WASHINGTON A parallel mantra to real estate's "location, location, location" for the Centers for Medicare & Medicaid Services (CMS; Baltimore, Maryland), as well as the FDA, would seem to be "evidence, evidence, evidence." That was the off-voiced message by government regulators participating in a panel on advancing new technologies during last month's annual meeting of the Medical Device Manufacturers Association (MDMA; Washington).

The evidence mantra was more than several times repeated by new CMS administrator and former commissioner of the FDA, Mark McClellan, MD, who most often put it in a "yes . . . but" type of formula as in "yes, we are trying to deliver more of the newest medical technologies to patients and consumers, but we need better evidence to do so." As for accomplishing this, McClellan stressed the importance of cooperation between government and industry in the med-tech field, and added: "We have the greatest opportunities ever with the new sciences, yet we haven't had substantial impact on [bringing these to] patient care." And he referred to the too-frequent "overuse, underuse or misuse" of medical technology resulting from this knowledge gap.

A continuing effort for improving the utilization of new medical technologies, he said, was a closer collaboration between CMS and the newest mandates laid out by the Medical Device User Fee and Modernization Act, which he cited as an example of the FDA's commitment to speeding regulatory approvals. Overall, he described the current era of scientific research and regulatory issues as creating "a public policy crossroads," one increasingly complicated by the rising cost of healthcare that makes new technologies more difficult to pay for, and a "lack of good, practical evidence" about these technologies. "The path we choose today," he said, "is either more innovation or wasted opportunities," with the latter course he predicted as resulting in "patients, and the public, uncertain and angry."

McClellan said, "We need new steps to get med-tech developed sooner, guided by better evidence," but noted: "too often therapies are widely used but poorly assessed as cost-effective alternatives." As an example, he cited "complex diagnostics, but all expensive and "promoted with limited knowledge of the benefits." McClellan avoided putting the onus for the lack of cost and risk/benefit knowledge on the industry, but suggested it was a problem with systemic sources and causes. "The system hasn't evolved to measure these [technology] benefits," he said. And he laid out a variety of ways in which CMS will be attempting to improve the quality and efficiency of data-gathering for new technologies. These included the development of better data-gathering tools, acquisition of more information concerning the quality of care provided by new technologies, the expansion of CMS's Open Door Forums, greater dependence on economists "trained in these evaluations" and, from the industry, "asking for additional and more specific advice" about new technologies.

McClellan said that CMS' new Council on Technology and Innovation would help to focus on improved evidence-gathering following FDA product approvals especially with broader use of information technology and electronic data collection. And still another program will be a wide-ranging effort to analyze "coordination of care mechanisms later this year to improve the cost of care" in treating chronic conditions and including measures of patient/ provider satisfaction. He said that the results of these studies would be developed over "the next year or two at much lower cost." And he promised more such studies as "a more systematic integrated way to promote rapid diffusion of new treatments."

In the Q&A period that followed, one attendee asked, as part of a two-part question, how companies with breakthrough technologies could succeed against medical practices and "powerful blocks that exist, representing the status quo." McClellan failed, or perhaps forgot, to answer the question, but it was taken up later by Sean Tunis, MD, chief medical officer and director of the Office of Clinical Standards and Quality at CMS, who referred to these "entrenched interests" and how to deal with them. "We're interested in trying to facilitate decision-making to benefit the Medicare population [by creating] a level playing field," Tunis said. This could be done, he said, on "what evidence you can bring to the table." While acknowledging fewer resources by small companies for doing this, he also downplayed the extent to which the larger firms actually invested in developing the required evidence.

Smaller firms "don't have to do a 1,000-patient study," Tunis said, but might achieve coding with a study using 50 people and a carefully selected control group. And he emphasized the value of truly innovative ideas, citing a company that has approached CMS with the idea of a "wearable dialysis belt" to provide continuous dialysis. While he acknowledged that this presented a clear case of a technology that could threaten "entire dialysis interests," he said: "Come on in and convince us that [you have] an interesting product and we'll try to move it along."

Tunis also used his panel presentation to attempt to dispel some misinformation floating about. He said that while CMS and the FDA are currently working on ways to collaborate and share expertise to make better decisions, the two agencies are not going to overlap in their key areas of decision-making. In particular, Tunis said that there might be some "parallel review" of products by the two agencies, but that the FDA will not have a say in CMS coverage decisions and "will not in my lifetime do cost-effective analysis."

