Medical Device Link.

Originally Published MX September/October 2001

The recent change in power on Capitol Hill could mean challenges ahead for medtech strategists.

Cliff Henke

This summer's Jeffords switcheroo is sure to make life inside the Beltway different from what the Bush administration hoped for. But medtech executives might still wonder whether such political change has made the prospects for regulatory relief and expanded device coverage in federal health programs worse—or better?

Just when you thought the political plotting along the Potomac was enough of a soap opera, along came a mild-mannered New England maverick senator to make things even more the stuff of bad daytime drama. There have been changes of party loyalty in Washington before, but until James Jeffords, the actions of one man had never changed the balance of power in the U.S. government. Not only did the Vermont Republican senator's decision to become an Independent throw control of the Senate into Democratic hands, and thus shuffle committee chairs and assignments (see sidebar). It also made it much more difficult for any faction of government—including the Bush administration—to advance its policy agenda.

George Washington described the Senate as the saucer that cools the political and legislative passions of the day. But will such cooled passions turn into a gel of inaction? Or will honest compromise and civility prevail, as President Bush hinted in his inaugural address last January (an event that now seems an eternity ago)?

This article looks at how the recent unprecedented events will shape federal policy on three issues of extreme importance to medtech companies. These include expanded coverage of and reimbursement for new medical technologies, more-favorable regulation of device companies, and support of industry research and development.

Medical Technology Coverage

Perhaps the most likely place for medtech companies to benefit from the capital's realignment is in expanded coverage for new medical technologies. Arguably, the most obvious rays of hope for this prospect are coming from the other end of Pennsylvania Avenue. Since this publication's most recent outlook on Washington politics (MX, May/June 2001), the Bush administration has made several proindustry overtures.

The first and most obvious one was to change the name of the agency that oversees Medicare and Medicaid. Out went the unwieldy Health Care Financing Administration, and in has come the more user-friendly Centers for Medicare and Medicaid Services (CMS; Baltimore). (Actually, there were reports that the Bush camp talked about renaming it the Medicare and Medicaid Administration, but decided that MAMA seemed too maternal for a bureaucracy.)

Although admitting that initially the change has been mainly symbolic, the Bush administration says it intends to back up its rhetoric with some substantive actions. For example, CMS administrator Thomas Scully has said that his agency is examining how to speed coverage decisions for new technologies.

A second proindustry salvo was the release of the Bush administration's first budget, which would fund the federal government in FY 2002. Industry groups fell all over themselves in congratulating the new president. AdvaMed (Washington, DC) called it "the most proindustry budget in years," and particularly praised the budget's funding for Medicare modernization and an $18 million increase in funding for FDA's Center for Devices and Radiological Health (CDRH), which included a proposed $7.3 million increase in funding for product review staff.¹

A more substantive administration gesture toward allowing greater coverage for new technologies came in August. That was when Bush announced his compromise with Representative Charles Norwood (D–GA), a chief architect of the patients' bill of rights legislation in the House. The compromise clears the way for some sort of legislation to reach Bush's desk in a form that is more acceptable to him and his Republican colleagues, says Jeff Boothe, a partner in the law firm of Holland and Knight (Washington, DC), and counsel to the Medical Device Manufacturers Association (MDMA; also Washington, DC). In turn, Boothe adds, the compromise makes it less likely that the Senate's version of the bill (giving more power to patients and providing managed-care plans with less protection against lawsuits) will become law.

As part of his comments on Medicare reform and the patients' bill of rights, President Bush has expressed support of CMS's efforts to reduce delays in Medicare-patient access to innovative medical technology. "Medicare takes way too long to authorize new treatments," the president said this past summer. "We must act now to ensure that the next generation of medical technology is readily available to America's seniors."

Boothe says that Medicare coverage decisions are important for two reasons. First, because of the aging of the U.S. population and recent expansions of Medicaid coverage, CMS's decisions are directly affecting a growing slice of the $1.4 trillion healthcare funding pie that pays for $71 billion in healthcare technology products consumed annually in the United States. Second, federal coverage decisions have enormous influence on how private funding views technology—especially in the managed-care sector.

