Medical Device Link.

GOVERNMENT & LEGAL AFFAIRS

Illustration by JAMES ENDICOTT/Jupiter Images

Medtech executives surveying their to-do lists for the coming year should have no trouble identifying policy issues of importance to industry stakeholders. But with shifting party control in Congress; the FDA leadership of Andrew Von Eschenbach, MD, only recently confirmed; and the search for a permanent administrator at the Centers for Medicare and Medicaid Services still under way; company leaders might well be wondering which way industry policies may be heading.

In several cases, important industry-related legislation was left standing in the hallway at the end of the 109th Congress, and will now have to be reintroduced for action in the 110th Congress. Bills likely to find their way toward reintroduction in the near future—but perhaps with terms of considerably different nature—include some form of legislation to revise Medicare reimbursement for laboratory diagnostics, to reform the U.S. patent system, and to support the adoption of health information technology. Also on the docket for this year are a wide range of regulatory issues with far-reaching implications for the medical device industry, including FDA initiatives for clinical trials management, adverse-event reporting and recalls, unique device identifiers, and the advertising and promotion of medical devices. And matters don’t get less complicated in light of the proliferation of state and international laws and regulations governing the industry.

In addition to trade and professional associations that advocate for the interests of medical technology, many individual manufacturers have established governmental affairs departments in order to ensure their voices are heard by legislators. Their actions and advice are helping to shape the future of the industry for all its players.

In this article, industry experts review some key regulatory and legislative areas that are currently in varying stages of development. The final shape of these and other policy areas promise to have significant implications for firms operating in the heavily regulated field of medical devices.

Outlook for Healthcare IT

Among U.S. policymakers at the federal and state levels, there is broad consensus that adoption of interoperable healthcare information technology (IT) and health information exchange will improve the quality, safety, and efficiency of healthcare. The U.S. Congress was close to moving legislation in support of this goal during its last session, but the midterm elections eliminated any chance of achieving consensus.

Looking ahead to the 110th Congress, there remains strong support for legislation to accelerate the use of electronic health records and a desire to enact legislation that will help bring down costs while raising the quality of care.

It is expected that a unified healthcare IT bill will pass under the newly elected Congress. However, the next session is also likely to feature disagreements over incentives and funding levels, privacy and security protections, the extent of government involvement in the standards-setting process, and how to preserve the ability of provider organizations to deliver hardware and software to healthcare professionals without falling subject to prosecution under the Stark physician-referral or antikickback laws.

Medical technology and device makers have a stake in all of these policy debates, including action in the standards-setting process. Siemens and other firms continue to advocate healthcare IT legislation that supports the incremental steps needed for healthcare providers to improve quality and efficiency, while allowing the healthcare IT vendor community to continue supporting those customers in the changing environment.

As consumers become accustomed to comparing quality and pricing information, they may also play a role in forwarding the adoption of healthcare IT systems. Consumer demand may prompt healthcare providers to adopt IT that supports data capture for quality reporting. And consumers may also urge their elected representatives to move such initiatives forward.

Medical technology and device makers have a stake in all of these policy debates, including action in the standards-setting process. — Janet Dillione

With multiple stakeholders involved, it is critical that policymakers understand marketplace needs and refrain from pushing for changes or deadlines that are inconsistent with market demand and that may lead to a more chaotic healthcare environment. In order to be successful this year—and in the many years it will take to achieve President Bush’s plan for value-driven healthcare supported by IT—it’s key that healthcare IT remain a nonpartisan issue and that we continue to see a prioritized effort to move healthcare IT legislation through Congress.—Janet Dillione, president, healthcare information technology division, Siemens Medical Solutions USA (Malvern, PA)

Following the Money

Over the past year and a half, federal investigators have focused considerable attention on financial arrangements between device manufacturers and physicians, while searching for activities that may have violated federal antikickback laws or prohibitions against physician self-referral. This year, device manufacturers should expect continuing scrutiny of their financial arrangements with physicians.

Since the initial round of subpoenas, in March 2005, there has been little visible activity in the federal investigations into the orthopedics sector. But healthcare investigations typically take 18 to 24 months before active settlement discussions begin. Since the subpoenas were issued, the government and the whistleblower bar have become more confident that federal business generated as a result of an illegal kickback to a physician triggers liability under the False Claims Act. Manufacturers can expect to see resolution of some of these investigations sometime in the next six to 12 months.

McAnaney

Any substantial settlements in the orthopedic cases will create a ripple effect of whistleblower suits in other industry sectors. There is also a possibility that some of these investigations may result in criminal prosecutions under the antikickback statute, including prosecutions of physicians. Regulators increasingly believe that only criminal prosecutions of physicians will bring lasting behavior modification.—Kevin G. McAnaney, Law Offices of Kevin G. McAnaney (Washington, DC)

Reforming GPO Practices

Any medical technology company that is developing or selling products in today’s market recognizes the role that hospital group purchasing organizations (GPOs) play in making those technologies available to hospitals—and ultimately to doctors and patients. If a company is seeking access to U.S. hospitals, chances are that it will need to go through a GPO.

