Healthcare investors have always read financial models and management presentations. For medical device companies, the questions that most often decide whether a deal works sit elsewhere: whether physicians will adopt the product, whether its reimbursement will last, whether it can be made at scale, whether the regulatory plan is realistic, and what actually protects its market position.
Recent events show why those questions deserve their own attention. Devices can clear FDA review and still stall at physician adoption, and Medicare payment policy can change a category's economics in a single rule, as skin substitutes showed in 2026. Here are five diligence areas worth treating as separate workstreams, and the questions to ask in each.
1. Clinical Adoption Evidence
FDA clearance and physician adoption are different milestones. A device can be cleared, supported by clinical data and reimbursed, and still fail to gain traction because physicians will not change their workflow to use it; see our article on the clinical adoption gap.
The useful question is not only “Is this device cleared?” but “Will physicians use it in routine practice, and what is the evidence?” Evidence worth asking for includes use outside study settings, repeat use after a first trial, whether early adopters expand their use or plateau, and where the device adds or removes steps in the clinical workflow.
Our take: adoption diligence is stronger when it includes direct conversations with target clinicians who are not on the company's advisory board or invested in it. A useful question is what would have to change for them to use the device in their next cases. Workflow changes the company has not addressed are a risk regardless of what the clinical data show.
2. Reimbursement Durability
Verifying that a CPT (Current Procedural Terminology) or HCPCS (Healthcare Common Procedure Coding System) code exists, and what it pays, is necessary but not sufficient. The harder question is whether that payment is durable: whether it could change in the next rule cycle or coverage review, whether commercial payers follow Medicare or diverge, and whether the evidence behind coverage would hold up under review.
The CY 2026 Physician Fee Schedule final rule is a recent example. Starting in January 2026, Medicare stopped paying most skin substitutes based on average sales price and began paying them as incident-to supplies at about $127 per square centimeter, resetting the economics of the category; see our skin substitute case study. Policy can also expand payment: for 2026, Medicare began paying new remote patient monitoring codes for shorter monitoring periods and shorter management time; see our RPM article.
Red Flags in Reimbursement Diligence
- Single-code dependency: the revenue model relies on one CPT or HCPCS code with no alternative billing pathway
- Evidence gap: coverage rests on a predecessor device's evidence rather than the target device's own clinical data
- Payer divergence: commercial payers already cover on narrower terms or at lower rates than Medicare
- LCD vulnerability: Local Coverage Determinations vary by MAC (Medicare Administrative Contractor) jurisdiction, concentrating revenue risk by region
- New Technology Add-on Payment (NTAP) expiration: the revenue model does not account for the end of NTAP, a temporary inpatient add-on payment that generally lasts about two to three years; see our CMS coverage guide
Our take: reimbursement durability deserves its own workstream rather than a subsection of the regulatory review. A useful test is how the company's economics look if payment for its main code falls materially. A model that breaks under that test is not necessarily a reason to pass, but it is a risk to price before close rather than discover after it.
3. Manufacturing Scalability
Making a device at prototype volumes and at commercial volumes are different problems, and financial models often project volume ramps without showing that the manufacturing process, supply chain and quality system can support them. Having a contract manufacturer and a BOM (bill of materials) does not settle the question.
Scalability diligence looks at design for manufacturability (DFM), not just current production. Key questions: Has the device been through a formal DFM review? Are there manual assembly steps that become bottlenecks at volume? What is the current yield, and how does it change at higher volumes? Are there single-source components with long lead times? What capital is needed to reach the volumes in the model? And does the manufacturing ramp match the commercial timeline and the cost-of-goods assumptions in the financial model? See our manufacturing due diligence questions.
Our take: if cost-of-goods figures come only from prototype runs rather than production runs with commercial-grade tooling, treat the manufacturing cost assumptions as unvalidated and look at unit economics across a wider range of outcomes.
