Medical Technology and Competitiveness in the World Market Reinventing the

1995 477 Medical Technology and Competitiveness in the World Market: Reinventing the Environment for Innovation WILLIAM W. GEORGE * I. INTRODUCTION U.S. medical device manufacturers face the challenges of competing in the world market, and developing innovative technologies in a highly regulated environment. Improving the climate for innovation, however, would create a better environment for both American patients and manufacturers. II. THE ROLE OF INNOVATION Medical technology is a global industry; modern medical devices that save lives and lower health care costs are needed by all countries. As health care systems are upgraded around the world, growth in international markets will outpace domestic demand for medical products. As a result, the U.S. medical technology industry is currently facing increased competition from foreign firms. Medical device technology is recognized by the U.S. Department of Commerce as one of the fastest growing industrial sectors.1 Domestic manufacturers traditionally have dominated the world market, earning forty-six percent of the world market for medical devices and creating a favorable trade balance of $4.9 billion.2 Furthermore, more than seventy-five percent of all the devices invented in the past thirty years, such as the artificial heart valve, originated in the United States.3 The challenge for U.S. manufacturers is to remain competitive in the expanding world marketplace. The author’s company, Medtronic, so far has been successful in meeting this challenge. Today the company serves customers in over 120 countries with every type of health care delivery system imaginable. It does so by delivering to patients advanced technologies that lead to fuller lives and provide safe, cost effective therapy. Within Medtronic’s success lies the key to ensuring the competitiveness of the U.S. medical technology industry. That key is innovation. Medical technology companies will succeed in the changing world market only if they are architects of innovation, striving for continuous improvement and never resting on current technology. Innovation is not only important to individual manufacturers who wish to succeed in the global market, it is also critical to the United States as a nation. A recent study by the Office of Technology Assessment concluded that a country’s national competitive- * Mr. George is the President and Chief Executive Officer of Medtronic, Inc. A previous version of this article was presented at the Food and Drug Law Institute’s 38th Annual Educational Conference, Washington, D.C. (Dec. 13, 1994). 1 U.S. DEPARTMENT OF COMMERCE, U.S. INDUSTRIAL OUTLOOK 1994 (December 1993). 2 THE WILKERSON GROUP, FORCES RESHAPING THE PERFORMANCE AND CONTRIBUTION OF THE U.S. MEDICAL DEVICE INDUSTRY 26-27 (June 1995) (report prepared for the Health Industry Manufacturers Ass’n) [hereinafter THE WILKERSON REPORT]. 3 This figure is based on patents granted by the U.S. Patents and Trademark Office from 1963 to 1993. See HEALTH CARE TECH. INST., 1995 REFERENCE GUIDE FOR THE HEALTH CARE TECHNOLOGY INDUSTRY 11 (1995) [hereinafter 1995 REFERENCE GUIDE]. See also THOMAS J. DUESTERBERG ET AL., HEALTH CARE REFORM, REGULATION, AND INNOVATION IN THE MEDICAL DEVICE INDUSTRY 20 (Hudson Inst. 1994). 477 478 FOOD AND DRUG LAW JOURNAL VOL. 50 ness is directly tied to its technology base. Sustaining a leadership position is crucial. According to the report, “the cost of retrieving innovation leadership may be prohibitive once it is lost.”4 III. THE OVERSEAS TECHNOLOGY DRAIN The United States is currently suffering a steady depletion of its medical technology base that has for so long dominated the world market. Research, development, and manufacturing operations are moving overseas. This is a response to U.S. export restrictions, reimbursement policies, product liability, and, most of all, a regulatory system that is perceived as unpredictable and unfriendly to innovation. A recent survey conducted by the Gallup Organization examined fifty-eight U.S. medical electronics manufacturing companies. Forty percent of the companies surveyed said they had reduced their employees in the United States as a consequence of regulatory delays, and twenty-two percent said they already had moved U.S. jobs overseas.5 This trend is accelerating; Sci-Med, Ventritex, ATS, and Minntech have all moved to set up European production. Medtronic is among the companies that are shifting research and development (R&D) and manufacturing operations overseas. Fifteen out of the company’s last fifteen major new products or ventures are being developed, tested, and produced in Europe first. All fifteen products will be available to patients overseas long before they are introduced in the United States. Moreover, last year Medtronic moved the headquarters of their Ventures Management Group, the business unit directly responsible for coordinating the development of breakthrough medical therapies, from the corporate headquarters in Minneapolis, Minnesota to The Netherlands. This was done because the gap between commercial availability in Europe and the United States has widened from one-to-two years to five-to-seven years. The current regulatory and reimbursement environments in the United States are not conducive to innovation. The real losers from these delays, however, are not U.S. medical technology companies. Most of