Mysteries of Mixing

In the wee hours of the morning on May 19, 2002, officials from the U.S. Food and Drug Administration and a handful of representatives from the Advanced

In the wee hours of the morning on May 19, 2002, officials from theU.S. Food and Drug Administration and a handful of representatives fromthe Advanced Medical Technology Association hammered out a deal thatsome say could change forever the face of innovation in the medicaldevices industry.

The document they created, entitled the Medical TechnologyEnhancement Act of 2002, would attach fees to approval applications fornew medical devices, essentially requiring manufacturers to pay forfaster FDA reviews.

Hailing the agreement as a major victory for product innovation,Jeff Ezell, director of media relations at Washington-based AdvaMed,says the agreement could attract venture capitalists to the industrylike never before. “When investors are confident that they have apredictable path to market, they're more apt to invest in medicaltechnologies,” he explains. “[These fees] will help ensurethat the latest technology is in the hands of patients anddoctors.”

This is good news for home medical equipment providers, Ezellcontinues, because the influx of new products will stimulate businessand will stiffen manufacturers' competition for providers' dollars.

But some small-business representatives say it is not time to startcelebrating yet.

Forcing the Small Fish Out of the Pond? The new fee structure couldbe cause for alarm, according to Mark Leahey, director of federalaffairs at the Medical Device Manufacturers Association in Washington,whose members include many small manufacturers. “These fees aregoing to force the small guy — the guy who's really innovating— out of the field,” he says.

The FDA clearly did not study the data on who submits applicationsfor much of the breakthrough medical-device technology in the UnitedStates, Leahey says, because the data clearly shows that smallmanufacturers are the key to innovation. “Big companies buy smallcompanies for innovation,” he explains.

And while the fees may not hinder small companies with venturecapital backing, the fees most certainly will discourage many startupinventors. “A company that is venture-backed is different than adoctor and an engineer getting together,” Leahey says. “Afee of $125,000 [like the one proposed for breakthrough technologies]would force the doctor and the engineer to take out a second mortgageon their houses.”

