Digital Diagnostics acquires AI company 3Derm Systems

Artificial-intelligence diagnostics company Digital Diagnostics said Tuesday it has purchased 3Derm Systems, a move to expand its technology to detect more illnesses.

Digital Diagnostics, formerly known as IDx, scored Food and Drug Administration approval for its medical device that uses AI to detect diabetic retinopathy without input from a doctor. It’s the first such device with that approval. Now, the company hopes to develop 3Derm’s AI system, which detect skin cancer.

That was a vision behind the company’s rebrand as Digital Diagnostics, as it plans to continue to expand into medical specialties beyond its initial focus on eye care.

As part of the acquisition, Digital Diagnostics will take on 3Derm’s employees, according to Dr. Michael Abramoff, founder and executive chairman of Digital Diagnostics.

Liz Asai, 3Derm’s chief executive officer and co-founder, will join Digital Diagnostics as vice president of dermatology. Elliot Swart, 3Derm’s chief technology officer and co-founder, will join the company as chief architect.

“We are thrilled to continue our work as part of a larger organization focused on doing AI the right way, and that offers a broad commercial platform,” Asai said in a statement.

Abramoff declined to share financial details of the transaction.

The FDA in January designated a system from 3Derm that uses AI to diagnose skin cancer part of the agency’s Breakthrough Device Program. The company will seek approval for the AI system, dubbed 3DermSpot, through the FDA’s De Novo premarket review pathway for novel medical devices, the same pathway the FDA used to review Digital Diagnostics’ first product.

But getting the greenlight from the FDA isn’t the final hurdle for bringing an AI device into clinical care, noted Abramoff. That’s where Digital Diagnostics hopes to leverage its previous experience to accelerate adoption of 3DermSpot.

Digital Diagnostics, then IDx, in 2018 received a first-of-its-kind regulatory approval from the FDA—an OK to market IDx-DR, a medical device that uses AI to detect diabetic retinopathy by studying images of the back of the eye, without needing a doctor to interpret results.

Several researchers—mainly those involved with other healthcare AI projects at competing vendors—have questioned whether longer-term studies would illustrate a clinical benefit to patients from the AI system.

Digital Diagnostics’ products are deployed in more than two dozen health systems in the U.S., as well as others abroad. Primary-care physicians and other clinicians who aren’t eye specialists use the IDx-DR system to screen their patients for diabetic retinopathy and refer patients to a specialist if the AI detects the disease. Digital Diagnostics charges a flat-rate subscription model for IDx-DR.

But in 2018, “very little was ready in the healthcare system for a computer making a diagnosis,” Abramoff said.

Even after FDA authorization, Digital Diagnostics needed to work through payment, standard of care and liability concerns that made many healthcare providers hesitant to adopt the technology.

That involved working with federal regulators and medical trade associations like the American Diabetes Association and American Medical Association to identify standards of care and create new payment codes. As a result of some of those discussions, CMS proposed a CPT code for automated AI analysis of retinal images for disease detection in its 2021 physician fee schedule.

“All these aspects needed to be solved for an autonomous artificial intelligence … to make sure not only is there FDA’s blessing, but also that the healthcare system accepts it,” Abramoff said.

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