BB&T Washington Editor

WASHINGTON – A pair of the FDA’s top brass addressed the 12th annual meeting of the Medical Device Manufacturers Association (MDMA; Washington) in late June, discussing the agency’s interest in keeping the pace of innovation up in the years to come, but it seems unlikely that PMA filings will move through the regulatory mill any more quickly in the next few years than they do now.

Acting FDA Commissioner Andrew von Eschenbach commended MDMA attendees for their “incredible evolutions in technology.” Von Eschenbach said that he will challenge the agency to be not just a science-based entity, but to “proactively facilitate the fruits of research” in pursuit of public health. He cited the “increasing complexity of medical device development” as one of the hurdles the FDA and industry must find a way to rise above in their efforts to save lives, but that the complexity was the result of innovation that will inspire “a much greater degree of hope” and more effectively address both mortality and morbidity.

Von Eschenbach also remarked that “the pace of innovation is accelerating” largely due to progress in research, but that patients “could care less about our drugs, our biologics, [and] our devices” if those products fail to address their ills. He argued that combination products will continue to play a greater role in healthcare, a situation he said “requires an integration” of effort.

“Too often, we have worked in silos, but more and more,” the agency and industry must find ways to merge multiple products to maximize the benefit to public health. The former director of the National Cancer Institute (Bethesda, Maryland) observed that the exponential pace of change in medicine is due largely to the “molecular perspective” that particle physics has opened on the cell and even the cell nucleus and its contents.

Von Eschenbach spoke of a more aggressive role for the FDA in advancing both innovation and ensuring that those innovations make their way into hospitals, doctor’s offices and pharmacies. He stated that the agency is committed to strategically placing itself “between discovery and delivery,” and vowed that the agency is “committed to providing the infrastructure” needed to bring technology to the patient, including those innovations spurred by nanotechnology. He added that “the integration of FDA at the White Oak [Maryland] campus” will help the agency to “not just regulate, but to facilitate” innovation.

The agency’s inventory of data processing hardware and software is in need of improvement, von Eschenbach noted, but between such upgrades and a more timely and relevant guidance framework, the agency hopes to “relieve the regulatory burden for both of us.”

Center for Devices and Radiological Health (CDRH) head Dan Schultz followed his boss at the microphone and discussed a few of the thing the center is working on. He noted that the mission of his arm of the FDA is still to establish a “reasonable assurance of the safety and effectiveness of medical devices and the safety of radiological products,” emphasizing that “reasonable” is a crucial concept. However, Schultz did not elaborate on this.

He reminded attendees that patient awareness has moved into the foreground of medical care. “The idea of a patient going into a doctor’s office” and getting a referral or a prescription without wanting to know more about what is involved “is a thing of the past.” Schultz also pointed out that “we see an increased emphasis” on computer-related recalls, much based on problems with software, and noted that many new technologies, including nanotechnology, are making their way into widespread use.

Schultz commented that while the Critical Path Initiative is primarily aimed at drug development, “we think that there’s a real role for a critical path for devices” that takes into account the different characteristics of devices. As part of the device Critical Path, CDRH is working on a computer model to simulate the action of stents in a virtual in vivo world for both adult and pediatric populations, and will develop surrogates for outcomes to aid this process. The so-called virtual family will consist of rigorous, dynamic software models that will help firms weed out problems before the loss of sizeable investments that contribute so much to the cost of healthcare.

Schultz acknowledged that the Medical Device Innovation Initiative (MDII) does not represent a paradigm shift at CDRH, but that it is “a look at some of the things we have been doing as well as some of the things we want to do” in a way that “puts it all in a package.” He commented that part of MDII would be an emphasis on regulatory clarity via guidance documents in a more streamlined system.

“We’re trying to put together a focused process on guidance development for areas of greatest need,” including an emphasis on “getting guidances out the door.” For better or for worse, some of the CDRH staff will serve double duty on both guidance development and product review, but Schultz reassured the audience that the staffing problem is easing.

“We’re hiring again,” he remarked, noting that the CDRH has added “an incredible group of energetic young people.” Schultz’s chart indicated that staff numbers for most functions are up in FY05 over 2002, but not for administrative staff. In terms of raw numbers, the staff in the engineering is up from just over 170 to more than 230. Biological science staffing is also up, but consumer safety officers, a.k.a. field investigators, are down in numbers.

