Looking Toward A New Medical Technology Policy

Originally Published MDDI October 2001

FIRST PERSON

The emergence of new medical technologies requires FDA reform, liability relief, and a reassessment of current policies on third-party reimbursement.

Joshua A. Adler

Earlier this summer, a man in Kentucky received the first self-contained artificial heart, and Vice President Cheney had a pacemaker implanted in his chest. The artificial heart, now in its first human test, is a breakthrough for science. The pacemaker, already implanted in thousands, has been a commercial breakthrough for Medtronic.

Which kind of breakthrough—the scientific or the commercial—is more remarkable? For small companies that lack Medtronic's resources it may be the latter, for the barriers to bringing innovations to the public can seem insurmountable.

A more sensible regime than the patchwork we suffer from today would produce substantial benefits for America's physiological and economic health.

A comprehensive policy should cover at least FDA reform, liability relief, and third-party reimbursement.

FDA REFORM

For an entrepreneur, FDA can be daunting. Fears of arbitrary regulatory delays deter all but the most intrepid prospective investors, raising the cost of capital for new research and development efforts. Small companies must hire consultants and lawyers to deal with FDA, which diverts resources away from innovation.

A move toward a regulatory strategy based on the European system would alleviate these problems. It is difficult to overstate how much more efficient their system is compared with ours. That is why many new medical technologies are available to European consumers many years before they reach the United States. For example, one of my company's products took a year to clear in Europe—a year of preparation, and a three-day inspection. The identical product in the United States required about three years of preparation and a year of government review.

Perhaps such delays are necessary evils of regulation. But a larger trend threatens to make FDA obsolete. The proliferation of health applications for the Internet and digital devices is blurring the line between medical and nonmedical technology. When a heart monitor can "talk" with a patient's cellular phone—which can then automatically call emergency services—will FDA need to regulate all phones, global positioning systems, and telecommunications? When diabetics' palm PCs can scan glucose level and update on-line medical records, will FDA inspect Compaq, IBM, and any Internet intermediaries? Under its current charter, it must.

LIABILITY RELIEF

If a new healthcare technology saves 99 lives that otherwise would have been lost, but fails for one person whose condition might have been hopeless, the perception in the medical industry today is that the one failure will void the 99 successes. No technology can be perfect, and each .9 added to a 99% success rate raises manufacturing costs tenfold, making the affected products unaffordable to the people who need them most.

Fear of liability, even when a company has made its best efforts to produce a quality product, adds incalculable financial risk to new ventures. It also stifles the kind of risk-taking that leads to advances.

THIRD-PARTY REIMBURSEMENT

Third-party reimbursement is essential for a successful new medical product. Figuring out the coverage requirements for Medicare, 50 Medicaid agencies, and hundreds of private payers can overwhelm many small organizations. The process tilts investment decisions away from the most original new ideas toward product categories that already have established coverage. For the most part, the return on a new medical-technology investment can only be as good as the reimbursement rate. Thus higher costs for market entry do not necessarily translate into higher returns—contrary to economists' ideals.

Reimbursement by Medicare, the largest healthcare payer in the world, makes or breaks many new medical products. Private healthcare payers often follow Medicare's lead. The Centers for Medicare and Medicaid Services (CMS) can be assumed to base decisions on utilitarian principles to ensure the greatest good for the greatest number. But the law governing Medicare has not changed since 1965— despite enormous changes in the healthcare environment. Even the most fundamental aspects of Medicare—such as the divide between Part A and Part B reimbursement—make little sense today.

Healthcare is a continuum, and smart spending on prevention or early intervention can save money on hospital visits down the line. But Medicare is not permitted to use cost-effectiveness as a basis for decisions, and cannot pay for preventive medicine in most cases. Without new thinking, our aging demographics will sink Medicare in the next decade.

President Bush has already demonstrated a degree of commitment to the life sciences by fully funding the National Institutes of Health, a cause that draws bipartisan support. The reforms outlined above would maximize the return on those investments, stimulate our economy, and provide the basis for accelerating growth in the coming decades.

Joshua A. Adler is vice president of business development at iLife Systems Inc. (Dallas, TX).

Copyright ©2001 Medical Device & Diagnostic Industry