them have global operations. The companies can choose their venues for conducting research, performing clinical trials, and manufacturing high quality products. U.S. clinical medical researchers are still the best in the world, but they are not unique and may be losing their edge. There are outstanding research-oriented physicians throughout the world who can conduct clinical trials in accordance with the strictest FDA protocols. The real losers are American patients, who cannot get access to the latest, most innovative medical therapies needed to keep them healthy. They have only two choices: accept older technology (and in some cases no technology) or travel to Europe or Canada where they can receive the needed therapy. Many of these patients, however, are far too ill to travel or cannot afford the added cost; consequently, they face uncertain futures. The United States cannot afford to continue hindering technological advancement. The resulting drain of medical technology R&D threatens to diminish the global leadership of the U.S. medical device industry. High quality jobs are being lost, while foreign workers are receiving training in the development and manufacture of emerging tech4 OFF. OF TECH. ASSESSMENT, MULTINATIONAL CORPORATIONS AND U.S. TECHNOLOGY (OTA-ITE-612) (Sept. 1994). AND 5 THE GALLUP ORGANIZATION, SURVEY OF MEDICAL DEVICE MANUFACTURERS CONCERNING THE STRATEGIC ECONOMIC IMPACT OF THE FEDERAL REGULATORY PROCESS 28 (June 1994) (report prepared for the American Electronics Ass’n). 1995 MEDICAL TECHNOLOGY AND WORLD COMPETITIVENESS 479 nologies. As leading edge clinical research is moved overseas, the intellectual infrastructure of U.S. academic medical centers is weakened. For its 1995 meeting, the American College of Cardiology received more abstracts from outside the United States than from inside for the first time.6 Venture capital is drying up for start-up innovations, and, as a consequence, the number of new premarket approval applications (PMAs) submitted to the Food and Drug Administration (FDA) is declining. Over the past five years, the number of original PMAs submitted has declined by forty-five percent.7 PMA supplements, an indicator of incremental improvement, have declined by thirty-seven percent. IV. BARRIERS TO INNOVATION There are four major barriers to innovation that are responsible for hindering the development of new medical technologies in the United States: (1) unpredictable and inappropriately focused U.S. regulatory practices, (2) controls on the export of unapproved devices, (3) restrictive reimbursement policies, and (4) the effects of widespread product liability lawsuits. These problems must be addressed to stop the current exodus of U.S. companies and to enable American patients to receive needed medical therapies, rather than products that are two to three generations behind those available in Europe, Canada, and Japan. A. Regulatory Barriers Problems with the pace and predictability of the regulatory process can be attributed to an outmoded view of how medical innovation evolves and how to protect patients from unsafe technology. The FDA has a congressional mandate to protect the public health, both by preventing unsafe products from reaching the market and by processing approval applications so that safe and effective new products can be made available to patients in a timely manner. Medical device companies support this mission and recognize the need for the FDA to enforce the law in a fair and effective manner. The regulatory approval process, however, has become progressively ponderous, prescriptive, and increasingly out of step with the incremental way that medical technology develops for the benefit of patients. Admittedly, significant progress has been made in reducing the 510(k) backlog. Review times for advanced devices, however, continue to increase. According to recent FDA statistics, the active review time for PMAs, PMA supplements, and 510(k)s have more than doubled over the past three years.8 In 1994, the total elapsed time for review of a PMA was 823 days, or nearly 2.4 years.9 With such a long review process, venture capital funds have all but vanished for new medical technology start-ups. The FDA is taking significant steps to reduce the approval backlog (especially for 510(k)s) and to accelerate the review process, but much remains to be done. When compared to regulatory systems used by other industrialized nations, the U.S. regulatory structure is slow, overly complex, and unpredictable. This drives prodSupporting information from the American College of Cardiology on file with the author. According to the FDA’s Office of Device Evaluation Annual Reports, the FDA received 79 original premarket approval applications (PMAs) in fiscal year (FY) 1990. In FY 1994, the agency received 43 PMA submissions. See 1995 REFERENCE GUIDE, supra note 3, at 16. 8 1995 REFERENCE GUIDE, supra note 3, at 15. 9 Id. at 17. 