Uncle Sam Hearts Drugs, Not Devices. Why?

1/31/11Follow @xconomy

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declining for 15 years, “and it certainly doesn’t show any signs of turning upward,” Dr. Francis Collins, director of the National institutes of Health, told the New York Times.

By contrast, there seems to be plenty of medical devices on the market, maybe a few too many. Though medical devices make a relatively small proportion of overall healthcare spending, some politicians are proposing to save Medicare dollars by cutting reimbursement for some technologies.

Last month, Rep. Darrell Issa, the California Republican who is the new chairman of the House Oversight and Government Committee, told the Wall Street Journal he would specifically target the orthopedics industry.

Issa, according to the newspaper, said his own doctor told him surgeons have an incentive under Medicare to implant many joint and bone screws to support patients’ spines, when fewer implants—or none at all—might be equally effective and safer.

“They have got to come up with a system that doesn’t reward people for putting more metal in somebody’s spine,” Issa told the Journal.

The medical device industry often boasts of innovation but in reality, most of the devices approved under the 510(k) represent only incremental improvements to existing technologies.

Medical device companies face an odd quandary, says Scott Merz, president of MC3, a medical device incubator based in Ann Arbor, MI.

On the one hand, companies seek 510(k) approval by convincing the FDA that similar devices already exist on the market. On the other hand, they try to win funding by convincing investors that their technologies are truly groundbreaking and address an unmet medical need, Merz says.

YOU SNOOZE, YOU LOSE—Big Pharma was one of the first industries to strike a deal with the Obama Administration over healthcare reform. The medical device industry didn’t, and it paid the price. The medical device industry initially got whacked with a $40 billion excise tax over 10 years, though Congress later cut that amount by half.

Last week, Rep. Erik Paulson, a Minnesota Republican, proposed a bill that would repeal the tax entirely. It’s unclear whether it has a real shot of becoming law.

The medical device industry was also slow to mobilize against changes to the 510(k) program, though its work is starting to show progress. Last month, a bipartisan group of 15 U.S. Senators urged FDA Commissioner Margaret Hamburg to adopt a more deliberate, cautious approach to amending 510(k) versus the radical wholesale restructuring that medical device firms fear.

The FDA recently released a series of changes that did not include the most controversial provisions the industry opposes such as granting the agency the power to strip 510(k) clearances.

However, the agency said it would revisit those ideas once the Institutes of Medicine issues its recommendations in the spring.

The uncertainty is already taking its toll on medical device companies. Venture funding for medical device startups totaled $2.3 billion last year, a drop of 9 percent from 2009, according to the MoneyTree report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

If the FDA tightens the 510(k) process, startups will find it even harder to raise more money, Merz of MC3 says.


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