Reimbursement important to VC backers

If there is a formula for a new medical technology, not just to reach the market, but to succeed in the market, it may exist in the answer to a question posed by Kenneth Hayes, president and chief executive officer of Radiant Medical (Redwood City, California), at the conference. A member of a panel titled "Venture Capital Close-Up," Hayes offered what he called a key "market adoption question" in reference to chances for the latest dog food: "Will the dog eat the dog food, and will someone pay for the dog food?" If so, he said, "the chance of success is much greater."

Other panelists Nancy Briefs, founding chief executive officer of Percardia (Merrimack, New Hampshire), and Mark Wan, a founding partner of Three Arch Partners (Portola Valley, California) echoed the importance of reimbursement prospects for start-up firms with seemingly good ideas, but that such prospects too often are overlooked. In terms of potential venture capital (VC) funding, tackling the reimbursement issue is often the difference between obtaining the necessary long-term funding vs. failing to get beyond seed rounds and eventually foundering.

Both Hayes and Briefs have clearly convinced their backers that their products will find buyers and have been highly successful in the VC race. Radiant still in the clinical trial stages of developing endovascular systems for lowering the temperatures of patients to forestall the damages caused by myocardial infarction and stroke has raised $66.5 million through four rounds of financing since its founding in 1997. And Percardia, the developer of a myocardial implant, has raised more than $30 million in VC funding since its 1998 launch. Emphasizing the importance of mapping a reimbursement strategy, Briefs said that Percardia designed some of its clinical trials with added endpoints "not necessarily related to safety and efficacy" that is, the characteristics of a product weighed by the FDA. Rather, she said some of these endpoints were designed to demonstrate cost-effectiveness and, "had we not done that early on, we'd end up in a strategic minefield."

Representing one of the VC firms supplying significant funding to med-tech firms "75% in the device space," the remainder in healthcare services Wan provided some interesting statistics concerning the chances of winning the venture backing to reach the marketing and reimbursement phases, based on the plans reviewed by his and other VC companies. Of 100 plans presented, he said 60% are rejected following a 15- to 30-minute review. About 20% of applicants get an additional look-see and perhaps a "first meeting" with the company. Another 10% receive an in-depth review but are then "dismissed." And of the final 10% of "viable opportunities," he said, "20% are negotiated to conclusion." Despite this relatively small number of winners which may reflect the large number of applicants and the relatively inadequate planning evidenced by many Wan asserted that 2004 is "a great time to raise venture funding." But he added: "If you can't get the product paid for, that's something we take very, very seriously."

Wan described a variety of other trends among those products that do attract venture capital. These include technologies that are less invasive, that provide "convenience and comfort" and that demonstrate "safety and security," characteristics increasingly seen as attractive to patients. In the higher-tech category, he said that combinations of devices and drugs "in some settings" may be seen as hot opportunities.

Offering a carefully balanced view of the VC financing landscape was Mark Hessen, president of the National Venture Capital Association (Arlington, Virginia), during a session titled "View from the Venture World." He presented a graph showing gradual increases in VC funding through the late 1990s from about $10 billion in 1995 and exploding to $105 billion-plus in 2000, powered by the dot-com and information technology balloon which turned into an all-too-quickly evaporating bubble. But, Hessen said, "We don't want to benchmark off of 2000. Forget that. Look at where we are today and if that's a good place." It is, he said. He noted the gradual rebound of VC deals and amounts, citing "the past seven quarters of patient, long-term investment . . . quietly, patiently, for about seven quarters and that's where we're going to be for the next couple quarters." Hessen did acknowledge "a little bit of sloppiness in the [VC] market," with VCs "bidding up deals in competition." But he said that the key is the "fundamentals" of the VC market, calling these "much better than in the past."

Breaking down the current VC funds in terms of shares, his pie charts showed 28% of this financing in the life sciences, comprised of biotech (20%), medical devices (7%) and healthcare services (1%). Not surprisingly, another chart showed the majority of this life science VC funding in California (57%), followed by Massachusetts (13%) and no other state in more than single-figure percentages. Perhaps most interesting of all, Hessen described the very preliminary results of a study being conducted by his firm that appear to show significant positives produced by VC backing. The most obvious of these benefits is what he termed the "acceleration affect" that is, from initial company founding to a product launch. The study found that companies with "seasoned venture firm backing" took 21 months from founding to product launch, while companies that are "bootstrapped" took 60 months to reach the market. Other benefits he cited included improved patient outcomes, reduction in long-term costs of disease management and, overall, "healthier companies."

