Pericles (496 – 429 BC), the legendary Athenian leader said, “Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you.”

We in the medical device industry, whether we like it or not, have had politics take an exceptional interest in us this past year. Though we are in a regulated industry, there is an increasing amount of public money paying for medical devices, prompting greater government increasing in our industry.

Here are a few of the new political concerns that have cropped up recently:

• Proposed medical-device industry tax
• Comparative effectiveness
• More conservative FDA
• Uncertain future for the 510(k) process
• Increased federal and state scrutiny of physician-industry relationships

Proposed tax. No one issue has caused more heartburn in the medical device industry than has the proposed tax in both the House and Senate healthcare reform bills. At a recent conference I overheard this comment: “We have the irony of life saving medical devices being taxed in the same category as alcohol and tobacco.” This tax was packaged as a “fee” to avoid its being classed as a tax, but it walks like a tax and quacks like a tax. Also, it is not a tax on profits, it is an excise tax on gross revenues, which makes it especially burdensome to growing medtech businesses that are either just achieving profitability or still incurring a burn rate, and even more burdensome to companies that generate most or all of their revenues domestically. It would potentially wipe out the earnings of many small and mid-cap medical device companies. It would have also rendered most potential venture-backed medical device startup financings economically infeasible.

The proposed medical device tax in the House version was originally $40 billion over 10 years via an across-theboard 2.5% point-of-sales excise tax. (See the Wall Street Journal article “The Innovation Tax” 9/18/09.) To put this in perspective, $40 billion approximately equals the entire market capitalization of one Medtronic, two Strykers, or three Boston Scientifics. Not their revenues, their entire market value. At $4 billion per year in the original proposal the tax exceeds the entire annual amount invested by venture capital into the medical device sector ($3.7 billion per year). Needless to say this excise tax proposal has been especially unpopular and controversial.

The Senate bill, is a “kinder, gentler” version that cuts the tax by half, basing the $20 billion on the amount of tax a company owes on its previous year’s market share. Still, $20 billion is a lot for companies striving to develop life-saving devices, and a devastating burden on one of the few industries in the U.S. turning a trade surplus. How this tax impacts companies’ R&D budgets is of great concern.

Comparative effectiveness. This is another issue that is causing a good deal of concern within the device industry. On the surface, it seems like a reasonable idea to pay for devices or therapies that work better than another via reimbursement than those that are less effective. Representative Kurt Schrader (D-OH), introduced H.R. 2502, “The Comparative Effectiveness Research Act of 2009,” which follows Senate Bill 3408 by Senate Finance Committee Chairman Max Baucus (D-MT). The aim of the legislation is to set up a “Health Care Comparative Effectiveness Research Institute,” similar to the National Institute for Health and Clinical Excellence (NICE) in Great Britain. Funding for this has already been allocated in the stimulus bill, which was hastily passed in the early days of the Obama administration. Here are the potential drawbacks to this: The cost of clinical studies needed now to gain FD

A regulatory approval for a new therapy continues to rise, with some manufacturers skipping the U.S. market altogether and selling exclusively overseas. In light of the cost pressures already faced by industry, where the money will come from to pay for additional studies to demonstrate a comparative benefit is a vexing question. Also, which medical technologies are available will no longer be the decision of the market, doctors, or patients, but a “panel of experts” supposedly insulated from the political process and public opinion. This represents a complex new layer of government involvement affecting industry in addition to the FDA. The details of where “Comparative Effectiveness” will eventually go are still developing.

Future of 510(k). Before 1976, when medical devices were less regulated, pre-market clearances or approvals were not required. These came in the form of the 510(k), and the more stringent PMA. The 510(k) was a legislative work-around to account for the many devices already on the market before 1976 that were considered safe and effective. This grew into a process of an easier clearance if a device could be shown to be “substantially equivalent” to a device on the market before 1976. In 2010, it is increasingly difficult to develop a clinically meaningful technology while making a case that it is equivalent to technology that is more than 30 years old. Some suggestions have been made to follow a European-style CE-Mark model. The 510(k) process is clearly showing its age. However, any debate as to what to replace it with is certain to be heated.