01.24.08
Device Issues to Keep Congress Busy in 2008: A Preview of What’s Ahead
By Thomas C. Novelli
The talk in Washington may seem to be all about the upcoming presidential election, but Congress will have its hands full with healthcare issues as well in 2008. In fact, it is likely to consider a broad range of issues that it chose to defer in 2007. Some of the priorities for Congress this year may include patent reform, greater scrutiny of physician/vendor relationships and perhaps a technical corrections package for the Food and Drug Administration Amendments Act (FDAAA). The Hill also is likely to explore the FDA’s inspection of foreign manufacturers and engage in additional oversight activity.
Indeed, many medical device issues face Congress. Following are some of the top issues for 2008 and how they may impact the medical device industry in the coming year.
Patent Reform
The Patent Reform Act (PRA) of 2007 proved to be of critical interest to innovators not only in the medical device arena, but also throughout other innovative industries. In 2007, it became widely speculated that the PRA would garner substantial support throughout the legislative session. However, after much public scrutiny of various provisions by a variety of industries, it has become apparent that the PRA will need to be improved before it can generate broad-based support.
The Senate is likely to debate the measure in early 2008. The industry will continue to advocate that any revisions of the current patent law take into consideration the importance of a strong intellectual property system to promote medical technology innovation Among other modifications, the device industry will seek changes relating to the apportionment of damages, post-grant review opposition, rulemaking authority of the US Patent and Trade Office (PTO) and inequitable conduct reform.
For apportionment of damages in patent litigation, the current bill looks at all the existing pieces of “prior art” (everything publicly known about an invention previously) and subtracts those from the total product value for calculating damages. Thus, even if the patented invention truly is the reason for the sale of an entire product—but from a cost perspective is virtually costless to add to the product—the patentee would obtain virtually no royalty. The industry believes that any effort to extract “prior art” from the damages calculations is the wrong approach.
The second window in the post-grant opposition proceeding also is an issue of concern in the device industry. The second window would allow parties to challenge patents indefinitely through an administrative process at the PTO with a lower burden of proof required and the elimination of the patent holder’s presumption of validity. This additional opportunity will create uncertainty—and prohibitive costs for start-up companies—and provide an effective vehicle for larger companies to cause smaller companies to spend resources that are best used developing innovative technology.
The enhanced rulemaking authority in the PRA would permit the PTO to modify regulations that would directly impact the property rights of patent holders. For example, the PTO has attempted to issue rules limiting claims and continuation. If enacted, these limits would significantly reduce the ability of smaller life sciences companies to obtain full patent coverage for their inventions. Fortunately, last fall, the courts intervened and prevented the rules from taking effect. However, despite this favorable ruling, it still will be an issue that will be in the mix of the debate.
An area of critical concern to the life sciences industry is the use of the inequitable conduct in patent-related litigation. The inequitable conduct defense allows a patent to be invalidated if the patent holder omitted relevant information in its filing. Inequitable conduct has become an overused and too easily applied defense, with a draconian remedy. Many in the industry believe that the inequitable defense should be discontinued entirely, replaced with a provision that naturally encourages disclosure.
Implementation of the FDAAA of 2007
In 2007, Congress reauthorized the Medical Device User Fee and Modernization Act through passage of the FDAAA of 2007. Among other things, the bill provided significant reductions in medical device application fees and improved the quantitative and qualitative goals.
In 2008, the industry will work with the FDA to implement many of the provisions of the FDAAA, including the interactive review process, the clinical trials registry and results database as well as a unique device identification system.
The FDA has required the development of an interactive review guidance document to encourage informal communication between the agency and sponsors to facilitate timely completion of the review process based on accurate and complete information. A document was released by the agency on Dec. 28, and the industry currently is reviewing it. The industry strongly believes that a properly structured interactive review process will produce significant benefits for patients, the agency and companies.
In addition, under the law, companies will be required to register and publish results from their clinical trials. The industry will work with the National Institutes of Health and the FDA to develop procedures to comply with the new requirements in the most effective and efficient manner.
Pursuant to the FDAAA, the agency is authorized to promulgate regulations that establish a unique medical device identification system. The industry will work with the FDA throughout the rulemaking process to ensure the program is implemented in a manner that is reasonable and not overly burdensome to the industry—especially smaller companies.
Reimbursement
Reimbursement for medical devices is a continuous process and hurdle for many companies in the industry. While it is expected that there will be no significant legislative change in the structure of how devices are paid for under federal health programs, the continuous modification of payment rules by the Centers for Medicare and Medicaid Services (CMS) remains of interest to device companies.
Some of the continuing issues of interest to the device industry include payment under the inpatient and outpatient prospective payment systems, charge compression and the coding process. One of the top concerns going into 2008, however, is the direction in which the CMS seems to be moving with regard to the coverage process. Many companies are interested in ensuring that the agency does not inappropriately overextend its use of coverage with evidence development or create barriers that deter Medicare beneficiaries from accessing new treatments being studied in clinical trials or that are commercially available. The industry is continuing to advocate that the CMS takes into consideration the potential unintended consequences that may occur with the push to require greater evidence in these decisions.
An additional area of interest is the coding process for new medical technologies. Small, innovative medical device companies often encounter significant difficulty in interacting with medical specialty societies when attempting to acquire appropriate procedure codes. In 2008, the industry will work to ensure that this process presents small companies fair and equal treatment when applying for codes.
Market Access
Access to critical markets in the device industry is another issue that will remain a challenge for small companies in 2008. Medical technology entrepreneurs are faced with a healthcare purchasing marketplace that is dominated by a handful of group purchasing organizations (GPOs) that receive billions in fees from the companies whose products they are charged with evaluating. While group buying can be pro-competitive and efficient, the way that certain GPOs currently conduct group buying in the healthcare marketplace limits competition and innovation, and it does not always provide savings to the healthcare system.
In any free market, unfettered competition provides the best incentive for continued innovation and keeps product prices low. However, by entering into long-term, bundled or exclusive contracts with a handful of the largest medical technology manufacturers in exchange for millions in fees, GPOs are limiting competition and removing the incentive to innovate. As a result, patients are deprived of the latest advances in medical care when entrepreneurs are denied open and fair access to the healthcare marketplace.
Several developments transpired in 2007 that further suggested the impropriety expounded by GPOs. In the fall, the New York Times reported that a “qui-tam” action filed by a former GPO employee was unsealed, revealing serious allegations of inappropriate conduct and defrauding of federal health programs, including Medicare, by the GPO.
In 2008, the industry will continue to work with Congress to ensure that all companies have the ability to gain access to the hospital marketplace and that the GPOs’ perverse funding mechanism is reformed.
* * *
Although the country will be electing a new president this year, Congress will remain active in a variety of areas impacting the device industry. Moving forward, it is critical that you and your company engage in local or national trade associations to ensure that your voice and perspective are represented. Our industry improves lives, creates jobs and is a key driver of the US economy. Let’s make sure Washington is reminded of that in 2008.