically focus on software as a medical device in order to minimize the disruption on their legacy systems. So, for example, companies in the medical imaging space that have large hardware units may want to create special, dedicated business units to develop image analysis software programs. By creating dedicated business units, they can avoid disrupting some of their extensive legacy quality systems.

Product characteristics

6. Product Novelty

This factor might change if FDA goes to Congress to get statutory authority when it comes time to implement the program beyond the pilot. But as of right now, FDA is only making this program available for those products that are technically, currently in class III on account of them being unprecedented, but which should be reclassified into class II as explained in the next section. Again, the two Apple Watch apps FDA reviewed in August of last year are an example.

As explained above, FDA is using its de novo authority as the legal basis for the program. But the de novo process only applies to those products which cannot be compared to other products already on the market. Thus, at least until we see legislative authority, this program will be restricted to only that one percent of new products that is unprecedented.

7. Product Risk Categorization

The primary benefit of the precertification program is quicker reviews for class II medical devices. If your firm makes class I medical devices, there is absolutely no benefit to participating in the program.

Further, it’s unclear how the program would treat class III medical devices. By their very nature, if a product actually belongs in class III due to its safety and effectiveness profile (as opposed to simply due to its novelty), it is not a candidate for de novo reclassification. Therefore it would be excluded from the program.

Within class II, some products are 510(k) exempt, and they likewise would obtain no benefit from being in the precertification program. Thus we’re really talking about the higher end of risk within the class II category. It’s those products that would ordinarily trigger a 510(k) that might one day find themselves either newly exempt or subject to a quicker review under the precertification program.

8. Breadth of Product Line

In some ways, the precertification program is all about finding a more efficient path for FDA oversight. The idea is that by creating an early gateway process called excellence appraisal, the FDA can have the opportunity to review important policies and procedures that apply to more than one device. Thus, to really get benefit out of the program, a company will need to have a reasonable number of different SaMD products that can all be reviewed quicker or even not at all on the basis of the company’s investment in the excellence appraisal. The more products, the more benefit.

9. Frequency of Modifications

One of the major selling points of the precertification program is that FDA plans to adopt new criteria for determining when a new clearance will be required for product modifications. So if you have the kinds of products that need to be modified frequently, you will be a greater beneficiary than one whose products only require occasional updating.  Companies spend much time and energy debating if a “note to file” is adequate or if a special or full 510(k) is required: the precert approach might help with this. I say might because the FDA hasn’t released any details on how it will implement this aspect.

10. Development of Artificial Intelligence-Based Products

FDA came up with the idea precertification in part to address the need to regulate products that evolve over the course of their lifecycle. FDA found it challenging to clear software based on AI (including machine learning, rules engines, expert systems neural networks, expert systems) that could evolve after the clearance. It simply made the agency nervous because performance can degrade over time if the company isn’t careful. Further, FDA felt as though its postmarket authorities were simply too weak to give the agency adequate assurance that it could remedy products that did not perform well in the marketplace. So the idea is that FDA can more readily clear devices upfront, if the agency has greater assurance that it can both monitor and remedy problems that arise postmarket.

This is, of course, theory. Those of us who are old have seen the agency try to do this before with postmarket surveillance. Most of the folks I know who went through an expedited clearance process only to agree to postmarket surveillance regretted it later, because the surveillance turned out to be enormously burdensome. But the theory is, FDA can require less premarket assurance if they have greater postmarket authority. I guess we shall see.

11. Anticipated Product Experience

Every company I talk to will say that their product is outstanding, very safe, and their customers love it. What else would a company say? But by definition, not every company can have above average customer experiences. More to the point, there are simply some clinical conditions and some technologies that are more likely to produce some sort of frustration and increased risk on the part of customers.

Take, for example, the business of blood glucose meters. These meters are very common, and they play an incredibly important clinical role in helping people with diabetes manage their blood glucose levels. But if you simply look at FDA databases regarding experiences of customers, and if you look at the complaint files of companies that produce these products, frankly you might think the world is about to end.

A big part of the explanation is simply how big the market is, meaning how big the denominator is. Lots of products means lots of opportunities for problems. Another part of the explanation is that people with diabetes often have challenges associated with the heavy time burden of their disease, so they don’t always follow basic steps like washing their hand or changing their lance before checking their glucose. They also can have complications like finger numbness and poor   vision. Those real world situations can make operating medical devices difficult. Many people with diabetes are also older, and may have difficulty with new technology with which they are unfamiliar. There are lots of reasons associated with a given clinical need and a given technology that might mean we should inherently expect a higher level of complaints and bad experiences for that product category compared to other product categories.

Every company that enters the precert program is going to have to love the sunshine. They’re going to have to love sharing with FDA, and the public, everything including complaints, and even experiences that do not amount to a complaint but simply in some way suggests product performance is imperfect.  They are going to have to enjoy being the subject of FDA and public scrutiny and questioning. So if you’re going into an area where you can expect some hiccups along the way, you are going to need to think really long and hard about whether you want all of those hiccups scrutinized and debated publicly.

Employee characteristics

12. Company Culture

FDA is trying to change company culture. The agency is pretty upfront about that. One of the main advantages to FDA is that they see this program as encouraging companies to adopt a culture of quality and organizational excellence. So, make no mistake, your company will have to change its culture to meet the standards. And the kind of culture FDA wants is a highly structured one based on lots of policies and procedures and metrics and audit training. So, if you have a liberal arts degree, you may not like it. As already explained, the agency’s focus is on large organizations where policies and procedures tend to define the company’s culture more than the people who work there.

13. Complexity

There’s an old joke in Washington about the tax code: If the tax code is “simplified” one more time, it’s likely no one will understand it. 

Regulations tend to get more complex, not less, and the precertification program is certainly no exception. FDA is taking what might be only a modestly complicated system of getting new products cleared through the 510(k) process, and is transfo