Meanwhile, at least two "Dear Colleague" letters expressing concern about seniors' access to medical technology have been circulating in the halls of Congress. Fourteen senators, including Orrin Hatch (R–UT) and Robert Torricelli (D–NJ), have signed one of these missives, urging Health and Human Services secretary Tommy G. Thompson to tear down the technology roadblocks in Medicare's outpatient prospective payment system.

Calling for "full and timely implementation" of the medical technology provisions of the Benefits Improvement and Protection Act of 2000 (BIPA), the letter urges HHS to change the way Medicare pays for new technologies in both the outpatient and inpatient settings.² Specifically, the letter asks the administration to withdraw its proposal to reimburse for only half the incremental cost of new, hospital-based technologies over the cost of devices, products, and high-tech procedures that they replace or come closest to in existing payment schemes. It also asks CMS to revise the payment system employed for new technologies used in outpatient care by making use of "outlier" payments.

In another letter circulating on Capitol Hill, both parties' leaders of the House Ways and Means Committee—which is partly responsible for legislative oversight of federal health insurance programs—expressed their concern about inadequate payments for drugs, biologics, and devices under Medicare's outpatient prospective payment system. That letter, signed by committee chairman Bill Thomas (R–CA), Nancy Johnson (R–CT), chair of the panel's health subcommittee, and Fortney "Pete" Stark (D–CA), ranking member of the health subcommittee, recommended that CMS Administrator Scully consider taking several administrative actions to ensure that patients can access medical technologies in a timely manner.

Boothe says the Bush administration is leaning toward support of this position, which would come in the form of implementing regulations of BIPA, including temporary, transitional payments for new technologies in both inpatient and outpatient settings, and procedural reforms to reduce delays in coverage decisions.

AdvaMed has urged CMS to go a step further by creating a Medicare office of technology and innovation to improve CMS's ability to make timely decisions about new breakthroughs. In addition, the association wants CMS to improve its accountability by establishing decision deadlines for technology approvals similar to those that apply to the CDRH Office of Device Evaluation (ODE). For technologies subject to a national coverage decision, the agency should take a total of 6–12 months to set coverage, coding, and payment policy and make the technology available to patients, says AdvaMed president Pamela Bailey.

However, AdvaMed stops short of suggesting that Medicare should federalize all of its support for innovation. In fact, says Bailey, CMS should maintain and perhaps even strengthen the local Medicare coverage process as an important channel for early patient access to new technologies. In AdvaMed's view, CMS should support the decision-making processes of local Medicare contractors because they often represent the most timely, flexible access to new technology in the system.

MDMA goes one step further than AdvaMed, calling for the abolition of key local group meetings, called local Medicare carriers' contractor medical director (CMD) work group meetings. In these sessions, the contractor medical directors discuss whether new technologies or procedures are worthy of being covered under the broad discretion granted by CMS to Medicare carriers. Although the Medicare program's integrity manual does not call for CMD work groups to develop "model" or "template" policies, such models are often cited as the basis for local coverage policies.

"CMS staff attend many of these CMD work group meetings, which certainly lends the CMS imprimatur to their decisions and actions," says Stephen J. Northrup, MDMA executive director.

MDMA members are not the only ones concerned about the actions of these CMD work groups, he adds. "For example, the American College of Surgeons has raised similar concerns. Of particular concern to the college is CMS's dissemination of "model" policy, which some carriers seem to view as a form of national policy that must be followed. Generally speaking, carriers then proceed to adopt these templates as revisions to their coverage policy. However, even when a carrier provides its advisory committee with a chance to comment on the model policy, such review is often too late in the process."

Northrup and his group contend that the only true way to reform Medicare coverage decisions in favor of new technologies is to get rid of the CMD work groups. "Local Medicare contractors are supposed to develop local medical review policy based on a perceived need for clarification, and they are supposed to develop these policies locally," he adds.

