Beyond the Elections: The Device Industry in "Little-Unit"America

Medical Device & Diagnostic Industry Magazine
MDDI Article Index

Originally published October 1996

Ted Mannen
Executive Vice President, Health Industry Manufacturers Association, Washington, DC

Over the past two years, the device industry has made legislative reform of FDA its top public policy priority, and appropriately so. But this intense effort has masked broader trends that will shape the industry's policy environment, whatever the outcome of FDA reform and the November elections.

These trends grow out of changes in our economy and politics. And as they affect America as a whole, so do they influence the device industry's ability to innovate and improve patient care. As a result, the industry needs a focused strategy for keeping pace with the shifting sands of its environment.

"LITTLE-UNIT" POLITICS

Alvin and Heidi Toffler have popularized the notion that America has progressed from an agricultural economy to a manufacturing one to a "third-wave" economy that today is based increasingly on information. The periods between the waves produce wrenching transitions—farm to factory, factory to keyboard—that in turn produce strong political reactions. In 1896, the reaction focused on industrial power and its social consequences (to which adoption of the first food and drug laws can be traced). In 1996, the concerns center on free speech in cyberspace and the power of technology to stimulate too much productivity (contributing to downsizings not altogether different from those to which the Luddites so famously objected).

Today's economic transition is being played out against a new political backdrop—one made clear after the 1994 elections. Columnist and veteran political observer Michael Barone sees America shifting from a top-down orientation to one localized in the grass roots:

We are moving from what has been the exception in American political life back to what has been the rule ...a political regime significantly closer to that envisaged by the Founding Fathers than the political regime we have grown accustomed to in the 60 years following the New Deal of Franklin Roosevelt.

Barone believes these changes will be unaffected by election results and the political complexion of Congress and the White House. While not everyone will subscribe fully to Barone's thesis, it is difficult to deny signs of his "little-unit" America: government that rules with a lighter touch, greater reliance on markets and the individual, and more decentralization, devolution, and local action. Reinforcing these trends are third-wave information technologies. They exert a decentralizing, empowering effect that links and animates the little units, giving new vitality to E. M. Forster's dictum, "Only connect."

These broad trends apply especially to the device industry, where little unit is very nearly a literal descriptor. Despite the recent spate of consolidations, most device companies are still small, and they often organize politically into little units—as evidenced by the more than 20 regional device associations that have formed in the last five years (bringing to 48 the number of states where biomedical groups of some sort exist). Finally, device issues themselves—FDA reform notwithstanding—are driving toward this same little-unit level.

THE TRIUMPH OF MANAGED CARE

Only two years ago, our reimbursement lexicon was filled with such exotic health-care reform terms as the "national average per capita current coverage health expenditure." Concepts like these strained us not only phonetically but also politically, leading to repudiation of President Clinton's plan and of centralized, government- controlled health care.

This has left the field clear for the marketplace, through managed care, to triumph. And while managed care represents the kind of decentralized, pluralistic, market-driven system that innovators have long said they preferred, the new system is not an unqualified blessing. As the editor of MD&DI has aptly observed, "Industry concerns about FDA will gradually fade in recognition of the much more intractable problems posed by the restructuring of the health-care provider marketplace."

This is a marketplace, notes analyst Kenneth Abramowitz, in which "Washington is virtually irrelevant." The focus is instead on specific units at the local level, many of which are consolidating in order to compete. Medical Data International (Irvine, CA), in a May 1996 report titled All Healthcare Is Local, pointed out that "managed care's growth occurs through enrollment of specific populations in local health-care plans often affiliated with specific local employers [leading to] consolidation of specific independent health-care facilities."

In this marketplace, technology is not (as some in Washington would have it) an overarching policy construct; it is a collection of specific products that result in specific clinical and economic outcomes. Even national programs like Medicare (in which some 70,000 beneficiaries join managed-care plans each month) are increasingly being conducted in product-specific terms: payment levels for power wheelchairs; competitive bidding for clinical laboratory equipment; coverage changes for wound-care products. It is no surprise, then, that the in vitro diagnostics members of the Health Industry Manufacturers Association—as part of their response to the managed-care environment—are compiling a repository of studies on the outcomes of laboratory testing.