In 1986, Congress granted the GPO industry a safe harbor from federal healthcare regulations, thereby permitting GPOs to levy administrative fees on medical product suppliers. However, in recent years, many medtech companies have expressed concerns about certain GPO practices related to such fees. The concerns stem largely from the fact that, over the years, some medical product suppliers have paid members of the GPO industry billions of dollars in so-called administrative fees, and in return have received favored access—and, too often, exclusive access—to GPO member hospitals.

In the past few years, medical device manufacturers may have found it easier to gain access to GPOs and their member hospitals. This change was brought about because of efforts led by the Medical Device Manufacturers Association, investigative reports published in the New York Times and elsewhere, and congressional hearings on GPO practices. Together, these activities impelled the GPO industry to impose some measure of self-regulation. But more work remains to be done.

Entering 2007, Congress is likely to continue exploring whether the GPO industry is in need of certain reforms, including repeal of the safe harbor for charging administrative fees. In addition to the activities in Congress, federal and state regulators may continue to look into the financial relationships between GPOs and medical product suppliers.

Congress is likely to continue exploring whether the GPO industry is in need of certain reforms, including repeal of the safe harbor for charging administrative fees. — Joe E. Kiani

Reform proposals being considered would modify the compensation system for GPOs from one that is vendor-based to one that is hospital-based. Such reforms would remove the possibility of enticements that encourage GPOs to act on behalf of particular medical product vendors, and enhance the incentives for GPOs to operate in the best interest of their hospital members. Along the way, the reforms would also improve patient access, encourage innovation, and reduce the cost of the U.S. healthcare system.—Joe E. Kiani, founder, chief executive officer, and chairman of the board, Masimo Corp. (Irvine, CA)

Patent Reform Uncertainties

With the political shake-up in the House and Senate, the future of patent reform proposals is somewhat uncertain. There has been bipartisan support for patent reform in general, but the new leaders in Congress may very well rework the details of the legislation. And as everyone in the medical device industry knows, the devil is in the details.

One of the more significant reform proposals is the implementation of a postgrant opposition procedure. Specifically, the proposal calls for the adoption of an adversary proceeding for challenging the validity of a granted patent in an administrative setting before the U.S. Patent and Trademark Office (PTO). The proposed proceeding is intended to serve as a quality control mechanism for granted patents and to provide a less expensive alternative to litigation. The adoption of a postgrant opposition or review proceeding may create an opportunity for medtech organizations to enhance their strategic planning efforts and bring products to market with less risk of facing patent infringement actions.

On the House side, Representative Howard Berman (D–CA) will be taking over leadership of the IP Subcommittee from Representative Lamar Smith (R–TX). Berman has been a long-standing proponent of patent reform. Berman and Representative Rick Boucher (D–VA) jointly introduced the Patents Depend on Quality (PDQ) Act in April 2006. The PDQ Act included provisions for a postgrant opposition procedure quite similar to that which had been proposed by Smith in his Patent Reform Act of 2005 (HR 2795). However, Berman and Boucher reintroduced the controversial second window for filing an opposition request, which Smith had written out of his bill.

In the Senate, Orrin Hatch (R–UT) was the IP Subcommittee chair during the previous Congress. On August 3, 2006, Hatch introduced the Patent Reform Act of 2006 (S 3818) jointly with the ranking Democrat on the subcommittee, Patrick Leahy (D–VT). Leahy is taking over leadership of the Senate Judiciary Committee, and it is expected that S 3818 will be a starting point for patent reform discussions. At press time, it was unclear who would replace Hatch as the chair of the IP Subcommittee—or whether Leahy would even maintain the IP Subcommittee. However, in a speech given on December 13, Leahy stated that reforming the patent system would be a critically important project in the new Congress.

Although Leahy cosponsored S 3818, the bill was a legislative compromise in which Hatch had more say than Leahy. Therefore, it is uncertain whether the bill will survive in its current form with the new leadership in the Senate. It is worth noting, however, that the postgrant review provisions of S 3818 were distinct from House versions of the postgrant opposition legislation in the following respects.

• In S 3818, the PTO director is given much wider authority to establish regulations governing the details of the proceeding. Issues such as what must be set forth in the postgrant review petition, how the proceeding will relate to other PTO proceedings, and procedures for discovery are all left to the discretion of PTO.

• The normal window for filing a petition for postgrant review is 12 months, as opposed to nine months in House versions of the legislation.

• S 3818 establishes a second window for filing a postgrant review petition that is open to anyone who “establishes a substantial reason to believe that the continued existence of the challenged claim causes or is likely to cause the petitioner significant economic harm.” The downside to using the second window is that a “could have raised” estoppel will apply to the petitioner in subsequent proceedings, including litigation, whereas the normal petitioner will be subject to estoppel only for specific invalidity grounds raised and specific claims targeted during the proceeding.