Streamlining Product Approvals

Of course, a prerequisite for commercializing a new medical product is getting it through FDA hurdles, and progress seems to be taking place on that front as well. Aside from the expanded funding mentioned above, the Bush administration is also looking at streamlining FDA approvals.

Industry advocates, of course, view this as a glass half empty and want to see FDA do more internally to match industry's rapid pace and complexity of innovation. For example, AdvaMed wants to see the creation of an office of combination products in order to eliminate delays in the approval of hybrid products that must be reviewed by more than one FDA center.

Speaking at a congressional hearing that assessed the agency's progress in implementing the reforms of the FDA Modernization Act of 1997 (FDAMA), Bailey urged the agency to expand third-party review of premarket submissions, which were previously expanded under FDAMA.³ She also suggested more use of early collaboration meetings between FDA and manufacturers.

According to a report prepared for AdvaMed by the Lewin Group (Washington, DC), a prominent healthcare policy research firm, the agency will need to adapt to unprecedented investments in research and development by medical technology companies and the National Institutes of Health (NIH), which are fueling a medtech revolution for which the agency is often unprepared.^4–7 Breakthroughs in such areas as DNA-based testing, tissue engineering, nanotechnology, and molecular imaging all promise to transform healthcare in the coming years.

FDA must take "prompt, substantial steps" to avert further delays in reviewing these emerging breakthroughs, the Lewin report concludes. "Despite important improvements in FDA productivity and processes, total review times for breakthrough technologies are still averaging about 12 months—twice the statutory deadline of 180 days," notes Bailey. "Delays in development and FDA approval of breakthroughs like combination products will only worsen in coming years if we do not work together to prepare FDA for the coming revolution."

The Lewin report made the following recommendations.

• Expedite review of certain breakthrough technologies.
• Significantly improve staff expertise to review medical devices.
• Make better use of outside expertise when needed.
• Encourage reviewers to consider innovative scientific approaches to evaluate new technologies.
• Secure stable, adequate funding to deliver timely reviews on emerging technologies.

Consider just one example of the breakthroughs for which FDA staff and resources seem unprepared. Gail Naughton, PhD, president of Advanced Tissue Sciences (La Jolla, CA), says that advances in the field of tissue engineering are now developing ways to promote angiogenesis, or regrowth of blood vessels, as a treatment for heart disease. Engineered artificial skin already is being used to treat severe burns more rapidly and with less pain. The technology also can reduce healthcare costs, Naughton contends, because studies have shown that it can reduce patients' length of stay in a hospital from three days to a single day.

Such breakthroughs require review-staff expertise in a wide array of sciences. "There needs to be a breadth as well as depth of talent at the agency to be able to properly review these materials," she adds.

For its part, CDRH is studying how to coordinate better with its sister centers, says David Feigel, the center's director. He also touts the Bush administration's budget as a step in the right direction and suggests that more like it will be coming.

However, critics on Capitol Hill and elsewhere are not so sure. Citing the pressures of a cooling economy and the recently enacted tax cuts—which will likely work to keep a lid on domestic discretionary spending programs, like more money for FDA—they worry that the Lewin report's warnings will go unheeded. Further, there is talk again of paying for such needed reforms by means of user fees—an issue that has divided the medtech community in the past.

Curiously, a recent regulatory proposal contradicts the Bush administration's philosophy as displayed elsewhere during its first months in office. That proposed CDRH rule would give the agency broad power to rescind substantial equivalence orders for premarket notifications (510(k)s). In this year's April comments on the proposal, AdvaMed argued that it would establish a layer of regulation that exceeds the agency's statutory authority.

The FDA proposal, "Rescission of Substantially Equivalent Decisions and Rescission Appeal Procedures," was published on January 16, before President Bush took office.⁸ Unlike a slew of other last-minute Clinton-era regulations, however, this one was neither frozen nor revoked.

"Without question, FDA does not need 510(k) rescission to protect the public health," an AdvaMed press release stated. "Specifically, the government has express authority to remove or enjoin devices from commercial distribution through the [FD&C] Act's seizure and injunction authority."⁹ Unlike these administrative remedies, however, the 510(k) rescission proposal could give the agency power to rescind clearance for an entire category of products. A final rule is expected this fall.

