NEWS TRENDS

Many companies don't understand residual risk, said Brian Donato.

More companies need to have a focused approach to risk management, and many lack an understanding of residual risk and its role in a variety of company operations. So says Brian Donato, partner at Hyman, Phelps, & McNamara (Irvine, CA). Donato spoke at a risk management conference in May sponsored by AdvaMed.

Residual risk is how much risk remains in a product after a company has conducted risk assessment using scientific data, testing, and other appropriate methods designed to reduce potential problems. It affects regulatory compliance, product liability, contracts, marketing and sales, and a company's reputation. Here's how:

• Regulatory compliance. Risk assessment is part of product development, clinical studies, product submissions, adverse-event reporting, corrective actions, and device labeling. If a company isn't big enough to do its own risk assessment, it should enlist the help of an outside resource.
• Product liability. This area is based on theories related to negligence and breach of warranty, but many laws vary by state. The majority of cases in this area are linked to design defects, failure to warn, and negligent processing or manufacturing. It's a company's job to challenge the product, and properly assessing risk can provide a significant defense.
• Contractual obligations. When companies work with suppliers of components, accessories, and raw materials, get contracts that allow for mutually agreeable risk sharing. In some cases, FDA will want to know about the presence of a contract.
• Marketing and sales. Make sure the sales force is properly trained and clearly communicates the risks involved. Donato suggested that companies make them memorize the labeling.
• Reputation. Residual risk is tied to the media, advocacy groups, and public perception. Having open communication here is critical.

Some of the most effective ways of managing residual risk include revising and updating risk assessment processes, bringing in outside experts, and acting on valid product complaints. Getting insurance is important too, “even if you're doing things right,” said Donato. Properly dealing with such risk reduces exposure to product liability and litigation costs. It could also help companies achieve more success with regulatory authorities and increase sales.

Make sure labeling is bulletproof and clearly states warnings, contraindications, and side effects. On certain medical devices, include alarms, cutoff switches, guards, and backup power sources to ensure that users can't accidentally disconnect or turn off critical equipment.

Don't ignore residual risk, warned Donato. It must be identified, controlled, and revisited. Even if the upfront costs are more, conducting rigorous risk assessments serves as the best defense in the long run.