The medical device sector has growing appeal for investors, who are pouring
funds into new development. According to the Medical Device Manufacturers
Association (MDMA), venture capital investment in US medtech rose 20% in 2006,
reaching $2.63bn.

The efforts of developers have certainly led to notable advances in
technological capability, but in the US market many regulatory issues are
causing concern for device developers.

“The medical device market is made up of smaller companies. To foster innovation the FDA must ensure that costs come down and that the regulatory burden is smaller.”

“The development side of the medtech industry is strong, and there are some
great things being done with nanotechnology, for example,” says Mark Leahey,
the MDMA’s executive director. “There is a lot of progress in the fields
of neurology, cardiovascular medicine, orthopaedics, and in devices for combating obesity.
But there are challenges that come with that, and as you look through the
lifecycle of a product you realise that these challenges are significant.”

The MDMA aims to promote public health and improve patient care by
advocating the development and wider use of innovative technology. It therefore
spends much of its time lobbying legislative bodies such as the US Congress and
the FDA, to improve the regulatory framework governing the medical device

Leahey recognises that there are many positives in the industry, especially
on the development side, but he also believes that the market is subject to
worrying trends that could stifle innovation and, ultimately, limit
patients’ access to the latest technologies. “There are many good things
happening in the industry, but it is my role to focus on the problems, or as I
prefer to see them, opportunities for improvement,” he adds.


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The first major challenge in the lifecycle of a new medical device is
getting FDA approval. In the US, there is much work to be done to find a
balance between the FDA’s requirements for extra data and the level of
information on a device necessary to ensure patient safety. It is important
that the approach of regulators is perceived as being thorough, but they must
also ensure that the approval process is efficient in order to bring new
technologies to market and improve patient care.

However, the FDA approval process causes concern for the MDMA, particularly
since 2002, when new legislation came into force requiring firms to pay fees to
the FDA for product review.

“Until 2002, the FDA was government-funded through taxation and
congressional appropriation,” notes Leahey. “Now there is less money available
so the industry carries some of the load. There has been a backlash, as some
feel that when fees are paid it creates too close a relationship between the
industry and the regulator. There are many problems with this, not least of which is damage to public
perception of the industry.”

The fee structure appears to have been designed with major pharmaceutical
companies in mind, and in this market those fees can now account for up to 80%
of approval budgets, seemingly a dangerous trend.

The MDMA has recently succeeded in obtaining fee relief under the Medical
Device User Fee and Modernization Act, but feels it still needs to work harder
to get regulators to understand the major differences between medtech and
pharma companies.

“It is important to recognise that the medical device industry is different
to the pharmaceutical industry, where very large companies market blockbuster
products, and where firms can afford to pay $1m for approval,” says Leahey.
“The medical device market is made up of smaller companies, often with
individual physicians and engineers working together. To foster innovation, the
FDA must ensure that costs come down and the regulatory burden is smaller.”

The issue of user fees is made more contentious by the fact that in return
for funding the FDA the industry was led to expect that it would get enhanced
performance from the regulator, but so far few are convinced that there has
been any noticeable change for the better.


If a medical device developer does manage to bring a product successfully
through the challenging approval process, it walks straight into another
problem – a short-sighted view of reimbursement rates.

The amount of money that a hospital can recoup when purchasing and using a
new technology directly affects its willingness to invest. Less state
reimbursement means physicians will not use a new device. The onus, therefore,
is on the government to set appropriate rates that will allow new technologies
to penetrate the market, but the MDMA feels that rates are moving in the wrong

“More initial cost may create greater savings long-term through greater
efficiency,” remarks Leahey. “Hospitals need to look at the initial cost of a
device and the cost of the total procedure in which it is used. If a hospital
is losing money each time it buys or uses a new device, then the spread of that
technology in the market will be slowed dramatically.” Falling rates of state
reimbursement for hospitals buying new devices could have a negative impact not
only on patient care, but also on costs.

“Supplier-funded GPOs should aim to deliver the best products at the best possible price. Instead the technology disseminated depends on who is getting the biggest kickback.”

Take hip replacement technology. A low-cost device may seem more affordable
for a hospital in the short-term, but it may not last as long or perform as
well as a more expensive alternative. Further down the line, if the cheaper hip
joint needs to be replaced sooner because it has ceased to function or because
it does not deliver the remedial benefits the patient requires, then its cost
may ultimately prove higher than the more expensive device that performs

Current trends in reimbursement rates are forcing hospitals towards a
short-term view of costs, prompting them to increasingly choose lower cost
devices to save money. The MDMA firmly believes that they should be encouraged
to look at value over the long term and in a wider context, for their own
benefit and for the good of the patients they treat.

“We need more focus on value and less focus on the initial price of a new
device,” says Leahey. “The regulators must take a long-term view, and the
industry must demonstrate the cost-effectiveness of the devices and of higher
reimbursement rates.”

The MDMA has scored some lobbying successes on this issue in the past, such
as tackling the regulators over falling reimbursement rates for cochlear
implants. Hospitals were losing money on the purchase of the device alone,
before the overall costs of procedures were even taken into account. Its
approach was to show that there were significant costs associated with limiting
access to this technology, not least of which is the large expense of educating
children with the special needs that the technology could ameliorate. A few
more tax dollars spent on medical devices early on could, in this instance,
save millions in state revenues over the course of these children’s lives.


Even if a new device manages to clear the hurdle of approval and appropriate
reimbursement is in place, then it still faces perhaps the greatest barrier to
patient access – the structure of group purchasing organisations (GPOs),
which are well established in the US and are now coming to the UK.

Traditionally, GPOs were hospital cooperatives funded by their members,
which negotiated discounts with suppliers. In 1986, Congress changed the
regulations so that suppliers now fund GPOs. “There is a fundamental conflict
of interest in supplier-funded GPOs, which should aim to deliver the best
products at the best possible price,” observes Leahey. “Instead the technology
disseminated depends on who is getting the biggest kickback.”

One major concern in the UK now is that major US GPO Novation has been
awarded a huge government contract, despite being under criminal investigation
by the US Department of Justice. “They have corrupted the US market and now
they are doing it in the UK,” says Leahey. “They will be making purchases for the
entire hospital system not on the basis of the best technology, but on a
kickback basis.”

Consequently, the MDMA is lobbying aggressively against the supplier-funded
structure of GPOs, just as it is fighting for the FDA to be government-funded
and for reimbursement schemes to change their perspective. While growing
investment in medical technology is set to continue, solving the regulatory
problems would mean this investment could be more efficient, and the resulting
devices would come to market quickly and be used more widely. The MDMA has a
lot to do, but will not be shirking from its task.