US Market: 2008 Priorities

MARKET PLACE

Issues under the spotlight

The United States (US) Congress will be considering in 2008 a range of legislative issues that it chose to defer in 2007. Some of the top priorities for Congress include a technical corrections package for the Food and Drug Administration Amendments Act, patent reform and various Medicare policy revisions, all of which will have an affect on the medical device industry.

Patent reform

The Patent Reform Act (PRA) of 2007 proved to be of critical interest to innovators in all industries. In 2007, it was speculated that the PRA would be widely supported. However, after much public opposition by associations such as the Medical Device Manufacturers Association (MDMA), the PRA is receiving closer consideration.

For apportionment of damages in patent litigation, the current bill looks at all the existing pieces of “prior art” and subtracts those from the total product value when calculating damages. Thus, even if the patented invention is the true reason for the sale of an entire product, but costs virtually nothing to add to the product, the patentee would obtain virtually no royalty. MDMA believes that any efforts to miscalculate or subtract the value of “prior art” from damages calculations is the wrong approach.

The use of “inequitable conduct” in patent-related litigation has become an over used and too easily applied defence, with an overly burdensome remedy. In US patent law, inequitable conduct is a practice whereby a patent infringer must prove that the patentee has intentionally withheld material information used in his or her patent application. Many in the industry believe that the inequitable defence should be discontinued and replaced with a provision that naturally encourages disclosure. Efforts are underway to ensure that the patent reform legislation addresses the problem.

Reimbursement

Reimbursement for medical devices is a hurdle for many companies. Although no significant legislative change is expected in the structure of how devices are paid for under Federal health programmes, the continuous modification of payment rules by the Centers for Medicare and Medicaid Services (CMMS) is always of interest to device companies. Some of the issues that will be at the front of the reimbursement process include the coverage process, payment under the inpatient and outpatient prospective payment systems, charge compression and the coding process. Many companies are interested in ensuring that CMMS does not inappropriately overextend its coverage with requirements for more evidence, or create barriers that discourage Medicare beneficiaries from accessing new treatments being studied in clinical trials or that are commercially available. CMMS needs to take into consideration the potential unintended consequences that may occur with the drive to require greater evidence in reimbursement decisions.

Market access

Access to critical markets such as hospital networks will be a challenge for small, innovative medical device companies in 2008. Medical technology entrepreneurs are faced with a health care purchasing market place that is dominated by a handful of group purchasing organisations (GPOs) that receive billions in fees from the companies whose products they are charged with evaluating. Although group buying can be pro-competitive and efficient, the way that some GPOs currently conduct group buying limits competition and innovation and does not always provide savings to the health care system.

In any free market, unfettered competition provides the best incentive for continued innovation and keeps product prices low. However, by entering into long term, bundled or exclusive contracts with a handful of the largest medical technology manufacturers in exchanges for millions in fees, GPOs are limiting competition and removing the incentive to innovate. As a result, patients are deprived of the latest advances in medical care because entrepreneurs are denied open and fair access to the market place.

Several developments transpired in 2007 that further suggested impropriety by GPOs. In the autumn, The New York Times reported on a “qui-tam” action filed by a former GPO employee, which revealed serious allegations of inappropriate conduct and defrauding of Federal health programmes including Medicare by the GPO.¹

In 2008, industry associations will continue to work with Congress to ensure that all companies have the ability to gain access to the hospital market place and that the GPOs’ perverse funding mechanism is reformed. This will improve care and decrease cost. In addition, calls will continue to be made upon the United States Federal Trade Commission, the Department of Justice, the Administration and other state and federal agencies to investigate anti-competitive business practices, including company and product bundling, exclusive contracts and potential Medicare and Medicaid fraud issues.

Thomas Novelli is Director of Federal Affairs at the Medical Device Manufacturers Association, 1350 I Street, NW, Suite. 540, Washington, District of Colombia 20005, USA, tel. +1 202 354 7175, e-mail: tnovelli@medicaldevices.org [6], www.medicaldevices.org [7].