Location is everything, the real estate people are fond of pointing out. And during his keynote address at the 8th Global Medical Device Conference, sponsored by the Health Industry Manufacturers Association (HIMA; Washington) in January, association president Ron Dollens made the same point for medical technology in noting the central location of Guidant, the cardiovascular power that he heads as CEO. "Indianapolis, Indiana," he said, "is truly in the middle of the U.S., but we don't take a narrow view of the world." Rather, Dollens stressed the importance of taking a broad global view of health care, thus making it the core theme of the gathering subtitled "The New Millennium for Medical Technology."
That theme was further emphasized by the conference's Caribbean setting: the amenity-laden Caesar Park Hotel in Cancun, Mexico, and the ocean breeze sweeping into the hotel's open corridors suggesting the winds of change taking place in the new century. Underlying the international perspective of the conference were two other important ideas: The need to understand the interconnectedness of both national and global issues related to product development, and the speed of change which will be inevitable in the 21st century.
Perhaps the most dominant concern facing the industry – and an issue Dollens trumpeted as a HIMA priority when he took over leadership of the organization last year – is the need to shift attention from product approval and regulation by the FDA to product reimbursement. And since then, HIMA has increasingly turned a spotlight, via policy statements and press releases, on the Health Care Financing Administration (HCFA; Baltimore, Maryland), asking it to provide a more rational, clearer and more transparent reimbursement system.
Beyond issues of HCFA policy, Dollens said that people in medical technology need to be better informed about public health care policy at all levels, because of its influence on product development and commercialization. "Public policy has the potential to offset great strides that we have had in our individual organizations," Dollens said. "All of this [progress] can be for naught if we have the wrong policy environment."
He noted the imperative role of public opinion in the effort to gain acceptance for new medical technologies, a role which he predicted would grow into consumer control of health care, fueled by the power of the Internet. Web technology, Dolens said, "will change how patients interact with the medical system. They will make their own value judgments and take the health system [away] from the current decision makers."
Dollens' overview was further underlined by speaker Martin Coyne, president of the Health Imaging Division of Eastman Kodak (Rochester, New York) in describing that company's strategy for bringing products to the market globally. Coyne emphasized thinking beyond what he called a product's "core attributes" – such as function, speed of operation and ease of use – to what he termed "extended attributes" – such as specific customer characteristics, training requirements, methods of delivering a product and the product uses in a particular cultural setting. "The product and non-product processes must be developed along parallel paths," Coyne said, with the goal of developing "life-enhancing and life-saving products as quickly as possible." And for Coyne, the international perspective has clear economic implications: "The world is smaller than a century ago, or even a few years ago ... [Y]our biggest competitor is not the one across town or down the street, but the one half a world away that you can't see." A variety of other speakers attempted to describe the various neighborhoods of this shrinking global village and the challenges provided by their regulatory environments.
In a welcoming address, Dr. Raul Ramos Tercero, deputy minister of commerce for Mexico, described his nation as "one of the most dynamic commercial partners of the United States and an important world commercial power." Its additional significance, he said, was in providing a gateway to the developing health care markets of South America and by creating liberalized trade agreements with the countries of that region.
Those describing the European trade environment characterized it as attempting to emerge from a patchwork landscape of complex standards, mutual recognition agreements still in development – through the requisite "periods of confidence" – but with a long road still ahead to achieve unanimity of regulation and reimbursement. Werner Schoenbuehler, director of the Group Office for Quality Management for Siemens (Erlangen, Germany), stated what may remain a fact of trading in Europe for some time to come: "It doesn't do much good if two or three countries agree with one another, but not [with] others."
Offering perhaps the greatest untapped potential for medical technology is Asia, while also offering perhaps some of the most persistent questions. Emerging from a serious economic slump, Japan requires an infusion of innovative technologies to care for its rapidly aging population, but political and economic pressures may hamper their development. Thus, Mitsuo Hirose, executive advisor for Johnson & Johnson KK in Japan, described the country's health care system as a great ship loaded with patients and providers, but lacking a strong captain in the form of clear political leadership.