User fees: part of 'perfect storm'?

While a variety of issues that MDMA has put on its action agenda were identified during the meeting, one especially topped the list of concerns, because it is seen as a major barrier to future innovation by med-tech's smaller players. That issue is medical device user fees, legislation that the association agreed to only with large reservations, reservations it now says are proving true. As a member of a panel addressing "FDA Issues on the Horizon," Kelvyn Cullimore Jr., president and chief executive officer of Dynatronics (Salt Lake City, Utah), charged that the fees intended to support the FDA in its regulatory processes were developed in 2002 from a "perfect storm" situation of three factors coming together simultaneously. Those factors, he said, were the FDA's need for additional funding in the face of larger regulatory and scientific challenges; congressional promises to provide more funding to the agency; and "an organization in favor of user fees," that organization being the Advanced Medical Technology Association (AdvaMed; Washington), which MDMA frequently links to the big-company interests of the med-tech arena.

Cullimore said that when the user fee system was first proposed by AdvaMed, "I wrote to [AdvaMed president] Pam Bailey and let her know that I did not appreciate her representing herself as my representative." And he charged that passage of the user fee act has constituted "a three-year tax" on the industry, with the other participants in the deal having so far failed to live up to their parts of the bargain.

The largest shortfall, according to both Callimore and an MDMA position statement issued at the meeting, is that of Congress, the primary target of the association's attack on reauthorization of the user fee legislation slated for next year. "A deal is a deal," Callimore told meeting attendees, saying that the industry has been the only one of the three participants "stepping up," via its payments of the required fees.

Congress, by comparison, has only contributed 20%, or about $5.5 million, of the $26 million it has promised, according to MDMA. And the contribution of the FDA in terms of improved performance is based on some rather facile accounting, according to the association's statement of what is expected from the agency. Callimore said the fee structure of the legislation essentially has amounted to a 7% tax on his firm and thus is "pretty hefty." By comparison, he said that if industry giant Medtronic (Minneapolis, Minnesota) were to pay a comparable rate, it would "triple the FDA's annual budget."

He underlined the "perfect storm" effect on medical devices by citing the history of the user fee structure for pharmaceuticals. Using as a template PDUFMA (the comparable user fee legislation for pharmaceuticals), Callimore said, "you have to be pretty scared." Over the history of that legislation, the pharma industry's contributions have risen 2,600%, while the appropriations from Congress have been just 50% of what was promised, he said. Thus, Callimore told attendees that when the device user fee legislation comes up for renewal, "I believe this group needs to know what is happening and under what terms [that renewal] will occur."

The shortfall by the FDA, according to the MDMA's position statement, is a bit more complicated. While the two key FDA representatives at the meeting acting FDA Commissioner Les Crawford and acting head of the Center for Devices and Radiological Health Daniel Shultz presented various figures indicating that the agency is on track to meet most of its approval timelines, the MDMA's statement says those performance goals "do not represent any real improvement" and that there is a "lack of real performance goals" by the agency. As support, it cites the 2003 annual report of the Office of Device and Evaluation, which showed that for 99% of submissions to the agency, it "was already meeting or exceeding the decision goals under MDUFMA before the law was even enacted," with the goals that were set thus either setting the performance bar no higher than previously or, in most cases, lowering it. A chart accompanying the statement lays this out, indicating that only meeting the defined MDUFMA goals would actually result in declines in current agency performance or, at best in some areas, show only single-digit improvements.

Again making comparisons with drug user fees, the association described device user fees as potentially very burdensome to med-tech development. "The medical device industry," it states, "receives a far smaller per-device revenue potential than drug manufacturers. Devices have a much shorter life span than drugs, have significant research and development costs and face the need for nearly continuous technological improvement, modifications and upgrades." And overall, it says the smaller companies are "disproportionately impacted by user fee increases to the extent that innovation is being stifled."

While agreeing that the FDA needs the additional sources to carry out its mission, MDMA says that any continuation or renewal of the user fee system requires "modifications." Its specific recommendations are:

A reassessment of FDA's total funding needs by an independent third party.

Establishment of performance goals "that reflect real improvement."

Stabilizing the fees for industry by either eliminating the workload and compensating adjustors or capping fees.

Full funding by congressional appropriators for MDUFMA in FY05, FY06 and FY07.