Finally, ambitious centralized technology assessment programs are devolving into the pluralistic, information-sharing regimes the device industry has long sought. The federal Agency for Health Care Policy and Research, for example, no longer writes clinical guidelines itself, but instead serves as a clearinghouse that links little-unit guideline developers around the country. Linkages like these are being powered by new information technologies that, as Paul Ellwood recently noted in MD&DI (June 1996), are rapidly turning U.S. health care into a "massive, continuous clinical trial" with many moving parts.

The future will perhaps bring a national backlash against managed care and the level of quality it offers patients. But today, the political jostling over quality characteristically occurs at the state level. As far as the eye can see, the reimbursement environment is fragmented, specific, and local. And even as managed care spurs consolidation, this consolidation gets its energy from the pluralistic, little-unit forces that are drawing decisions away from top-down policy-making in Washington.

A CHANGING LIABILITY ENVIRONMENT

Just as reimbursement policy has devolved from the broad, centralized approach of the Clinton health-care plan, so also is the liability environment changing from one that was increasingly based on a single, comprehensive principle to one driven by diverse, case-by-case specifics.

The principle grew out of a Federal Food, Drug, and Cosmetic Act provision that says that FDA's requirements preempt a state's requirements. In 1993, this provision was interpreted to allow preemption of a state's court-made product liability law. This meant, for example, that a company with a device in compliance with applicable FDA labeling requirements could not be held liable in a tort suit for failure to provide adequate warnings.

This so-called Collagen doctrine (Collagen Corp. pioneered the legal reasoning) was embraced by a growing number of courts. In less than four years, device companies used the doctrine to prevail over plaintiffs in more than 70 formal judicial decisions (more than twice the number of times the doctrine failed)—and to secure any number of favorable settlements. While the doctrine's protections generally expanded with the degree of FDA regulation, Collagen was potent not only against claims involving premarket approval (PMA) devices but also against those involving investigational and 510(k) devices (the latter most often Class III, but also Class II and, in one case, Class I).

In all, the Collagen doctrine was a unique and powerful legal tool—a bullet that, for many device companies, packed far more magic than the widely heralded but politically untenable liability reforms introduced in the 104th Congress. In fact, in 1994 one device company lawyer argued against such reforms, telling Congress that "tort reform has already arrived for medical device manufacturers" and that legislation could only weaken the Collagen doctrine.

Today, the scope of Collagen is in question, victim of the June decision in Medtronic, Inc. v. Lohr, in which the U.S. Supreme Court decided that federal preemption did not protect a Class III 510(k) device. A few days later, in a less-publicized case, the Supreme Court declined even to affirm a lower court's ruling that a PMA device was protected. Instead, the Court returned the case to the lower court for reconsideration in light of the reasoning in Lohr. Justice Stephen Breyer, who provided the crucial swing vote on key aspects of Lohr, wrote that FDA's rules "will sometimes" preempt a tort suit. Deciding when this is or is not the case, however, will require slogging through the specifics of individual disputes, a form of trench warfare that could be slow, arcane, and risky.

And so what had increasingly been a single, all-purpose answer to industry's liability concerns could well degenerate into little-unit litigation that yields many conflicting answers. As one legal expert explained: "There is lots here for lawyers and law professors to play with for years to come."

REGULATION: MONOLITH NO MORE

There will always be an FDA, and FDA will always regulate devices. But just as the agency's rules do not always exert a national, preemptive effect on state laws, neither do they always sweep uniformly across the device industry. In the future, FDA regulation will be less a monolithic, "big bang" Washington production and more a mosaic of many pieces, including the following.

Specific Products. The device law's architecture—three product classes, three levels of risk—has always been based on differences among specific technologies. Today, these differences are being sketched in sharper relief as implementation of the existing device law matures (a process largely unaffected by legislative reforms). For example, as the law requires, FDA has mandated submission of safety and effectiveness information on more than 100 types of preamendment Class III devices and their substantially equivalent successors—a step likely to trigger waves of reclassification petitions, each built around the risk characteristics of a specific type of device. As they unfold, activities like these will underscore the fact that regulation always has its truest meaning in relation to individual products.

Regional Flavor. When FDA commissioner David Kessler made good on his vow to "take enforcement up a notch," he sharpened industry focus on the agency's regional and district operations. One factor that has contributed to the rise of regional device associations has been the need for a local forum where companies, as a group, could engage FDA field officials—an approach that has blossomed into pilot programs aimed at longer-term improvements in the industry-agency relationship.

