Archive for January, 2011

My Reaction to the State of the Union Address

I was interested in hearing President Obama’s State of the Union Address on Tuesday evening. He can be an inspiring speaker although not sure as much in this speech. Part of my problem was that all the talk about innovation, job growth, needing to keep jobs from moving overseas, and need to reduce the costs of health care were tempered by my having attended a Public Policy Forum on Wireless Healthcare Reimbursement and Regulation earlier in the day. From the entrepreneurs perspective, all the innovation in the world is useless if you can’t get paid for your innovative products and/or services. In the world of medical devices, reimbursement and adhering to regulations are critical aspects of the value chain. Can’t get paid, why do it? Too many regulations with significant time lags to approval, why do it? So, an entrepreneur wanting to get their medical devices into the market and get paid for them has to deal with two parts of The Health and Human Services agency:

  1. The Food and Drug Administration (FDA) and
  2. The Center for Medicare and Medicaid Services (CMS).

I understand that that the FDA is chartered with ensuring that the food we eat and the drugs and medical devices we use are safe and do what they are supposed to do. I have no problem with that. After all, a bad design on a pacemaker is not something I would ever want used on me. But is there a limit? Especially, if the time to market is seriously hampered because there is just too much innovation being used?

Two Startup Approaches
During Tuesday’s forum, I heard two CEO’s of San Diego based medical device companies tell their stories about bringing devices to the market along with some suggestions for others about what they might consider to get their products to market faster. One recommended to start outside the US, which means that jobs and innovation used for the approval process leave the US. This is exactly what the President said we need to avoid. However, the FDA approval process for this device, not a pacemaker or heart valve, but a glucose testing device, was just too long. He found it easier to go to London and get his product into the European market and start getting revenues. Now he is pursuing approval in the US but it will take some time. The problem is it is just a little to innovative.

The other CEO’s company has been around since 2004 and they still haven’t gotten their approval. Six years and they still are working on the approval. His product is also innovative, which apparently presents problems for the FDA. This CEO’s recommendation is that, if your product is too innovative, you should consider breaking it into pieces and having each piece approved separately. Now there’s a solution for dealing with innovation! I do want to make sure that I don’t give the impression that I think this was something created by President Obama’s administration, which is why I mentioned he started in 2004 during the Bush administration.

So what’s the problem and where are the disconnects?
Well, with medical devices, if you want to get paid, you have to first have the product approved by the FDA. Once approved, you can apply to the CMS who is in charge of deciding whether something should be reimbursed under public health care. Of course, they also decide how much you should get paid! It is not the market deciding, but CMS!

If an entrepreneur can prove that their device is equivalent to a previously approved product (a predicate device), they can receive a 510(k) classification.  There are lots of rules and words around whether a device fits the model for a predicate device, but if this fits, the approval process can be rather short. The key here is to have your device be similar to an already existing and approved device. If you add significant innovations, then how will your new product look like something that already exists?

When you start adding innovations from two different technology sectors like communications and medical devices as is currently happening with wireless medical devices, then the process for approval can drag out. It seems that the more innovative the product, the less likely it can be associated with a predicate device and unlikely it will get the fast track 510(k) approval.

As part of the process they have three classifications Class I, Class II and Class III. You want to avoid being put in Class III since this is where they put products that seem to have no functional equivalents and where little science is known (like usage results from expensive clinical trials) and you have to prove the product is safe and works. I don’t want to lose my main point, which is not to lessen the requirements for safety testing but more about how adding innovation to a product. This is exactly what the President was talking about, yet these processes can, and quite often do, cripple a device’s time to market.

So, lets review the bidding on this topic:

  • President Obama wants to stimulate the use of innovation in developing new products and services while keeping the jobs associated with these developments in the US and, using new innovations, reduce the cost of healthcare while providing better products and services to consumers.
  • Entrepreneurs have ideas for just such medical devices and put together all the business documents to go out and raise some initial funding to have the product developed except he/she has to be fuzzy about the business model, time to market, and total development costs including any required trials. Also, there must be flexibility in milestones to allow for a moving target through the FDA/CMS processes. Not the type of business metrics that investors jump at.
  • Entrepreneurs can proceed forward and attempt to move their developed products through the FDA/CMS maze and hope that everything breaks their way and the approvals don’t take years, requiring more investor funds and give up everything they have to see the process through. Or they can move it overseas losing US R&D jobs. They can also re-think the product and attempt to come up with a consumer product that will not include reimbursement in the business model or require FDA approval, but prove useful to paying consumers.
  • What about meeting the needs of both the President and entrepreneurs and fix the approval process. It seems they are trying but doing it on government time, months or years versus weeks.

Someone needs to explain to the President that, in the healthcare industry, many promising solutions involving innovative technologies are not suffering from not enough R&D dollars as much as they are from the costs and time lost to conforming to government regulations. Before any entrepreneurs raise a fuss about there always being a need for more investment, I am not overlooking that. However, I think that the President has some level of control with these governing groups.

If he does start to look, he needs to make sure he looks deeper at the proposed solutions. For example, there have been a number of studies at the FDA on fixing this. There were a few finding published last year. One of the panelists at the Public Policy Forum mentioned one group who published some findings in December 2010. He expects we may hear something around July. Hmmmm, seven months, oh right, they are working on government time!

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