However, “Our statistical group has been reborn,” Schultz reported.

Site visits represent a function that Schultz said “gives us a greater understanding of what your challenges are,” but he warned that “we will not be able to hire our way into [a state of] expertise on each project.” However, the medical device fellowships should fill most of those holes adequately. Schultz pointed out that four out of every five dollars CDRH spends go toward salaries.

“The amount of information we’re getting is increasing exponentially,” Schultz lamented, but the agency is working on an e-consult system to speed up the exchange of ideas between FDAers to more quickly expedite things. He also mentioned the Turbo 510(k) program as one of the other systems that the agency rolled out in 2005, but urged industry to jump on the electronic bandwagon.

“This is my plea to you today: if we could get one e-copy [for PMAs, 510(k)s and other filings in addition to hardcopy], it would allow us to reduce or eliminate our document scanning contract and save us $1 million a year.”

The stretch goal for PMAs has not materialized as was acknowledged in May by Linda Kahan, deputy director at CDRH, and Schultz remarked that “the system has been much more distorted” by the effort to meet the objective of returning a decision within 180 days for half of PMAs. He reiterated the assertion by Donna Tillman, the director of the Office of Device Evaluation, that the more aggressive schedule prompt-ed more deficiency letters. However, he noted that “we are open to ideas” on how to use meetings to hash some of these issues out

Gainsharing still is a source of anxiety

One of the panel presentations during the annual meeting addressed gainsharing, an effort by hospitals to share savings with referring physicians who take action to reduce unnecessary costs. Gainsharing is an idea that has not found a friendly home among MDMA members and, while the conversation between Centers for Medicare & Medicaid Services (CMS; Baltimore) officials and MDMA members was polite, the tone coming from industry was unmistakable.

Mark Wynn, PhD, director of the division of payment policy demonstrations at CMS, led the panel with a brief discussion of several CMS demonstration projects, but pointed out up front that “we have a serious issue with Medicare costs.” Medicare Part A ran up a tab of roughly $119 billion in FY05 and physicians rang the Medicare bell to the tune of $24 billion for inpatient care that same year.

Wynn noted that hospitals are paid prospectively while doctors are paid on a per-service basis, which has forced CMS to ask itself how it can align these two systems of incentives. Unfortunately, section 1128 A(b)(1) of the Social Security Act prohibits hospital payments to doctors even when such payments would reduce unnecessary tests and procedures, he observed.

Several demonstration projects for gainsharing are under way, including those examining the impact on Medicare managed care (Medicare Part C) and preferred provider organizations, as well as critical access hospitals in rural areas. Other pilots are scrutinizing how gainsharing will affect disease management under Medicare and skilled nursing facilities operating on prospective payment systems. Wynn said that a total of 30 demonstration projects are under way and another 12 are en route.

One of the concerns voiced by critics of gainsharing is that the quality of care will suffer because of what are perceived to be incentives to take less aggressive treatment and/or follow-up action than is called for. However, Wynn said that the Deficit Reduction Act of 2005 (DRA), which called for demonstration projects to evaluate gainsharing, also mandates quality safeguards.

He noted that as a result, “hospitals must report quality measures to CMS” and DRA stipulates that hospitals can forward incentive payments to practitioners only if they “contribute to quality efforts.”

“A thorough evaluation [of quality] is part of the project,” Wynn remarked.

Lending a voice of caution to the gainsharing idea was panel member Andrew Imparato, president of the American Association of People with Disabilities (AAPD; Washington). Imparato made the case that “CMS programs are best measured by the benefits to people with disabilities.” He argued that gainsharing has the “potential to harm the physician-patient relationship” because patients may come to fear their doctors’ motives.

“We’re also concerned about how you measure savings,” he said, arguing that the distinction between short-term savings and long-term savings must be made so as to ensure that gainsharing does not end up driving practitioners into a quick-fix mode.

“I’m not arguing that CMS is unaware” of some of the dilemmas posed by gainsharing, Imparato admitted, but he insisted that quality of life should be the primary ingredient in quality measures.

