FDA's New Financial Disclosure Rule: An Unnecessary New Burden

August 1, 1998

7 Min Read
FDA's New Financial Disclosure Rule: An Unnecessary New Burden

Medical Device & Diagnostic Industry Magazine
MDDI Article Index

An MD&DI August 1998 Column

A partner at Hyman, Phelps & McNamara, a firm specializing in FDA law, discusses how the agency went too far in requiring financial disclosure forms in device marketing applications.

Starting on February 2, 1999, it will be mandatory for device marketing applications that contain clinical data to include either of two new forms: one specifying the financial interests of the investigators or one certifying the absence of disclosable financial interests. A formal disclosure form will be required for all applications regardless of when the research was conducted. An application will not be approved without one of the forms.

This new FDA requirement stems from the understandable premise that financial interests can potentially bias results. Nevertheless, FDA's rule stretches its regulatory powers further than needed, is likely to impose greater costs than acknowledged by the agency, and adds unnecessary regulatory uncertainty into the device approval process.

A company must submit form 3455 to disclose financial interests if:

  • An investigator's compensation would be greater for a favorable outcome of the study than for an unfavorable outcome.

  • There are payments from the sponsor to the investigators or research institutions of more than $25,000, excluding reimbursement for the costs of the study. Retainers, consulting agreements, and equipment all count against the $25,000 cap.

  • An investigator holds a proprietary interest in the device, such as a patent.

  • Any investigator owns more than $50,000 of a sponsor's publicly traded stock or has any stock ownership in a nonpublic company.

If a disclosure statement is unnecessary, the sponsor must file certification form 3454, signed by the chief financial officer or other senior official. Given the potential for a criminal investigation—or worse—if there are any inaccuracies, the signer should carefully verify the information. If a clinical investigator refuses to provide information regarding disclosable interests, the sponsor must certify that it made a diligent effort to obtain it.


Disclosure of potential conflicts is common in many arenas, such as peer-reviewed journal articles. However, there are many reasons to be concerned by FDA's rule.

New regulations should be promulgated only if there is demonstrable need, which the agency did not prove in this instance. The final version referred to "potentially problematic payment schemes." There is a difference between potential problems and actual problems.

Companies should be troubled by FDA's unprecedented intrusion into financial matters. The Federal Food, Drug, and Cosmetic Act lists only a few areas—one being financial matters—in which FDA probing is barred during a company inspection. The new financial disclosure rule allows FDA to obtain these data in the marketing application as a precondition to approval. FDA has also reserved the right to inspect and copy financial records when implementing this rule.

In the preamble to the final rule, FDA stated that "certain types of financial information requested under the rule, notably equity interests, should be surrounded by a reasonable expectation of privacy." However, FDA stated that it could, at its discretion, decide to publicly disclose financial information. Privacy should not be such a trivial issue. As CDRH head Bruce Burlington pointed out at an FDA science board meeting two years ago, "Can I suggest that relevant to the question of burden, we're sort of leaving out the burden of forgoing the traditional American value of privacy? That privacy is a legitimate independent value."

Moreover, FDA's general policy of not releasing financial information may be worth little if a Freedom of Information (FOI) Act request is submitted. An FDA rule authorizes companies to presubmit documents to learn if they will be protected from FOI disclosure. However, one company received such assurances from FDA that its silicone-related documents would be protected, but a federal court overturned the decision. There have been a number of other cases in which industry did not receive the protection it expected.


FDA's broad disclosure requirements are bound to make compliance more complicated and costly than the agency's projections. These requirements apply not only to the investigators but to their spouses and minor children. (The rule ignores the myriad family arrangements that can arise, e.g., a separated couple.) Furthermore, the term investigator includes all listed or identified subinvestigators who treated or evaluated subjects. Thus, in multicenter trials, there could be numerous individuals about whom company sponsors must gather information.

The complexity of this task is increased because a disclosure is apparently needed if the investigator or family member owned more than $50,000 of the sponsor's stock at any time during the investigation or for one year following, even if the stock's value was below the threshold for the majority of that period.

Companies will need to track money and equipment given to, and agreements made with, the investigators' institutions during the study and poststudy year. Given the stakes of inaccurate certification, companies will need to develop mechanisms to ensure that there are no disclosable financial interests, as well as procedures to track grants to institutions. Financial support exceeding $25,000, exclusive of actual costs, triggers a disclosure.

FDA's rule may force companies to choose between direct research grants, which have high institutional overhead fees but no disclosure, and unrestricted grants, which are more cost-effective but may result in disclosure. Thus, the form of the agreement with an investigator takes on regulatory significance.

FDA clearly underestimated the costs of gathering, assembling, and compiling all this financial information. FDA's estimates ignore costs incurred from creating new procedures. Moreover, the agency asserts that completing form 3454 (lack of disclosable interests) will take a total of one hour—48 minutes for clerical work and 12 minutes of managerial time. However, a CFO who signs an inaccurate form 3454 after 12 minutes of managerial checking is likely to be accused by FDA of inadequate due diligence. Despite what FDA says in the preamble to this rule, companies will need to take more time to ensure accuracy.


FDA estimated that there would be few disclosures filed by device companies. Whether this is accurate remains to be seen. If, in the agency's judgment, the financial interests revealed by a form "raise a serious question about the integrity of the data, FDA will take any action it deems necessary." The agency also has reserved the right to audit the data, request further analyses or additional studies for confirmation, and refuse to use an investigator's data.

FDA was asked to develop criteria by which it would evaluate disclosures, but the agency declined to do so. It did say that its assessment would be affected by how well-controlled the study was, meaning that an investigator's financial interests would be less of a factor for multi-center, randomized, blinded, controlled trials. Unfortunately, while many drug and biologic studies meet this ideal model, most device studies don't.

What FDA will do with this new information remains unanswered. At the board meeting, Burlington noted, "If we don't know how we're going to use the results of the financial disclosure, it becomes extremely problematic to have a system that results in everybody reporting something." FDA reviewers are accustomed to evaluating safety and effectiveness data. But how does a reviewer evaluate the significance of a $30,000 grant to an institution or a subinvestigator's spouse owning $52,000 worth of stock? How does FDA weigh this information against the protocol design and the amount of data reproducibility?

The assessment of information by FDA reviewers will be highly subjective. Device companies conducting studies that do not fit the classic model of a well-controlled study and that may have one or more investigators with disclosable interests need to begin considering the ramifications of their disclosure. FDA reviewers may examine data generated by investigator-inventors through a new, much more distrustful prism.

The financial disclosure rule is an unnecessary new regulatory burden that, with inadequate justification, increases the uncertainty of the approval process. Nevertheless, the rule is in place, so device companies need to develop procedures to implement it and assess its impact on ongoing or completed studies. Finally, they need to consider the rule as they select new investigators and enter into financial arrangements with physicians and institutions. The consulting agreement that is signed today may have unexpected regulatory consequences.

Jeffrey N. Gibbs is a partner at Hyman, Phelps & McNamara (Washington, DC).

Photo courtesy of Art Stein

Copyright ©1998 Medical Device & Diagnostic Industry

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