7 6 480 FOOD AND DRUG LAW JOURNAL VOL. 50 uct development costs up, as companies try to satisfy continually evolving requirements and cope with delays in product introduction. The economic impact of regulatory costs and delays discourages investments in new technology. Medtronic, for example, has made great strides in reducing their product development cycle from four years to less than two years for major new products. At the same time, however, the prolonged time needed to negotiate the randomized trial protocol for an investigational device exemption (IDE), as well as the added time to conduct trials and complete the review process, has increased the entire PMA regulatory cycle from one-to-two years to an average of three-to-four years. Because the end date cannot be predicted, the company cannot do adequate organizational, sales, production, or financial planning. Consequently, the average present R&D cost of a major new product has risen to $75,000,000, three times what it was in 1990. The bulk of the funds are not being spent on research and product development, but on clinical trials. 1. Cardiomyoplasty: A Case History The case of cardiomyoplasty provides an excellent case study of the effect that current regulatory practices are having on medical innovation. Cardiomyoplasty is an emerging technology that uses the patient’s back muscle as a biomechanical assist for the failing heart. The latissimus dorsi muscle is wrapped around the heart and an implanted pacemaker-like device; the device provides short bursts of electrical impulses, transforming the muscle’s contractile function to fatigue-resistance and synchronizing its contractions to the rhythm of the underlying heart. Cardiomyoplasty eliminates many of the interface challenges inherent with mechanical devices using synthetic materials and, because the patient’s tissue is used, does not exhibit the risk of rejection present with heart transplants. The patients in need of cardiomyoplasty therapy typically have no alternatives left: drug therapies have failed, and they are in third and fourth stage congestive heart failure. The Phase III prospective randomized clinical study, whose content was directed by the FDA, is currently underway. It took two years for the IDE to be approved and there are still serious concerns with the Phase III testing protocol. While randomized device trials are good science, they are not always good medicine. There is no equivalent of a placebo in devices, and the outcome often takes three-to-five years to measure, not the thirty-to-ninety days involved in drug evaluation. In this case, the control is drugs, although the patients involved already have failed to respond to drug therapy. Test patients have a fifty percent chance of being returned to drug therapy, which is likely to fail, but if it does, they are not allowed to cross over and receive cardiomyoplasty. Because it may be too late for a transplant or one may not be available in time, these patients face an uncertain future. Not surprisingly, enrollment in the trial is going slowly, and many physicians have refused to submit their patients to the trial. Based on the clinical research on over 480 patients, and the receipt of the CE mark10 in Europe, cardiomyoplasty was released on a limited basis outside the United States. The device is safe and effective in performing its function, and more cost effective than transplants. Due to the FDA’s randomized trial requirements, however, cardiomyoplasty will not be commercially available to American citizens before the year 2000, at least six years behind Europe and Canada. Moreover, continuing device 10 A “CE mark” on a product indicates that the product complies with all the requirements of the European Union’s (EU’s) Medical Device Directive and that it may be marketed in all countries of the EU. 1995 MEDICAL TECHNOLOGY AND WORLD COMPETITIVENESS 481 improvements are arrested while locked in inflexible formal trials, slowing the pace of technology and treatment progress for patients. 2. Regulatory Challenges The cardiomyoplasty example raises several difficult questions. Should medical device research in the United States be limited until the clinical work is well underway overseas? Are randomized trials a realistic form of research at the outset of new procedures, or should they be conducted after the products have been proven safe and effective? Is the role of the FDA to regulate the safety and effectiveness of the device, or the effectiveness of the therapeutic procedure? Does the FDA have the medical resources needed to make medical judgments? The medical device industry wants and needs an effective approval process and a well-run FDA. The greatest risk to any company is the sale of an unsafe product. Unfortunately, over the years, the FDA’s prescribed product approval process has been broadened from an evaluation of the safety and efficacy of the device to an evaluation of the efficacy of the therapy. This expanded role was not envisioned in the original legislation. Europeans recognize that evaluating the effectiveness of therapies is an inexact science. Requiring that this be done through a regulatory process can cause long delays in getting technologies to market. The European system is as committed to patient safety as the U.S. system. But they are conscious of the need to carefully balance regulation with the impact of unnecessary delays on the patients who would benefit from innovative new therapies. They focus their evaluation on the safety and efficacy of the device, instead of on the efficacy of the therapy. The European regulatory process is careful not to inject itself into the practice of medicine; it leaves efficacy considerations to the judgment of the medical community. In the United States, the academic medical community can and should fulfill a similar role. The flaws in the FDA’s evaluation process can be illustrated with another case history. In 1993, Medtronic filed for FDA approval of its Legend Plus pacemaker, a variation of an older generation activity-based pacemaker with a second sensor that permits the pacemaker to more closely respond to and match the patient’s physiological needs. The second sensor can be non-invasively disabled, allowing the patient and physician to determine which configuration is most appropriate. Clinical trials of 100 patients demonstrated the Legend Plus to be safe and effective. Its introduction in the United States, however, is being delayed until Medtronic can prove that the second sensor will provide superior therapy to that of other pacemakers available in the U.S. market. To prove statistically significant superiority could require a randomized trial of more than 1000 patients. 