Healthcare Reform and Its Impact on the Medical Device Firms

I recently attended the The BIOMEDevice Exhibition and Forum held at the San Jose McEnery Convention Center so that I might learn more about the medical device industry.  During the opening luncheon I listened to an interesting keynote talk given by Robert Grant.  Mr. Grant is a the President of Bausch and Lomb’s Surgical Division. He previously worked at Allergan, the company known for Botox and various eye care products.  Robert gave out some interesting information about national healthcare spending, a key regulatory and legal case involving a medical device and his comments about the impact of the recent ‘Healthcare Reform’ law on the medical device industry.

Robert said that the annual US healthcare spend has reached about $2.5 trillion. That figure works out to about $8,000/year,  for each person living in the US.  The US spending figure exceeds healthcare spending in other industrialized nations. Compared to the US, the country with the next biggest healthcare spend is Sweden, with $5,000/yr per person.   Australia and the UK are about the same, at $3,400/yr. per person

According to Robert, the high costs in HC are driven mainly by aging and obesity (diabetes). He also asserted that another spending driver is by how we educate doctors in this country.  It takes 4 to 6 years longer in the US to train doctors than it does in other countries.  For example, in other countries, students go from high school straight into medical school. In contrast, the costs of malpractice in the US is going up every year. Other countries have limits on malpractice claims against doctors.  Furthermore, all payors, device manufacturers, and so on, are profit-centric organizations that are looking to get higher earnings per share.  None of tese economic drivers have been addressed in the recent healthcare reform law.

The FDA is the safety watch-dog and is really tightening down now on device manufacturers.  This situation is especially likely following  the outcome of the Riegal vs. Medtronic case. Charles Riegel and his wife, petitioner Donna Riegel, brought suit against respondent Medtronic after a Medtronic catheter ruptured in Charles Riegel’s coronary artery during heart surgery. The catheter is a Class III device that received FDA premarket approval. The Riegels alleged that the device was designed, labeled, and manufactured in a manner that violated New York common law. The District Court held that the MDA pre-empted the Riegels’ claims of strict liability; breach of implied warranty; and negligence in the design, testing, inspection, distribution, labeling, marketing, and sale of the catheter, and their claim of negligent manufacturing insofar as the claim was not premised on the theory that Medtronic had violated federal law. The Second Circuit Court affirmed this case.

Medical device manufacturers go through the FDA, therefore the FDA is on the hook for the safety of medical devices.  The FDA is not motivated to get products to market.  As a result, they are not in a hurry to approve devices because of risk of products.

Robert summarized his observations and concerns with the following points:

• Companies are having trouble raising money so they are leaving the country.
• Aging and diabetes will break our healthcare system.
• The High Cost of Malpractice Cases
• The Doctors’ Education System Needs to Change
• The FDA is not willing to take needed risk to get products on market sooner. Top people left the FDA since the Obama election.  Dan Schultz left FDA.  All that has led FDA to become more risk adverse.

He said that smart companies understand that the best opportunities often arise during the more difficult situations such as recessions or economic downturns. We’re going down such a time right now.  Republicans say ‘No’ to everything, but that’s not a good idea.

Robert said that its OK for companies to take reasonable business risks and make mistakes. People learn from mistakes, innovate, and improve their companies.  His company’s product is Crystalens, an intraocular lens.  Actress Florence Henderson is their spokesperson.  Their product is for cataract surgery. Cataract surgery patients can only get 20/40 vision from the procedure.   He said that their product is better than Lasik.  CMS has agreed to reimburse for their product.

For example, Robert said that when he was at Allergan, Cindy Crawford went up to him while he was attending an industry event and asked to be a spokesperson for their product Latesse, an eyelash grower. Robert was surprised that she knew about him and was very flattered.  He discovered that Baby Boomers want premium outcomes. Robert believes there’s a great opportunity in bad times.  Healthcare is at a precipice at this time.  It is unfortunate that medical device companies have to pay a new tax now under the new ‘Healthcare Reform’ law.

In closing his talk, Robert recited from memory the opening sentence from US Constitution, which listed several visionary points.  He talked about these points and also talked about President John Adams, one of the writers of the constitution.  He said that he viewed a TV show about him on HBO.  In 1776 John Adams described what should happen every July 2, but it actually turned out to be July 4^th.  July 3^rd he predicted future celebrations which continue to do every year.