The diversity of the rest of the region was graphically represented in a pyramid described by T.C. Khoo of Johnson & Johnson, Medical, Asia/Pacific. At its base are countries with huge populations but little money to spend on medical care; a tier of countries above that with discretionary funds to spend but little sophistication in health care; and a few countries at the top with high sophistication and the ability to pay for new medical technology, but small populations.
In Asia, the best way to operate is through the development of strong relationships, these experts agreed. And if a problem arises in one of these countries, it can't be handled by phone or fax, according to Khoo. "If you don't go there – if you only try to work through your local dealer – it isn't going to happen. You have to go there and have direct contact."
Henney: FDA to beef up science base
At the 2000 FDA Science Forum last month, FDA Commissioner Jane Henney issued a series of promises concerning the agency's future. She said that, if she has her way, agency staffers will have expanded opportunities to increase their scientific skills and have more "neutral, information-based interactions" with the industries the agency covers. Henney said that to meet the challenges presented by new technologies, the agency's workforce "must be flexible and adaptable." But, she added, "the trouble with the future is it usually happens before we are ready for it."
Henney said all agency scientific reviewers should reserve at least 10% of their time to expand their skills and knowledge base. She noted, "This means we must have at least 110% staffing. This will not only require time, but financial support as well." In addition to making sure the scientific staff has the ability to conduct original research and attend important scientific meetings, Henney said she wants to be sure staff expertise will match the demands of reviews coming in the future, "not just for the next year, but what it should look like five years from now."
She added, "Since my tenure of commissioner began, I've been repopulating the scientific work force with an eye to retaining quality scientists and establishing a consistent process of peer review for science at FDA." In addition to a top-notch in-house staff, Henney said the agency must sometimes go outside in order to apply the latest scientific thinking. "It is in the interest of FDA to meet with industry on a neutral basis to explore the scientific milieu," Henney said. "We are looking at such interactions for drugs, devices and biotechnology."
Pooling of interests option in jeopardy
The Financial Accounting Standards Board has proposed to eliminate pooling of interests as a bookkeeping option in mergers and acqusitions. The first round of public hearings held last month on that proposal suggests that the pooling option is in jeopardy. Last April, the FASB voted unanimously to scrap, by the end of this year, the pooling method, which lets two merging companies simply add the book value of their net assets. Pooling can lead to overpayment of an acquisition, and to profile such a deal afterward is impossible by inspecting the paperwork, according to the FASB. Alternatively, purchase accounting calls for recording assets and liabilities at fair market value, with the amount above that written off as "goodwill" from the buyer's earnings over time – thus giving a more accurate picture of the company's growth, says the standards organization.
One school of thought claims the move would hamstring biomedical and biotechnology deals, while another insists the change would only put the focus in such transactions back where it belongs: on cash earnings. "They're both right," said Richard Pops, CEO of Alkermes (Cambridge, Massachusetts). "But when you run a company, you have to be wary. Let's say it will all be fine in two years. Well, that's eight quarters of jeopardy for your shareholders that you have to worry about." Pops, scheduled to testify at a hearing later in the month, said he would urge the FASB to keep the pooling rule, and find another way to ensure accuracy in reporting. Determining the value of goodwill intangibles such as brand name, processes, and intellectual property is tricky, he said. "Most of the valuation [of medical technology and biotech firms] is not in the form of hard assets," Pops said.
Doug Braunstein, head of global health care for Chase H&Q (New York), said that eliminating pooling "is more likely over time to cause people to focus on the funds of cash earnings [rather than charges against them], which is a better valuation tool. Some very large players are going to take the step, and force the research-analyst community to focus on cash earnings."
FDA issues SUDS enforcement regs
Under new guidelines released by the FDA last month, hospitals and third-party companies that reprocess single-use devices (SUDS) will have to meet the same pre- and postmarket requirements as original equipment manufacturers.
The guidelines outline a phase-in process, according to the level of risk a reused device offers to patient health and safety. If reprocessors of high-risk devices apply for premarket approval within six months of the guidance becoming final, they will not have to meet premarket requirements for one year from the time the guidance is finalized.