A challenging time

Reasearch has revealed that medtech companies are “cautiously optimistic” about healthcare reform law and are keeping close tabs on the debate to change the 510(k) process. However, a number of forces are conspiring to make this a challenging time for the sector in the US. Medtech companies need to be armed with strong messaging to deal with whatever lies ahead. 

Those of us focused on medical technologies were very happy to kiss 2009 goodbye, but were also concerned about how changes in Washington would impact us throughout the rest of 2010 and beyond. A number of new forces make the US an even more challenging environment for medtech at the moment, including “the big three”:

• The 2.3 percent excise tax on sales of most medical devices imposed under healthcare reform
• 510(k) reform, which is under consideration by the Food and Drug Adminstration after a number of high-profile safety problems have raised red flags
• The gift ban enacted in Massachusetts, a state that is a major hub for the industry and similar “Sunshine Reporting Provisions” included as part of the Federal healthcare reform

These factors, coupled with already lengthy regulatory cycles, manufacturing challenges and an expensive workforce, make new product filings, launches, and manufacturing more attractive overseas. It’s a challenging time for medtech in the US. We are waiting to see how the healthcare reform legislation impacts business and how we need to best communicate changes and challenges to key constituents. Perhaps the next batch of legislation and reform will grant reprieve from some of the above, which would be a pleasant surprise by anyone’s account.

The excise tax
According to MassDevice.com, medical device companies are taking a “cautiously optimistic” outlook to the landmark healthcare reform law, in spite of the challenges.  US Senators Scott Brown (R-Mass.) and Pat Roberts (R-Kansas) have filed an amendment to repeal the excise tax, according to the Boston Globe, but it’s very unlikely it will pass, as any change made to the Senate reconciliation bill would force the House to re-vote on reconciliation.

Since the tax won’t go into effect until 2013 and significant aspects of the bill start the next year – such as making it illegal to withhold insurance from anyone with a pre-existing medical condition, the formation of state-based health insurance exchanges, and penalties for employers that fail to provide affordable coverage – what’s most clear is the lack of clarity. The dust is still settling, and many medical technology companies are looking to advocacy groups such as the Advanced Medical Technology Association (AdvaMed) and MassMEDIC to help navigate this unprecedented landscape.

Influential companies like Medtronic are being careful, pointing out that the excise tax could cost jobs in the industry, but also making sure not to overstate the negative financial effect the tax could have on the company.

Depending on the industry, from imaging technologies to tanning bed companies, we can all expect some sort of fall out. Whether it is from investors worried that the tax will be the straw that breaks the industry’s back; customers hoping to fly safely without a net dealing with reimbursement and Medicare changes; or payors balancing on the tightrope between the potential added revenues from 32 million people soon to be insured and all the costs they’re expected to realize – there’s much to see.

For now, the device industry should explore every possible outcome that the reform law could fuel, and seek as many professional, expert opinions as possible. Collecting the facts and the interpretations are the first important steps toward the strategic planning that will be required to prepare markets and businesses for what’s to come.

510(k) reform
The FDA has opened the lines of communication to discuss possible changes for its 510(k) review process, which affects roughly 3,500 medical devices that receive this clearance each year.

Any changes to this system could have a profound impact on how medical technologies come to market and how corporate PR and marketing programs manage expectations and convey progress or delays to their customers, investors and consumers. For now, medical technology companies should keep close tabs on the debate to reform the 510(k) process so that they’re armed with information in advance of any changes that may come down in the future.

During the last 35 years, the 510(k) clearance process has been an attractive path to market because technologies cleared this way are based on comparisons to existing, predicate medical devices. To medical technology companies, many of which are smaller start-ups grappling with heavy R&D costs, it can be a faster path to market and yet it can still take years of review.

The FDA is weighing potential changes to the way it evaluates medical devices after a number of high-profile safety problems have raised some concerns. At a recent public hearing, the FDA heard testimony from all sides of the issue. Its focus on transparency and activism is commendable, and media coverage around the issue of potential FDA reform for medical technologies is expected to be ongoing for some time.

The FDA’s safety record is somewhat on trial since the Government Accountability Office last year identified 20 types of high-risk devices that may have warranted additional review. While the FDA proactively measures its next steps, the industry is anxious to see if we’ll see similar reform to that which the pharmaceutical industry experienced this past decade.

The Institute of Medicine, as requested by the FDA, has been at work pulling together a report expected in March 2011. That, combined with additional input in follow-up to the 510(k) public discussion, will perhaps lead to reform.

In the meantime, medical technology companies are walking the fine line in the dog-fight between potential public concerns and the regulatory agency that must balance cautious, careful review with the promise of new, game-changing medical advances. We’re all carefully monitoring the FDA’s progress towards reform and hoping that industry is included in future discussions on changes that could so profoundly impact future innovation.

The Massachusetts state gift Ban
There are roughly 225 medtech companies currently based in Massachusetts, employing about 50,000 in Massachusetts and contributing $7.2bn or 10 percent of all goods exported, making the state a leader in this industry.

Most medtech companies are small employers with relatively small revenues (~$30m), though the scales tip with in-state companies such as Boston Scientific, Philips, and Genzyme. Since the gift ban statute went in effect on July 1, 2009, smaller companies now have a chance to compete with industry giants. The coming year will be the first in which we can begin to determine whether the Gift Ban statute will have an overall detrimental effect on the state. Will we lose trade shows? Will we lose physicians at our high-quality teaching hospitals?

Regardless of a company’s size or stature, all Massachusetts-based medtech players should have collected relevant data for their July 1, 2010 disclosure reports, which will identify the payments they have made on behalf of furthering education around their technologies.

Similarly, the Federal Healthcare Reform Law includes “Sunshine Reporting Provisions” which apply to payments or gifts valued over $10 made to physicians. Reports are due in March 2013, so it will be interesting to see how lessons learned on the state level – and communications challenges, perhaps even scandals – will be reconciled on a more national scale later on.  At issue are once-common business relationships that will now face close scrutiny in their public perceptions.

With all these initiatives, medtech companies will need to be prepared with communications strategies focused on growth drivers as well as being armed with strong messaging against potential business problems should there be pitfalls that lay ahead. 

The Author
Liza Heapes, senior account supervisor, MS&L Boston