With the political shake-up in the House and Senate, the future of patent reform proposals is somewhat uncertain. — Jonathan R. Sick

One generalization that can be made is that the Democrats involved up to this point have favored the second window more than the Republicans. So if, indeed, we see a postgrant review procedure come out of the Democrat-controlled 110th Congress, it will likely include a second-window provision in one form or another.—Jonathan R. Sick, shareholder, McAndrews, Held & Malloy (Chicago)

Postmarket Transformation

In January 2006, FDA’s Center for Devices and Radiological Health (CDRH) released a report titled Ensuring the Safety of Marketed Medical Devices: Executive Synopsis and Recommendations. This report described an initiative to increase the agency’s ability to “identify, analyze, and act on postmarket information on devices.” As part of the initiative, the center created a postmarket transformation leadership team (PTLT) comprising agency personnel and a number of outside consultants. The PTLT was charged with reviewing the recommendations of the January report and proposing a “prioritized implementation plan for a transformed postmarket process.”

The Report of the Postmarket Leadership Team: Strengthening FDA’s Postmarket Program for Medical Devices was released in November 2006. Much of the report deals with recommendations for improvement within CDRH, including the development of cross-functional product teams to integrate premarket, postmarket, and enforcement efforts; and an upgrade to the information system for adverse events to enable better searches of existing data for enforcement purposes.

CDRH also proposes to explore additional sources of adverse-event data. Other federal agencies such as the U.S. Department of Veterans Affairs, the Department of Defense, and the Centers for Medicare and Medicaid Services may offer opportunities for gathering data. In August 2006, the Massachusetts Institute of Technology announced that it had received a contract from FDA for developing software to search for adverse-event patterns in data available from such sources.

The device center will also act to increase the number of user institutions that report adverse events through MEDSUN, the network of user institutions that report events directly to FDA. CDRH will also look to tap data from professional society registries (e.g., the Scandinavian orthopedic registry, the Society for Thoracic Surgery registry) and information from audits conducted by other regulatory bodies or competent authorities. Much of this new information may be confidential or challenging and costly for manufacturers to access.

Other recommendations in the recent PTLT report will have a more direct effect on device manufacturers. Recommendations include mandatory electronic reporting of adverse events; an “aggressive” campaign in favor of unique device identifiers for medical devices; and increased use of postmarket data for enforcement and premarket decision making. Plans are also on the priority list to collaborate with professional societies to develop and implement a risk-based communication strategy for providing postmarket performance information to practitioners, patients, and consumers.

In the coming years, medical device manufacturers will need to devote more resources to obtaining and analyzing postmarket information about their products in commercial distribution—and, by implication, to improving the identification of potential risks in new products. Failure to keep ahead of this new information curve could lead to unwanted surprises.

Andrews

The FDA reports and other information about postmarket issues can be found on the CDRH Web site at www.fda.gov/cdrh/postmarket/mdpi.html.—Judith M. Andrews, Medical Device Consultants Inc. (North Attleboro, MA)

Coalitions Tackle MDUFMA II

Under the terms of the Medical Device User Fee and Modernization Act of 2002 (MDUFMA), medical device premarket submissions made to FDA became subject to application fees beginning October 1, 2002. But the agency’s authority to collect such user fees will expire on September 30, 2007, unless Congress acts to reauthorize them.

FDA and industry have already begun negotiating over the terms of MDUFMA II, so it is to be expected that the issue of FDA funding will be on the minds of many device executives through this year. For years, industry and FDA have agreed that more resources are needed at the agency. However, the source of those fees—specifically, what portions should come from congressional appropriations and what portions from user fees—has created debate.

Meanwhile, a consensus is growing among the life sciences industries, patient groups, food manufacturers, and other interested stakeholders to support the position that FDA needs additional funding from Congress. Several groups are taking steps to achieve this goal. Over the past year, two organizations, the FDA Alliance (www.strengthenFDA.org) and the Coalition for a Stronger FDA (www.FDACoalition.org), have been formed to draw attention to FDA’s resource needs. The goal of both organizations is to develop a concerted educational and lobbying campaign, geared toward the administration and Congress, in order to effect an increase in FDA’s overall budget through the appropriations process.

Looking ahead to budget hearings for 2008, increasing FDA funding through congressional appropriations must be a top priority for the industry. — Paul Touhey

This type of broad-based-coalition approach was successful in significantly increasing NIH funding over the past decade, and many believe the success can be repeated with FDA. The two coalitions have acknowledged the importance of working together, and many organizations, such as the Consumer Healthcare Products Association and the Medical Device Manufacturers Association, are members of both groups.

Looking ahead to budget hearings for 2008, increasing FDA funding through congressional appropriations must be a top priority for the industry. While user fees can help defray some of FDA’s costs, they do not represent a long-term solution to the agency’s budgetary problems.

A fully funded FDA is ultimately in the interests of all parties, making it possible for the agency to conduct faster, more-thorough reviews of breakthrough technologies. In turn, the approval of such products should enable the healthcare system to efficiently produce more quality life years for the public. The successful efforts of the coalitions will help to ensure that FDA has the resources it needs to meet the challenges ahead.—Paul Touhey, president and COO, Fujirebio Diagnostics Inc. (Malvern, PA)