2004S-0233 - Solicitation of Comments on Stimulating Innovation in Medical Technologies
FDA Comment Number : EC6
Submitter : Mr. Philip Needham Date & Time: 09/14/2004 06:09:28
Organization : Cardionetics Ltd
International Industry
Category :
Issue Areas/Comments
Is there a fundamental weakness in the market that the HHS can never resolve?
The submitter thanks the HHS for this opportunity to express his personal views, which are not those of Cardionetics Ltd or any of its officers.
The submitter also acknowledges title in information referred to in the following publications:
?The Wealth of Nations? Adam Smith
?Time Well Spent? 1997 Annual Report of the Federal Reserve Bank of Dallas
The medical device market has a number of distortions that act to make it an inefficient market. By contrast, the benefits of an efficient market were first identified in Adam Smith?s seminal work on markets (published in 1776!) and substantiated extensively in the Federal Reserve Bank Annual Report, 1997.
The HHS asks what it can do to facilitate the development of innovative medical technologies, but I would draw the reader?s attention to the words of Adam Smith:
?A government that tries to manage the industry of a Nation must always be exposed to innumerable delusions, for it will never have enough knowledge or wisdom to do the job successfully?
However, Smith recognised that certain activities could only be provided by government, such as the rule of law and defense of the nation.
Healthcare falls somewhere between the two: free market economy within a regulated framework. Various governments recognise the problems but are unable to see a clear and lasting solution. The UK government has set up the Healthcare Industries Technology Forum (HITF) with government, healthcare and industry as partners, to address exactly this issue, and will announce the outcome later this year. Only time will tell if it has been successful. As a member of one of the HITF working groups I can see the size of the challenge.
One problem is that most innovations seem to come from smaller companies, but there is a noticeable lack of demand from users, which needs explaining.
There are a number of distortions in the medical market that operate against the introduction of innovations and as a consequence there is a long- term ongoing decline leading towards stagnation.
For industry, there is a risk/reward decision to be made when considering new developments, and activities that increase the cost of development but do not reduce the risk of commercial success are bad.

1. What strategies and approaches could HHS implement to accelerate the development and application of new medical technologies?
(The sections described here are in response to the "problem areas" described in answer to Question 6 below, which should be read first.)
Regulatory Environment:
Replacing cGMP requirements with something less onerous is risky. However, putting in place a central group on the DoD model to drive
innovation is unlikely to work either. The FDA remit could be moved closer to the EU model: new products must be safe to use, but efficacy and fitness for use is not regulated; instead, the market will decide whether devices are useful. Also, see the comment in "Risk-averse Attitude" below.
FDA costs of submission
To encourage innovation, the FDA should pay companies to make submissions, not the other way round (just kidding).
Published papers show that the difference between a fixed ?tax? and an ad valoram cost is that fixed taxes drive down quality, whereas an ad valoram cost encourages higher values. Change the fee structure and gear it to the market value, i.e. low price, low volume means a low fee, high price, high volume means a higher fee. Also, make the fee payment conditional on success; say when a certain level of devices has been supplied.
Reimbursement Structure
A mechanism is required for ?preliminary? reimbursement codes to be issued to companies at the start of an R&D Project. The level of reimbursement needs to be based on a ?business plan? approach, showing expected benefits. A number of issues need considering, such as confidentiality, there should be a cap or limit on the amount of reimbursement, such as number shipped (elapsed time is not a good measure, as innovations never get developed on time), with a review to a full code if and when success has been shown. Measures of success should include both clinical benefit or cost benefit, or both.
Risk-averse Attitudes
Getting the medical profession to take on innovations needs them to be incentivised in the early stages. The reimbursement structure outlined above could include the ?user trials? phase, so that users? costs get partially/wholly met. Following this, peer review methods would help get the message across, and successsful innovations might then be adopted more swiftly. This process would also allow design improvements to be incorporated as a result of user feedback during the ?user trials? phase.
The new harmonised cGMP is based on ISO13485 and it requires that a medical device is ?right first time? and that there is no iterative improvement. This is unrealistic; we never have total knowledge at the start. If the trial and evaluation process were supported by limited ?preliminary? reimbursement, then there would be an opportunity for improvements to be incorporated, which is likely to improve the success rate of FDA submissions.

6. Which HHS policies and programs effectively spur innovation?
(These problem areas are addressed in the answer to Question 1 above)
Quality Systems
These increase the cost of development, but do not help guarantee success.
No one would argue against patient safety, and Quality Systems have now become an essential requirement. However these systems, historically based on DoD requirements, are inappropriate: where the customer is the DoD, (a Monopsony) it places development contracts and accepts that prices will reflect the cost of a Quality system, but in the Healthcare market, a similar new product development commissioning structure doesn?t exist. It is also a regressive cost, being a bigger burden proportionally on smaller companies.
FDA Costs of submission:
These increase the cost of development, but do not help guarantee success.
This new cost to industry will inevitably act as a barrier to new concepts. It will discourage any submissions that might be considered commercially risky, even if clinically sound. Also, the ?small business discount? will not help small businesses in any appreciable way. Again, this cost is regressive, affecting smaller companies disporportionally.
Reimbursement structure:
This operates against the adoption of innovation.
Users resist adopting innovations that could result in higher efficiency, as these are likely to result in lower reimbursement rates. The benefit of the innovation will be captured by the payor, not the user, so this acts as a significant disincentive to adoption.
Also, unless a new product has an established reimbursement structure, it will not be used, and for businesses, there is an added risk that a code might not be allocated in a reasonable timeframe, if at all.
Risk-averse Attitude
This operates against the adoption of innovation.
There is some kind of ?inertia? developing against the use of new technology, with users having more confidence in existing products ? tried and tested ? and a reluctance to try anything new. Newer technology has risks associated with it; purchasing from smaller suppliers can be considered as a risky decision.

3. How can the HHS scientific and regulatory agencies work more effectively with CMS to eliminate obstacles to development?
No comment.
4. What forums should HHS use to survey constituents about obstacles in innovation (e.g., public meetings, contract research, focus groups)?
No comment.
5. How can the portability of informaion between HHS agencies be optimized?
No comment.
2. How can HHS help its agencies (e.g., NIH (and its grantees), FDA, CDC, and CMS) to work together more effectively to eliminate obstacles to development of medical technologies?
See answers to Question 1 above.