No passing fad, FDA field activities will grow even more important in the future. FDA's exemption from the 510(k) requirements of some 280 categories of lower-risk devices in the last two years means that factory inspections are now the principal locus of agency regulation for one-third of all classified devices. And even for many devices requiring 510(k) premarket clearance, FDA, through its third-party pilot program, has delegated key review responsibilities to private contractors. In working with these contractors, device companies will be looking, at least in the earlier phases of the review process, not to Washington, DC, but to where the contractors are located: California, Colorado, Pennsylvania, Illinois, Maryland, Minnesota, and the United Kingdom.

Global Information. Much of FDA regulation is premised on the belief that information can be held in place while experts study it. But today information travels rapidly around the world, passing through the hands of experts and laymen alike. So just as FDA stalks the Internet to pursue improper product claims, so do patients use this same medium to locate one another.

Cyberspace is a medium that encourages a single-minded focus on single topics. As a result, one finds on the Internet today a wide range of medical news groups—electronic gatherings where the world's patients and their families can share information about treating AIDS, prostate cancer, heart disease, arthritis, juvenile diabetes, and dozens of other conditions. This same power to narrowcast threatens to replace the traditional peer-review process with a system that is, as one clinical expert notes, "much faster, more open, and more democratic." For the Internet can elicit not just a handful, but hundreds of comments to identify faulty research—a capability that at least one journal, the Medical Journal of Australia, has already put to use. In the end, centralized FDA power will necessarily erode as aging-but-empowered baby boomers learn they need only click their mouse buttons to deliver feedback to decision makers and the media.

FDA, with its roots in second-wave industrialization, will no doubt survive the third-wave information economy. But there is nothing inevitable about the form the agency's work will take.

NEW CENTURY, NEW STRATEGY

The years between World War II and the World Wide Web formed an era of relatively clear choices, a time characterized by two superpowers dueling over two distinct and mutually exclusive political visions. But the Cold War's end has left a hazier landscape—one in which a variety of interests are conducting tactical skirmishes over issues cast less in black and white than in shades of gray.

This is the sort of landscape where the device industry must find its footing as it straddles the 20th and 21st centuries. The issues of the future will less often be cosmic, all-or-nothing imperatives like FDA reform. They will instead be more specific, discrete, and scattered—for instance, the decisions of managed-care plans regarding clinical pathways for individual procedures, court rulings about how federal preemption interacts with new good manufacturing practices requirements, or FDA findings on what medical device reporting (MDR) baseline data mean for specific types of devices.

At the same time, state capitals will emerge as prime venues for important issues. The states are already addressing such issues as device licensure fees (made more likely by a recent federal court ruling) and the assessment of experimental care and related technologies (witness the incipient program in Washington state). And product liability represents a particularly promising state opportunity. Ohio and Michigan recently enacted Collagen-like protections against punitive damages, and other states may be ready to follow suit.

None of this is to say that major national issues will go away or that Washington, DC, will become irrelevant. It is simply to say that a directional shift is taking place, and that industry should shift its strategy accordingly.

The future will reward us more for focused maneuvers than for broad and sweeping movements, for little-unit linkages instead of mountaintop pronouncements, for self-help tools rather than prefab solutions. Advocacy will increasingly become a test of speed—of moving fast enough to get those at the grass-roots level the information they need to be effective. And with many things to do and many forums to cover, industry will be tempted to be of many minds. The trick will be to maintain focus as our portfolio grows more diverse, episodic, and contradictory.

One of the larger contradictions is posed by international issues. While regulatory harmonization remains an important long-term goal, the most pressing issues today relate to reimbursement, and they are being framed in ways distinctly inharmonious to the pluralistic, market-driven reality in the United States. Accustomed to central direction of their health systems, other nations are considering—or have already implemented—big-unit programs, including certificates of need (China), diagnosis-related groupings (Germany and South Korea), centralized technology assessment (France, Japan, and Taiwan), centrally administered price controls (Japan and Taiwan), and limits on clinical trial reimbursement (Germany and Japan). In response, industry must export its knowledge on these issues to new hot spots around the globe. And more broadly, as industry struggles to focus on an increasingly diverse issue mix in the United States, it must cope with a larger dissonance between the United States and other nations.

To be sure, next month's U.S. elections will directly affect the policy environment of the device industry. This, in turn, will carry ramifications for industry's policy positioning, relationship building, and day-to-day advocacy.

These are all important matters, but they should not deflect us from formulating a focused strategy for dealing with the deeper, more lasting currents running through our industry and our country.

Copyright© 1996 Medical Device & Diagnostic Industry

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