Following Imparato to the microphone was MDMA Executive Director Mark Leahey, who made the case that “if CMS can focus on a program that offers real opportunity” to employ technology to reduce costs without compromising care, gainsharing just might work. However, “this is separate and distinct” from the emphasis on cost savings embodied in the pilots, he said, adding that “it would be a very na ve approach” to assume that hospitals would all be able to avoid engaging in exclusionary behavior based on the cost of device and other treatment regimes rather than based on the cost/benefit of outcomes.

Leahey expressed concern that gainsharing “doesn’t turn into another well-intentioned federal program with unintended consequences,” asserting that “personalized patient care offers the greatest opportunity” to reduce costs in the long run. He added that MDMA members are concerned at the prospect that gainsharing may impose a “one-size-fits-all” mentality on healthcare because of an incentive to “use the cheapest products out there.”

During the question and answer period, Wynn noted that CMS wrote its requests for proposals in such a way as to build in quality measures. “We expect applicant projects to come in with their own quality proposals,” he noted, adding that CMS will examine readmissions and the incidence of complications. CMS has a library of quality measures that it expects to see at least in some part in the proposals, but “we’re open to new measures,” Wynn said.

One attendee told Wynn that he saw “parallels with the perverse incentives provided by Congress” in group purchasing legislation, a prospect which the attendee said he found “absolutely terrifying.” Wynn replied that it is not true that gainsharing projects “will operate in an exclusionary manner” regarding the availability and purchase of medical devices.

MDMA members spoke poorly of gainsharing during the lunch break on the second day of the conference, but CMS Administrator Mark McClellan tackled the gainsharing issue head-on in his luncheon address, insisting that “it’s absolutely true that if we can get hospitals and doctors to work together,” quality will improve even as costs go down. He said that the emphasis at CMS is to look beyond “just what happens at admission” and to keep an eye on “what happens down the road” to patient care.

McClellan’s argument included that gainsharing can lead to faster diagnoses, shorter stays, reduced drug interactions and faster adoption of innovative technologies. Another area in which he said he hoped to see improvement is in discharge planning. “They just bounce back” to the hospital when the hand-off from hospital to outside provider is not properly managed, McClellan said.

CMS execs lobby for new IPPS rules

Despite the June 12 closing of the open comment period for CMS’s proposed rule changes for Medicare inpatient prospective payment system (IPPS), members of the MDMA continued to lobby against an action they argue is good for neither patient nor medical device innovator. After a pair of presentations on the subject, McClellan presented his best case to sell the changes to industry. But there was little indication that his appeal fell on anything other than deaf ears at the association’s annual meeting.

Thomas Gustafson, deputy director of the Center for Medicare Management at CMS, outlined the government’s dilemma. He said that the original Medicare program at present covers about 88% of all who are eligible, despite the rollout of Part C (Medicare Advantage) in the late 1990s and that “this will be the dominant product line at Medicare” for the foreseeable future. His chart showed that while Medicare Advantage enrollment will rise from roughly 4.7 million enrollees in 2004 to just more than 13 million in 2013, the current base of enrollment in fee-for-service should hold steady at just under 36 million in that same timeframe.

Gustafson said that the June 12 recommendations offered by the Medicare Payment Advisory Commission included that CMS do a better job of capturing the severity of conditions and deal with hospital-specific relative values. He noted this latter as a response to the proliferation of specialty hospitals, “which has caused the hospital system to vibrate fairly severely” as other hospitals find their revenue streams slowing.

In the final rule for FY06, CMS “replaced nine cardiovascular DRGs [diagnostic-related groups] with 12 new ones that better recognize the severity of illness,” Gustafson said, noting that the agency will take interim steps to “improve the DRG system.”

“We pushed very hard to get out the proposed final rule for 2007” as early as possible, Gustafson noted, with the ink scheduled to dry by Aug. 1.

The 2007 rule deals with hospital-specific cost weights, a move prompted by MedPAC’s observation that the system had induced bias “due to differential markups for ancillary services among the DRGs.” The commission also noted that charges for routine days, ICU days and ancillary services were not previously marked up consistently.

CMS believes that charge-based weights and DRG classifications “result in notable distortions between payments and the relative costs of care,” a condition the agency hopes to address with adjustments to relative weights and DRGs. Hence, the proposed rule for 2007 includes hospital-specific cost weights and consolidated severity DRGs. The transition, however, promises to be complicated.

Gustafson said that the cost-based approach is not intended to utterly replicate actual costs, and he pointed out that assembling a database sufficiently “granular” to capture such data “would be a massive undertaking” essentially rendering it impractical.