3. Third-Party Review Bodies How should the regulatory system in the United States be modified to ensure safe products and provide innovative therapies on a timely basis? One way that has been suggested is to open the device approval process to private parties approved by the FDA to provide certification services. In Germany, private government sanctioned panels of experts grant relatively quick safety approvals for new devices. The total approval time can be a fraction of the time required in the United States. German regulators pride themselves on their efficiency 482 FOOD AND DRUG LAW JOURNAL VOL. 50 and believe that patients receive a high level of safety from their system. The system includes vigorous postmarket surveillance to ensure continued safety, thus allowing for quick market release. Medtronic’s premarket approval submissions of transvenous defibrillator lead systems illustrate the responsiveness of a third-party review system. In October 1989, Medtronic submitted bench test results of early transvenous leads to TUV, a private German testing agency certified by the government to review medical device applications. In November 1989, TUV approved the lead system, which immediately became available to German patients. In November 1990, Medtronic submitted a change in the leads to TUV. After one month, TUV approved the change and the improved leads became available. In the United States, the same product approval took over two years. The product was not available to American patients until December 1993, four years after German approval. The transvenous lead approach for many patients eliminated the need to perform a thoracotomy (surgically opening the chest) to connect the implanted defibrillator to the heart. This was not just a matter of time, therefore, but a matter of patient wellbeing. 4. User Fees User fees provide added resources for the FDA, supporting the agency’s commitment to substantially improved review times. While many medical device manufacturers continue to support user fees and additional FDA resources, the change in Congress as a result of the November 1994 election has reduced the chances that such reforms will be passed. In the meantime, the FDA, Congress, industry, and the medical community must work together to define an improved approval process that meets the FDA’s statutory charter. B. Export Controls In addition to approval process issues, controls on exporting PMA devices not yet approved in the United States also are adversely affecting device manufacturers’ ability to innovate. A new device on the PMA track that is developed and produced domestically must secure FDA approval for export, even if the importing country already has approved the product for importation and clinical use. Rather than lose valuable testing time waiting for FDA export approval, companies move their development and production sites. There are now bills in both houses of Congress that address this issue. Hopefully, this barrier, which does nothing to promote the public health, will be removed this year. C. Reimbursement Also directly impacting the ability of manufacturers to develop technology in the United States is the Health Care Financing Administration’s (HCFA’s) decision to stop reimbursing providers for procedures that use medical devices implanted under FDAapproved clinical trials. This conflicts with FDA policies that allow manufacturers to charge hospitals for clinical devices. While the timing of reimbursement for unproven pioneering technologies may be subject to debate, the denial of coverage for next generation clinical devices already covered by a reimbursement code does not reduce cost 1995 MEDICAL TECHNOLOGY AND WORLD COMPETITIVENESS 483 to the payer. HCFA’s decision has profound implications for senior citizens and the clinical research community. Medicare patients can still get devices, but they soon will be obsolete. Manufacturers are faced with drastically increased development costs that may force them to move overseas. Few device manufacturers can afford to pay for free devices and patient therapeutic costs. This impacts on their ability to finance incremental product development and maintain development in the United States. D. Biomaterials Availability The United States’ product liability system is scaring suppliers away from hightechnology medical industries. In the medical malpractice area, total tort costs increased from $900 million in 1974 to $9.2 billion in 1991.11 Growing product liability concerns have prompted an increasing shortage of the raw materials necessary for the manufacture of implantable devices. The fear of being joined in product liability lawsuits has caused many raw material and component suppliers to restrict the use of their commodity materials in implants. For example, DuPont incurred millions of dollars in legal defense costs because one of its standard materials was used in a jaw implant that did not perform appropriately. 