For HME providers, this could create a dull product landscape incoming years, Leahey continues. “Five or 10 years down the road,if there is such a high barrier to entry, you're forcing the small fishout of the pond. Innovation will be stagnant.” To 510(k) or PMA?But perhaps forcing some of the small fish out of the pond is one ofthe FDA's goals, says Ron Richard, vice president of marketing forPoway, Calif.-based ResMed. Breakthrough products that need“pre-market approval” applications, or PMAs, require a lotof work on both the applicant's and the FDA's part, he explains.Because they are unlike any preceding device, PMA products requireextensive clinical data to support their effectiveness. For thisreason, perhaps the FDA wants to charge a fee that ensures applicantsare serious, Richard suggests. “Maybe the FDA is trying to askthe questions, ‘Why are you wanting to go after a PMA?’ and‘Is there instead a predicate device out there that does the samething?’” In most cases, PMAs are risky and not necessary,he continues. “PMAs are really something that — at least inthe respiratory field — most people avoid, because of the amountof time and money required, and the fact that the potential for[receiving approval] is low.” Ninety percent of the time,manufacturers file 510(k) applications, which require little originalresearch on the FDA's part, Richard says. These applications seekapproval for minor modifications to an existing product or for a newproduct that is similar to other products already on the market. UnderMTEA's fee schedule, 510(k) applications would cost only $2,500, a feethat the FDA contends is negligible. “We tried to create a feestructure that, for 510(k) products especially, had a really lowfee,” an FDA spokesman told HomeCare. “We didn't think thatfee would create any kind of barrier to innovation.” But BobMogue, executive vice president of sales and marketing for Lenexa,Kan.-based CareFore Medical, wonders why any fee for 510(k)applications is necessary. As part of a small manufacturing anddistributing company, Mogue has been pleased with the FDA's510(k)-approval record. “In the past five or six years, the FDAhas done a pretty decent job of speeding up 510(k)s,” he says.“All in all, I think the current [510(k)] system is workingpretty well.” Bait and Switch? As the FDA tells the story, themanufacturers came to the government asking for a fee agreement.“Successes under [the Prescription Drug User Fee Act, which 10years ago established similar fees for pharmaceutical manufacturers]fueled an interest in pursuing this for medical devices,” says anFDA spokesman. “I think for people going in, there was a beliefthat something had to be done to get the FDA the resources itneeded,” AdvaMed's Ezell agrees. “Review time has to beimproved. For PMAs, the statutory deadline set by Congress is 180 days,but the actual review time that the [FDA's] device center is meeting is411 days.” By allowing the FDA to hire additional review staffand to consult with outside experts when reviewing breakthroughtechnologies, MTEA would speed up review times significantly, the FDAsays. In exchange for $150 million in fees — which manufacturerswould pay during the next five years under MTEA — the FDA ispromising to reduce review times by 25 to 50 percent. And faster reviewtimes are just the beginning, according to the FDA. “We wouldanticipate that there would be other enhancements built into thesystem,” the spokesman said. “For example, there would beadditional interaction with manufacturers — more meetings andmore guidance. As a result of that interaction, we expect thatmanufacturers will be able to submit better applications.” ButMDMA's Leahey urges stakeholders to read the small print. He says theFDA's performance goals hinge on congressional appropriations. IfCongress does not hold up its end of the bargain by appropriating atotal budget of at least $205.7 million for the FDA during each of theagreement's five years, then the FDA does not have to meet its end ofthe bargain. “The current proposal guarantees user fees withoutguaranteeing performance goals,” Leahey says. “A first-yearlaw student can tell you that's a bad idea.” A Safety Net for theSmall Fish? Quick to point out that 11 of AdvaMed's 13 executivecommittee members are officers at billion-dollar companies, MDMA'sLeahey says the negotiators who stayed up late on May 19 to craft a feeagreement did not invite small-business representatives to the table.“AdvaMed agreed to [MTEA] before they spoke to their[small-business] members about it,” he says. “Now they'reworking backward trying to explain why it's a good deal.” ButAdvaMed's Ezell insists the original negotiators did includesmall-business representatives, and that the deal is good for everyone.“We think it's a strong package as-is,” he says.“There is a provision in the agreement that says small companieswith revenue under $5 million can file for a fee deferral until oneyear after their product is approved. So they have one year to startgaining revenue before they have to pay that fee. If, at the end of theyear, the fee is still burdensome, they can file for another deferralor to waive the fee altogether.” However, while MTEA virtuallyguarantees a one-year deferral for small businesses, it leavessubsequent deferrals or waivers to the discretion of the Secretary ofthe Health and Human Services Department. “One year after thedate of approval, denial or withdrawal of a pre-marketapplication,” the document says, “a small business thatreceived a fee deferral shall pay the fee required under subsection(a), unless the Secretary grants a waiver of some or all of the fee oran extension of the deferral for a specified time period.”Despite MTEA's protections, Miriam Lieber, president of LieberConsulting in Sherman Oaks, Calif., says the fees could create apsychological barrier for small manufacturers. “If I'm a smallinventor, what kind of chance can I take if I have little or nobacking?” Lieber asks. “These inventors are people who hada bad [health care] experience and who came up with a solution to makeit better.” And breakthrough products from small inventors oftenare extremely lucrative for HME providers, Lieber notes. “To the[HME] provider, I think this could mean two things,” she says.“It could make the bigger guys bigger or it could precludeproviders from finding a windfall from smaller guys.” ComparingFDA's user fees to the issue of competitive bidding, Lieber concludes,“I would rather see everyone be able to play. Like withcompetitive bidding, it's really about affordability.” DebraHarrington, president of Lexington, S.C.-based Harrington Consultingand a former reviewer at the Statistical Analysis Durable MedicalEquipment Regional Carrier, agrees that even with the deferral,proposed fees could discourage innovative small companies from enteringthe market. “I have a lot of clients that are small companieswith new products that need to go through the FDA and the codingprocess, and most of these companies never could afford that [$125,000]fee,” she says. “Not every product in the medical deviceindustry is an expensive electronic device. Some of these[breakthrough] devices retail for $35. For example, look at the heelboots that came out recently. They don't cost much, but there is not apredicate device. That's a lot of money, and it would take a great dealof time to pay back.” Necessity, the Mother of …Compromise? Despite his many objections to the current user-feeagreement, MDMA's Leahey admits that the FDA needs help. “We haveto be pragmatic,” he says. “We realize the economicsituation of the government, and we don't want review times to worsen.But at the same time, we do not believe in a one-size-fits-all fee. Weadvocate a base user fee with a small-company deduction, relative tosize.” Eager to bring everyone on board, the FDA is listeningintently to suggestions from MDMA and others about ways to improve theuser-fee agreement. “We have been talking to other parts of themedical device industry, as well as to patient consumer groups,”the FDA spokesman said. “I wouldn't [say] that everybody in themedical device industry thinks user fees are a great idea, but I willsay that I think there is a substantial amount of support for doingsomething right now.” While Leahey says it is a bit late in thegame for the FDA to be soliciting other stakeholders' opinions —noting that Congress almost attached MTEA as-is to bioterrorismlegislation in the spring — he is hopeful that all interestedparties can find a happy medium. “We're working closely with theHill and the FDA to reach a solution,” he says. Ultimately,whether manufacturers will have to pay for FDA reviews or not is up tolegislators. “Congress needs to decide whether this is somethingthey want to do this session,” the FDA spokesman explains.“Obviously, you can never predict what is going to happen on theHill, because new things pop up, but we have been hearing that there isan interest on the part of Congress in doing something thissession.” AdvaMed's Ezell is equally enthusiastic that Congresswill take up the user-fee issue, along with an FDA-process reform bill(H.R.3580), this session. “There is broad bipartisan support forboth [measures],” he says. “We're very optimistic for thissession of Congress.” But, Leahey warns, “If we cannotreach a [mutually agreeable] solution, we'll fight this thing tooth andnail.”