At present, CMS is considering a proposal to alternative DRG systems, including one proposed by 3M (St. Paul, Minnesota), called All Patient Refined (APR). According to Gustafson, the APR system has the same number of major diagnostic categories as CMS’s 25, but it offers a more complex algorithm for filing statements of intent (SOIs), which are essentially placeholders for claims not yet filed. The APR system would offer the user a total of more than 1,200 SOIs compared the current 526 available from CMS and the 856 that will be available if the proposed rules for 2007 roll out as currently written.

Gustafson said the CMS version of the proposed consolidation of DRGs by 2008 would “be budget-neutral to the hospital industry,” but, as previously reported, would cut payments for drug-eluting stents and defibrillators by 30% and 15%, respectively, while boosting payment for pneumonia and cellulitis by 10% and 13%. He noted that both the CMS and 3M proposals for DRG classification would boost payments for medical DRGs and reduce payments for surgical procedures.

Jo Ellen Slurzberg, vice president for reimbursement and health policy at Almyra (Boxborough, Massachusetts) and speaking on behalf of the industry, urged that CMS put all the proposed changes off until 2010 because “it is better to make the change all at once.”

She charged that CMS’s cost data is obsolete and recommended that the agency “accumulate data from no less than 60% of hospitals,” including a representative mix of urban, suburban and rural hospitals.

“Can we standardize complexity?” Slurzberg asked, stating the industry’s position that the proposed prospective payment system “has not clearly defined how specific diagnoses and procedures affect severity-based DRG assignments.”

The DRG system offered by 3M had little more to offer, according to Slurzberg. “It’s hard to figure out which diagnoses count” in that system, she said.

Slurzberg urged CMS to keep the current charge-based system for now so that hospitals have time to train coders and to give CMS time to incorporate more recent cost data. She added that in the current schedule, hospitals would have to “undertake expensive and major systems changes in each of the next three years,” given the anticipated implementation of ICD-10, the disease classification system that will shortly replace its predecessor, ICD-9.

Slurzberg insisted that the hospitals used in the MedPAC analysis are “not representative of the full-service hospital,” and that only about 1% of all hospitals were part of that analysis.

The industry position was also said to include a recommendation that “specialty hospitals be removed from the current IPPS” to make way for a separate payment system that is tailored to “their unique patient populations,” as is the case with long-term care facilities. “While we appreciate that CMS made the data and its proposal available earlier in the cycle than in the past,” Slurzberg said, “the proposed rule may have unintended consequences that cannot be fully evaluated” given the lack of data, transparency and reproducibility.

In his luncheon address to the medical device community following Gustafson’s and Sluzberg’s presentations, McClellan noted that the agency had proposed “big rules with some very important reforms,” while reassuring industry that the overall idea is to come out with a “value-based payment system.” He said that this is “one area where we intend to redirect our payments further,” expressing a preference for outcomes.

“What we want is to pay more for better care, fewer complications and reduced services,” McClellan said, urging the audience to consider that the current payment system is broken. He added: “We cannot afford to do this much longer.”

The CMS chief promised “incremental increases in payment when hospitals” cure disease with fewer readmissions and fewer complications later. “This,” he said, “is the way to save money in our healthcare system.”

Landscape for patent claims in flux

The MDMA meeting included a session that addressed intellectual property concerns, including a discussion of the workload at the U.S. Patent and Trademark Office (PTO) that continues to surge and a review of recent legal and legislative developments that may affect the outcomes of patent infringement suits.

While the PTO rules changes have not yet rolled out and the legislation in question is only in its first legislative season, action in the legal system has put firms on alert over the question of how, and even whether, they should seek legal counsel when filing a patent or putting together a defense against a patent infringement claim.

Leading off these presentations, Les Bookoff, a partner at Finnegan Henderson Farabow Garrett & Dunner (Washington), discussed rules changes that the PTO is considering. Bookoff characterized these changes as “very significant ... some of the most radical changes” ever seen.

At present, patents protect inventions for two decades unless the applicant files a continuation. A continuation is usually filed to revise an application after the PTO issues a denial of patent, but this mechanism also can be used to sustain the patent beyond the 20 years because such a filing disallows the exhaustion of the filing. Bookoff said that that a patent holder could invoke “an unlimited string of continuation applications,” thus protecting a patent into perpetuity.