12 While DuPont had no role in the design, specification, or manufacture of the medical device and is prevailing in court, the cost of defending the company is prohibitive. Thus, it will no longer permit the sale of its materials for implantable devices. Dow, Dow Corning, DuPont, and other vital raw material suppliers have notified the device industry of their exit from medical devices. The availability of widely used materials such as Teflon, Delrin, Dacron, Pellethane, Polyurethane, and Silastic is being curtailed. The materials situation has had a chilling effect on innovation. Medtronic scientists, for example, had been evaluating a new proprietary material that showed promise as a lead insulation material with the potential to improve lead performance. The supplier of the novel material, however, has withdrawn it from use in implants. V. RESTORING U.S. LEADERSHIP IN INNOVATION Developing effective and timely solutions for each of these problems — the cumbersome approval process, unnecessary restrictions on the export of innovative medical technology, reimbursement practices that discourage patient and physician participation in clinical trials, and a product liability system that is creating major materials shortages — would move the United States toward reversing the decline of its leadership in medical technology. Reform, however, is not enough. The long term objective must be to redesign the environment for innovation, creating a system internationally recognized as the best for technological development. This would help provide life-saving devices to American patients on a timely basis. The alternative is to lose a vital U.S. industry and have the $4.5 billion trade balance wither away. The medical device industry would become another example of the United States yielding its leadership position due to its system of regulation and governance. The government should not protect or subsidize high-technology companies. The 11 12 DUESTERBERG ET AL., supra note 3, at 91. See Gary Taylor, A Discovery by DuPont: Hidden Costs of Winning, THE NAT’L L.J., Mar. 27. 1995. 484 FOOD AND DRUG LAW JOURNAL VOL. 50 medical device industry consistently has shown a willingness to invest in the development of innovative new technologies to solve patient problems. The U.S. medical technology industry puts seven percent of its sales revenues back into R&D.13 This compares to 3.8% on average for all industries.14 The government, however, must ensure that it offers a climate that rewards innovative manufacturers who develop safe and cost-effective new products. The culture under which medical advances are evaluated needs to be reformed. Technology in the 1990s moves much faster than in the mid-1970s when the Congress designed the current regulatory process. A number of steps are necessary to restore the innovative process for medical devices in the United States and to make safe, effective, life-saving medical devices available to American patients in a timely manner: • • Reassess the entire device approval process, with emphasis on an accelerated review focused on the design, engineering, and testing of the medical devices. Life-saving devices should be placed on an accelerated track, and incremental improvements be made commercially available without the long delay inherent in prospective randomized trials. Randomized trials should be performed on the therapies, but not until after the device has been released to the market as safe and effective. Postmarket surveillance and device follow-up reporting should be expanded and intensified. Authorized third-party review bodies should be used to further accelerate the products review process. The export control issue can be rectified by accepting the import approval of countries with established regulatory systems. Reimbursement can be re-established for clinical trials authorized by the FDA under an approved IDE, with the promise that no added cost will be incurred by Medicare when compared to the approved product or procedure. Legislative reform of the product liability laws should give full protection to the producers of commodity materials with the liability burden transferred through indemnification to medical device manufacturers. • • • • • • Ultimately, Congress and the regulatory bodies involved with medical technology need to recognize the importance of innovation and redefine their role in facilitating the pace of product development in synchronization with the pace of innovation needed by patients and providers. If they do not, both manufacturers and patients will be forced to seek alternative solutions outside the United States. If the U.S. medical technology sector is to continue to be competitive in a rapidly changing, global health care marketplace, the government, industry, and the medical community must work as partners, not adversaries. Today medical technology is advancing at the most rapid pace in history and this warrants an equally advanced approval process. To ensure continued U.S. leadership, the approval process must be reinvented to serve the needs of patients and innovators alike. 13 14 1995 REFERENCE GUIDE, supra note 3, at 6. Id.