Promise and pitfalls of the current DTx framework

A subset of digital health, DTx are software-driven therapeutic applications that are by themselves the therapy or are coupled with other therapeutic modalities to increase the therapeutic effect. The promise of DTx is the breadth of their possible applications. For example, they can provide individualized therapies for the treatment of mental health, palliative care, substance use disorders, and chronic conditions such as irritable bowel syndrome (IBS) and diabetes, as well as have potential in limitless other conditions. The power of artificial intelligence (AI) can also bring amped up capabilities to software that has the potential to benefit more patients. This merging of technologies, however, can also create tricky issues in their implementation and commercialization. While the COVID-19 pandemic accelerated the interest in these technologies, many challenges to their adoption remain, not the least of which is a clear path to commercialization and payment.

Although the U.S. Food and Drug Administration’s (FDA) approach continues to evolve, most DTx receive their first FDA market authorization (MA) as prescription software-as-a-medical device (SaMD). Prescription medical devices are subject to complex and varied state licensing requirements that can attach to the activities of manufacturers and their distribution partners, most of which are set up for the distribution of traditional medicinal products. Licensing rules vary by state as well as between prescription and over the counter (OTC) drug or device types, recipient, and facility/entity type. Adding to the complexity, most state licensing paradigms were developed to handle prescription drugs and controlled substances and, consequently, are not always well suited for the distribution models used for prescription medical devices and even less so for DTx. Further still, while distribution models are well developed for distributing tangible things, they are often not well suited for DTx for which there is no physical product, merely software downloads of applications and provision of access codes. While some states do not have any licensure requirements for prescription medical devices, many states do and those requirement apply equally to DTx and may extend from manufacturers to their distributors and third party logistics providers.

Prescription DTx (PDTx) require a health care provider to issue a prescription or medical order before a patient can access the product. Often, companies will rely on partnerships with telehealth providers who can evaluate the patients, and if appropriate, issue a prescription for the product. This raises important considerations around the agreements between these parties, in order to avoid pitfalls with issues such as state regulation of telehealth, requirements for prescriptions provided via telehealth, applicability of state pharmacy and medical device regulations, possible Sunshine disclosure obligations, and also the corporate practice of medicine. While it is possible to set up these arrangements in a way that avoids triggering issues, it requires careful consideration of the various law and issues at play.

As a practical matter, lack of payer coverage for DTx also provides a key barrier to adoption. DTx do not readily fall under any Medicare or other payer benefit category. While some DTx companies seek to fit them into existing drug or device paradigms, others liken them more to durable medical equipment (DME). While this approach may access the market faster it may also result in lower reimbursement. At the moment, most DTx companies are negotiating with payers and pharmacy benefit managers one at a time and in the meantime bearing much of the costs or adopting a cash pay model in favor of market adoption. As such, investments and deals continue to be active and part of the near term strategies for many DTx companies.

Changes on the horizon?

FDA and other regulators continue to refine their approach to regulatory requirements and also the data burden that is needed for DTx devices for marketing. 

Looking forward, other changes to how manufacturers and distributors are licensed are coming that may affect medical devices as states revise their rules to meet the Drug Supply Chain Security Act (DSCSA) (Title II of the Drug Quality and Security Act (DQSA)). The DSCSA was enacted to harmonize rules for drug distribution across the states by establishing standards. FDA also recently issued a proposed rule intending to provide clarity and consistency for wholesale distributors (WDs) and third-party logistics provider (3PLs) desiring licensure.  

Although the DSCSA by its terms does not apply to medical devices, because the DQSA and FDA’s proposed rule seek to establish consistent standards and drive uniformity for drug state licensing, the shifting landscape may also result in changes in how state Boards will regulate WDs of drugs and 3PLs.  These drug distribution regulations may also – ultimately – impact medical devices, which, as noted, are largely regulated under states’ drug licensing authorities, possibly resulting in higher standards or additional and possibly ill-fitting licensure requirements.  

Additionally, digital health companies are looking to drive policy change in how such products are regulated globally, and closer to home, to encourage payment based on driving efficacy as demonstrated by patient outcomes and real world evidence. Further, there are initiatives to encourage market adoption by incentivizing payer coverage. Legislation has been introduced in Congress, which would expand Medicare and Medicaid payer coverage for PDTx meeting certain criteria, such as FDA approval.

In the meantime, DTx companies must continue to advocate for the value of their therapies, which can overcome barriers to in-person access and the availability of health care providers (HCPs), while providing personalized and cost-effective treatment options to deliver care to patients.

Why Hogan Lovells?

We don’t just get you off the ground; we’re here to grow with you.

From corporate formation to patent protection and a consistent strategy through initial financing rounds to regulatory and reimbursement approvals to driving market revenue or an exit, we help your company lay a strong foundation, with a life sciences and health care industry specialization at the forefront of everything we do. As your business grows and your needs evolve, so does our team of lawyers who can support your company’s strategic business needs relative to your product’s development stage, including regulatory approval planning and execution, clinical trial design and implementation, pricing and reimbursement strategy, licensing, collaborations and other commercial transactions (sales and marketing and distribution agreements, manufacturing agreements and relationships, CRO arrangements and more), risk management, and commercialization and product launch planning. Hogan Lovells is a global law firm with over 40 offices worldwide and importantly in all the major global life sciences and innovation hubs. Accordingly, we can strategically assist you with our industry experts in markets across the globe.

Subscribe to Hogan Lovells Engage to receive our insights leading in to the J.P. Morgan Healthcare Conference and Biotech Showcase – and beyond.

Authored by Jodi Scott.