Underlining the issue is a decrease in the number of product applications, data that already has been acknowledged by the FDA. While Shultz said he believed this decline simply reflected the historical ups and downs in applications to the agency, the MDMA interprets the decrease as a direct effect of user fees. "Significantly," according to the association, "FDA anticipates fewer PMA and 510(k) submissions in 2004, which will likely result in another round of dramatic increases in user fees for FY 2005." And, "The user fees need to be stabilized by either eliminating the compensation and workload adjustments, or MDUFMA needs to be amended to provide a cap for fee increases."

GPOs a 'hot button'

Group purchasing organizations (GPOs) clearly attract a broad and heterogeneous combination of advocates and detractors. The advocates the major group purchasing organizations themselves, primarily Premier (San Diego, California) and Novation (Irving, Texas) which together combine to provide medical supplies to nearly two-thirds of America's hospital beds continually trumpet their ability to reduce the nation's healthcare costs by developing contracts for hospital supplies and services at reduced prices.

The detractors were in force as attendees at the MDMA meeting. And the metaphorical kid gloves were taken off in characterizing GPOs as a sort of evil empire, dominating the hospital market and preventing the healthcare system from taking up emerging technologies produced by the smaller, entrepreneurial companies. Preaching to this choir was a three-person panel made up of an executive from one of the smaller GPOs, an executive from a medical manufacturer participating in GPO contracts and a representative from a healthcare workers union.

Panelist Joe Kiani, chairman and chief executive officer of patient monitoring specialist Masimo (Irvine, California), tended to walk territory on both sides of the GPO issue, saying that the company had been kept out of "sole-source" GPO contracts but had developed a "dual-source contract" with Novation, and the other manufacturer participant in the contract being Nellcor (Pleasanton, California). Nellcor, a unit of Tyco (Pembroke, Bermuda), is Masimo's primary competitor in the pulse oximetry sector and the two companies do battle on a variety of fronts in the marketplace, in clinical appraisals, but seemingly primarily in court and in press statements. Arguing both sides of the GPO issue, Kiani said he was "concerned" that the code of conduct recently developed by the GPO industry might be mere wording and "left at that." Conversely, he said, "If I said all GPOs in general [act unethically], I don't mean all of them."

Kiani reported that his company's original attempts to involve the Federal Trade Commission in the GPO issue had run up against the industry's "safe harbor" protections, but that Congress was putting a more focused light on the issue. And he encouraged a general whistle-blower strategy by manufacturers. Key government agencies "are listening now and looking for evidence," he told the attendees. "Write letters and point them to where to look."

Coming at the GPO issue from a somewhat different angle was Nick Rudikoff, senior field researcher in the healthcare division of the Service Employees International Union (SEIU; Washington), who charged that one impact of GPO contracts served to endanger healthcare workers via "flawed business practices." Rudikoff cited the case of a large hospital organization that had thumbed its nose at recent and now-familiar rules instituted both by individual states and the Occupational Safety and Health Administration (OSHA; Washington), requiring hospitals to upgrade to safer technologies to prevent needlestick injuries and to make these technology decisions with worker input.

Rudikoff said not only had the hospital company in question not consulted its workers, but that it had switched syringes to ones with "a lower safety rating," while citing a commitment to "work with preferred-provider partners." He said, "We think all healthcare workers deserve better than that," and he noted that the hospital group had eventually paid a $12.1 million judgment as a result of its purported contractual obligation.

Rudikoff also raised the issue of questionable economics, saying that the SEIU is concerned with GPOs producing inflated costs via "a lack of competition," with those costs "falling on the backs of working families." In order to monitor the group purchasing organization issue, he said the union has established a web site,

MDMA Executive Director Mark Leahy said that the association is trying to develop as much information as possible concerning GPOs "so these [new] technologies get to the marketplace." Those efforts were praised by attendee Bill Borwegen, occupational health and safety director of the SEIU. "You're the only group that is taking on this issue," he told the MDMA attendees. "You own this issue. If you don't [pursue] it, who's going to?" Making the point even more directly, Kiani charged that AdvaMed has not challenged the GPOs because of its predominantly large-company membership and said that the association "has been hijacked [to support] the GPO process."

An attendee expressed another view that the hospitals, together with "the doctors' pen," were largely responsible for perpetuating the inflationary GPO processes. "The physician is going to keep buying without scrutiny of good prices. And the ignorant [hospitals] think the GPO's sole-source contract is saving them from the physician's pen," he said. Still another voice one seemingly in the minority was an attendee who noted a "shifting market," pushed by an increased use of integrated delivery networks and "a dramatic shift [by hospitals] in terms of loyalty to GPOs throughout the marketplace."