The hue and cry regarding the medical device tax continues at a high level in political circles, and it’s totally understandable. The tax is levied on revenues, not profits; however, in this industry, innovation is driven by start-ups that often take years to reach profitable operation. The fact that venture capital is drying up in the sector is not surprising.
That stated, the overwhelming impediment to innovation in the industry is regulation, particularly the onerous presence of the FDA, whose oversight so slows the development process that U.S. patients now wait an average of two years longer than their European counterparts to gain access to new medical technologies.
Consider the results of an industry survey on the comparative timelines of the FDA and its European counterparts for the two paths for premarket approval, 510(k) for low to moderate risk devices, and premarket approval (PMA) filings for those with higher risk.
The FDA reports that the average total time from the receipt of a 510(k) filing to final decision on that filing is three months. U.S. companies’ experience shows otherwise. They report a timeline of 10 months from first filing to clearance, and a timeline of 31 months from first communication to clearance. Their comparable experience in Europe: seven months from first communication to receipt of the CE mark certificate.
The gap for the more stringent PMA filing is even more pronounced. The FDA reports an average total time of nine months from filing to approvals for all original PMAs. Again, the company experience begs otherwise. They report a lag of 54 months from first communication to approval, whereas in Europe their experience has been 11 months from first communication to certification. That’s five times longer in the U.S. So in today’s accelerating markets, it’s no wonder that increasingly capital is looking beyond American shores to invest in med tech development.
The FDA compared unfavorably to European regulatory authorities in other ways as well:
- Predictability. Eighty-five percent of companies surveyed considered EU authorities to be highly or mostly predictable, while only 22 percent gave the FDA the same ratings.
- Reasonableness. Ninety-one percent rated EU authorities as highly or mostly reasonable, compared to just 25 percent for the FDA.
- Transparency. Eighty-five percent found the processes and decisions of the EU authorities to be highly or mostly transparent. The figure for the FDA: 27 percent.
- Overall experience. Seventy-five percent of respondents rated their regulatory experience in the EU as excellent or very good. Only 16 percent gave the same ratings to the FDA.
Despite the propensity to perhaps be a bit harder in critiquing “within the family,” these disparities are astonishing. They certainly point to an environment where effective market innovation is increasingly a difficult prospect.
Paul Yock, M.D., professor of medicine at Stanford University, encapsulates the problem:
The development of a new technology of any type is a difficult and fragile process, and the development of medical technology is a more fragile process still. A major reason for that is regulation. There’s a balance that we’ve gotten reasonably right over the years with being careful about innovation but not stifling it with regulation. But now we have a much more conservative approval process, combined with an economic crunch. Unfortunately for innovators, those two factors can come together to take the gas out of innovation.
This is the situation. The medical device tax is salt in an already open wound that’s hurting innovation. Yet innovation is the lifeblood of the industry. What can medical device companies do to keep it going? I’ll share a few ideas in the next post.