At Decimal.health, we understand that the United States is an attractive market for European digital health companies to move into. The US digital health market dwarfs its European counterpart, with a valuation of $66.5B compared to Europe’s $39.3B.2 The US market is growing rapidly with a projected compound annual growth rate of 26.9%1 (2022-2030). Furthermore, the US government’s support for a shift to digital solutions, including telehealth, during the COVID-19 pandemic boosted this expansion.
Despite these favorable market conditions, many European-based digital health companies encounter hurdles when expanding into the US. Below we outline the top three primary challenges our European clients encounter when entering the US market.
1. Navigating the US Regulatory Process
Securing regulatory approval from the US Food and Drug Administration (FDA) is a great avenue for entering the US digital health market and demonstrating credibility with potential buyers, partners and investors. And, unlike the fragmented regulatory landscape in Europe, the FDA is the single organization in the entire US responsible for regulating digital health products that are used to treat, manage or prevent a disease.
It is important to understand, though, that the FDA has several regulatory pathways that can be navigated, and that the most optimal pathway depends on the context and product in scope. For digital health companies, it is not only essential to successfully obtain regulatory approval, it is also crucial to achieve this milestone in a timely and cost efficient manner to make sure the company starts generating revenue in time and doesn’t run out of money.
The good news is that you can significantly increase your chances of success and optimize the regulatory process by answering two key questions:
- Which regulatory pathway should we navigate?
The table below outlines the main FDA submission pathways for medical devices. Certain digital health solutions that meet more stringent criteria can first apply for a Breakthrough Device Designation (BDD) status to smoothen the actual FDA submission and approval process. Learn more about deciding which regulatory pathway to navigate for your product in our blog, Let us guide you through the FDA approval process.
|Regulatory Pathway||510(k)||De Novo||Premarket approval|
|Product risk level||Class I and II||Class I and II||Class III|
|FDA decision type||Cleared||Granted||Approved|
|Requires a predicate*||Yes||No||No|
|Typical Duration||~105 days||~248 days||~210 days|
Table 1: FDA regulatory submission pathways for cleared, granted, and approved products.3
- What are the adequate claims and documentation that we need to submit to the FDA?
The devil is in the details. The difference between approval and rejection can sometimes reside in nuances in the submitted claims and documentation. When preparing for an FDA submission, several strategic choices need to be made to ensure you have the highest possible chances of approval, as well as have your regulatory strategy aligned with the commercial ambitions you aim to pursue. Those strategic choices can, for instance, relate to how you define your Indication For Use, how you fulfill criteria to obtain a BDD status, how you compare your solution to predicates (when navigating the 510(k) pathway), and more. A well-thought-out submission reduces the risk of having the FDA send you back to square one and start the submission process all over again, which would introduce significant delays and additional costs.
2. Unraveling the complexity of the US healthcare market
The US healthcare system is fragmented, possessing far different incentives than the ones seen in Europe. The US notoriously does not have a universal healthcare system but multiple health systems that often intersect. As a European company aiming for a successful market endeavor in the US, it is crucial to understand the differences between the home country’s market dynamics and incentives and those in the US.
First, you want to understand who would be using the solution, i.e. who has an unmet need and where do we fit in the existing workflow. Imagine you want to launch a prevention-focused digital health solution and aim to have health systems such as large hospital chains use your solution. In that case, it is important to know that there are different health care delivery models and settings in the US, each with different incentives and reimbursement structures. This complexity impacts where you may or may not fit in as a solution. Whereas a prevention solution may appeal to someone in a value-based care setting, it is less expected to do so in a fee-for-service setting.
Second, you want to define which customer segment(s) to target. Depending on the solution, it could be more or less interesting to target, for instance, care providers, payers, employers, pharma companies, or patients directly. Across and within these segments, it is paramount that you understand who would pay for your solution or reimburse it. You can learn more about digital health customer segments in our blog, Getting digital therapeutics into the hands of patients.
Thirdly, reimbursement for digital health products is more complicated in the US than in Europe. In Germany, for example, the Digital Healthcare Act created a smooth single approval and reimbursement process for digital health solutions. The resultant digital health app, DiGA process enables quick reimbursement by GKV-SV, Germany’s National Association of Statutory Health Insurance Funds. Read more about EU regulations in our blog, Navigating the fragmented regulatory DTx landscape: Four countries leading global practice.
A centralized reimbursement mechanism like GKV-SV does not exist in the US. Instead, the pathways for reimbursement of DTx are in flux with unique, ad-hoc contracts between digital health companies and payers such as the Centers for Medicare and Medicaid (CMS) or commercial health insurance plans like Blue Cross Blue Shield and United Healthcare. Read more about securing reimbursement in the US in our blog, Tackling digital therapeutic reimbursement.
3. Appropriately estimating the effort required to unlock the US market
Entering the US healthcare market demands a sound implementation strategy and significant financial and time investment. Securing the FDA approval, for example, requires significant investment into proper clinical trials to ensure that your product demonstrates it is safe and clinically effective. As an example, the German DTx company Kaia Health raised $10M in a Series A funding round to fuel their market expansion into the US.4
Besides this, from a commercial perspective, new entrants significantly benefit from having local presence in the US. There are multiple ways of getting feet on the ground, such as initiating a local team or establishing a partnership with a company that facilitates commercialization. We always recommend to new incoming European companies to bring in someone on the leadership team with knowledge of the local US market and an understanding of the effort required.
While hurdles exist, you should not be dissuaded from taking your European digital health company into the US market. The US healthcare market is an exciting, dynamic place with a need for new digital health solutions that improve patient’s health outcomes.
At Decimal.health we help you position your digital health product within the US market. Based on market and regulatory intelligence, competitor insight and years of deep healthcare industry experience, we help you identify the best section of the US market to introduce your European-developed digital health product. We also offer go-to-market execution by building out marketing and sales programs to support accelerated growth expectations.
1 U.S Digital Health market size and CAGR
2 Europe DIgital Health market size
3 DiMe- VHA The Playbook: Healthcare team analysis, Fast Facts: Digital Medicine