4. Regulatory Pathway Realism
The difference between a realistic regulatory plan and an aspirational one can mean more clinical work, a longer timeline and more capital, and financial models do not always carry that variance.
One source of risk is a 510(k) strategy built on a predicate that may not hold up in review: the new device may have different technological characteristics, a different intended use population or claims beyond what the predicate supports. If FDA disagrees, the company may have to narrow its claims, which affects the commercial model, or generate more evidence, which affects the timeline and budget; see our article on the predicate trap.
Projected De Novo timelines deserve the same scrutiny. FDA's review goal for a De Novo request is 150 review days, which counts FDA's review time rather than calendar time; see De Novo vs 510(k). A delay does not just push back revenue: it burns cash, extends the runway the company needs and can force a bridge round.
Our take: a regulatory stress test belongs in medtech diligence. What happens if FDA asks for more clinical data, if the predicate strategy does not hold, or if the company has to pursue a De Novo instead of a 510(k)? A company with credible answers and costed contingencies is better prepared than one that presents a single path.
5. Defensibility Beyond IP (Intellectual Property)
Patent portfolios have long been the main proxy for competitive defensibility in medtech diligence. But patents protect specific claims, not market positions. A strong patent does not stop a competitor from solving the same clinical problem through a different mechanism, and in categories where physician loyalty comes from workflow integration and clinical familiarity, a stronger patent portfolio may not translate into a competitive advantage.
The question worth adding to “How strong is the IP?” is “What actually creates switching costs for the end user?” In medtech, switching costs tend to come from four sources: clinical workflow integration (physicians who have built their practice around a device ecosystem), training investment (surgeons who have completed specialized training on a platform), data continuity (connected devices that accumulate patient data over time) and institutional procurement (hospitals with GPO, or group purchasing organization, contracts built around specific platforms).
A company with moderate IP but deep clinical workflow integration may be more defensible than one with a strong patent portfolio and shallow adoption. Diligence that looks only at the patent landscape misses the clinical and operational side of defensibility.
What Well-Prepared Founders Bring to Diligence
Founders who prepare for these questions bring more than a financial model and a pitch deck:
- Clinical adoption data from real-world use, not just trial sites, including workflow integration measures
- Reimbursement durability analysis showing sensitivity to payment policy changes and payer-specific coverage status
- Manufacturing validation data from production-scale runs, including yield, cost-of-goods actuals and supply chain redundancy
- Regulatory contingency planning with timeline and budget implications for alternative pathways
- Defensibility evidence beyond IP: switching costs, workflow integration depth and clinical loyalty indicators
Material like this makes diligence easier to complete and sets expectations that hold up after the investment.
An Investor's Diligence Checklist
Questions an investor can reasonably ask before committing:
- Clinical adoption validation: an independent read of physician willingness to adopt, based on conversations with non-affiliated clinicians in the target specialty; clinical workflow analysis rather than market research.
- Reimbursement stress test: company economics under a material reimbursement reduction, with the specific rules and coverage reviews that could affect the category.
- Manufacturing maturity assessment: cost-of-goods data from production-scale runs, DFM review findings, and the capital needed to reach the volumes in the financial model.
- Regulatory pathway contingency: the primary regulatory pathway plus at least one contingency, with timeline and cost implications for each.
- Defensibility beyond IP: evidence of switching costs, workflow integration depth and clinical loyalty alongside the IP landscape analysis.
None of these requests is unreasonable. Companies that can answer them have done the work to understand their own risk profile. Companies that cannot are not necessarily bad investments, but the investor should recognize that they are pricing in more uncertainty than the financial model shows.
The Bottom Line
Medtech diligence needs clinical and technical depth alongside financial analysis. Adding a focused clinical and technical assessment to financial and strategic diligence covers risks a financial model cannot show on its own. For founders, preparing the clinical, manufacturing and regulatory evidence investors will ask for is a way to make diligence faster and build investor relationships on transparency rather than optimism.
References
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