Industry R&D Support

True to his conservative roots, the only area where President Bush is pushing for significant industry support so far is at NIH. His FY 2002 budget calls for doubling NIH funding by 2003, starting with a $2.8 billion increase in 2002. In nominal dollars, this would be the largest annual funding increase in NIH's history.

As part of the NIH increase, Bush also proposes to spend approximately $68 million in initiatives to develop and broaden access to assistive technologies, an additional $10.5 million for the Office of Women's Health, and nearly $70 billion for women's health programs (up $5 billion from last year).

Elsewhere, Bush encouraged corporate R&D by permanently extending the R&D tax credit in his tax package signed earlier this year. Yet that is pretty much where his R&D policy ends.

On the other hand, the Bush administration seeks to gut the Advanced Technology Program (ATP) administered by the National Institute of Standards and Technology, which has long been anathema to conservatives in his party. For FY 2002, Bush seeks to undo the huge spending increases for ATP that took place under President Clinton and made the program a cornerstone of his administration's technology policy.

Conclusion

Although the first months of the Bush administration have been tumultuous, they appear to mark a period when Washington bipartisanship might actually get something done for medtech companies. Certainly the closeness of last year's presidential election and the recent realignment in Congress have dictated that neither party will have complete control of the nation's political agenda. Under such circumstances, politicians must usually choose between one of two courses: do nothing, or find ways of working together. So far, Washington's policymakers appear to be choosing the latter.

As long-time Washington observer Boothe points out, "The change in the Senate and Congress is dramatic. The president and the Republicans no longer have full control over the legislative agenda. This is quite important, as Democrats now decide which issues are considered in the Senate, and can block the president and force the Republicans to consider Democratic input. However, the impact on device companies is unclear, since both Republican and Democratic members have been supportive of the medical device industry."

With a political environment so volatile, it's no surprise that even Beltway veterans are hesitating to make predictions about the outcome of current policy initiatives. After all, the Safe Medical Devices Act of 1990 and the Americans with Disabilities Act —two landmark pieces of legislation that significantly expanded the federal government's purview over medical technology policy—were enacted the last time there was a conservative named Bush in the White House.

REFERENCES

1. "AdvaMed Hails Bush Budget as Most Pro-Medical Technology Ever," [press release on-line] (Washington, DC: AdvaMed, 10 April 2001 [cited 24 August 2001]); available from Internet: http://www.advamed.org/publicdocs/PR-87.htm.
2. Benefits Improvement and Protection Act of 2000, PL 106-554, U.S. Code, vol. 42, sec. 332(a)(1)(A) as amended.
3. The FDA Modernization Act of 1997, PL 105-115, U.S. Code, vol. 21, sec. 360.
4. The Lewin Group, Outlook for Medical Technology Innovation, part 1, The State of the Industry (Washington, DC: Health Industry Manufacturers Association, 2000).
5.The Lewin Group, Outlook for Medical Technology Innovation, part 2, The Medicare Payment Process and Patient Access to Technology (Washington, DC: AdvaMed, 2000).
6. The Lewin Group, Outlook for Medical Technology Innovation, part 3, Technology Assessment by Public and Private Payers (Washington, DC: AdvaMed, 2000).
7.The Lewin Group, Outlook for Medical Technology Innovation, part 4, The Impact of Regulation and Market Dynamics on Innovation (Washington, DC: AdvaMed, 2001).
8. "Medical Devices; Rescission of Substantially Equivalent Decisions and Rescission Appeal Procedures," Federal Register, 66 FR: 3523–3526, January 16, 2001.
9. "AdvaMed Calls on FDA to Withdraw Proposed 510(k) Rescission Regulation," [press release on-line] (Washington, DC: AdvaMed, 11 April 2001 [cited 24 August 2001]); available from Internet: http://www.advamed.org/publicdocs/PR-88.htm.

Cliff Henke is a freelance writer based in Southern California.

Copyright ©2001 MX