Another available filing mechanism is the divisional application, which can break an existing application into multiple patent applications. The rule changes would disallow “voluntary divisionals,” according to Bookoff, unless the divisional is filed during the pending period for the original application.

Noting that “continuation applications often result in the most commercially significant patents,” he reminded the audience that continuation was especially important to the medical device industry, because “commercialization often lags well behind inventive activity.”

Predictably, the interests of industry do not necessarily align with those of the agency. According to Bookoff’s slides, the PTO currently has more than a million applications pending, 60% of which are awaiting first action. The average patent is in a pending state for 21 months, and about 23% of the applications currently on file at the PTO are continuations, up sharply from only 6% in 1980.

According to the public notice posted by the PTO, one of the government’s primary concerns is that “current practice allows an applicant to generate an unlimited string of continued examination filings,” resulting in a process that “becomes less beneficial and suffers from diminishing returns” with each iteration. The revised rules would require that “second or subsequent continued examination filings ... be supported by a showing as to why the amendment, argument, or evidence presented could not have been previously submitted.”

At present, PTO does not have a firm date for either issuance or implementation of the final rule.

Bookoff recommended that firms with pending applications try to push them through so as to avoid putting their patents under the new rules. Some ways to speed things along are to present reviewers with additional arguments, ask for an interview with reviewers, and promptly file appeals for denied applications.

Barbara McCurdy, also a partner at Finnegan, reviewed some of the legal entanglements in the area of client/attorney communications that arise when companies clash over patents. She said that while such communications are generally privileged, the privilege might not apply when the opinion is produced in litigation, especially in light of the Echostar case.

Echostar Communications (Englewood, Colorado) encountered a legal snare when TiVo (Alviso, California) sued for infringement of digital video recording technology last year. The U.S. Court of Appeals for the Federal Circuit ruled that because Echostar used communication with in-house counsel in its defense, no legal opinions generated for the firm’s defense were privileged, even those opinions offered by outside counsel that the company opted not to make use of.

McCurdy noted that broadly speaking, the opinion of counsel often is used to insulate defendants from allegations of willfulness in an infringement, and that for litigants, “willfulness is a punitive damages approach” invoked in “nearly every patent case” that can lead to treble damages. In order to use the opinion of counsel to fend off the willfulness allegation, the opinion should be on paper and “need not ultimately be correct, but must be competent.”

She said that in times gone by, there was an “automatic adverse inference” against firms that do not rely on the opinions of counsel or do not seek an opinion. The case of Knorr-Bremse v. Dana Corp. cut much of that away when a federal appellate court ruled that “no adverse inference that an opinion of counsel was or would have been unfavorable flows from an alleged infringer’s failure to obtain or produce an exculpatory opinion of counsel,” a ruling that ran contrary to precedent.

Following that ruling, courts came to rely more heavily on a “totality of circumstances” test that asks several questions, including “whether the infringer deliberately copied” the product or product design and whether a defendant who was aware of the plaintiff’s patent “investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed,” according to McCurdy.

She noted that “the courts were all over the board” with regard to the breadth of the waiver, but that the Echostar case fixed the opinion of in-house counsel as a waived communication, as well as that of external counsel. She said that “even if the communication was not formal,” it is now fair game when produced during litigation. However, any documents that are strictly internal to counsel are still privileged due to not having been transmitted in any way to the defendant. On the other hand, any documents that “discuss a communication between attorney and client” are not confidential.

According to McCurdy, “some said that the decision might encourage” counsel and defendants both to exercise considerable caution as to what information they pass along to each other, but that most decisions essentially constitute a “balancing act” with regard to such efforts to keep lips tight.

In other cases, courts have decided that failure to seek counsel can be used in the “totality of circumstances” defense so long as the plaintiff comes up “short of creating an inference that the opinion would have been adverse,” but that defendants can claim ignorance of the existing patent prior to the suit “if you do not rely on the opinion of counsel.”

However, McCurdy noted that a proposed reform of statutory willfulness embodied in the Patents Depend on Quality Act of 2006, sponsored by Rep. Howard Berman (D-California), is “very pro-defendant” and essentially would tell courts “let’s not get to willfulness until we determine infringement.”