A Perfect Storm: Regulation, Reimbursement, and Intellectual Property

Monday, June 1st, 2009

The medical device industry today bears little resemblance to its beginnings as a regulated industry 30 years ago. The first development to come, of course, was regulation, followed by the complexities of reimbursement. Along the way came the need to protect intellectual property (IP), and that brings us to today. I spoke with industry veteran Gerald Loeb, MD, about how these three factors have changed the industry—and whether we might be on the road to stifling innovation.

“We’ve gone from complete laissez-faire to a system that treats research and product development almost equally,” says Loeb, professor of biomedical engineering and director of the medical device development facility at the University of Southern California.

Loeb says that some regulation is useful. But, he says, “I think the pendulum has swung too far to the other side and that the present regulatory environment is going to be a serious constraint on the development of truly novel medical treatments.” Rather, he says, the device industry is geared toward producing derivative products.

A big change that he says has affected the industry—mostly negatively—has been the substantial increase in litigiousness among medical device manufacturers. “It’s always been true in the drug business, but in the last 10–20 years, medical device manufacturers have become progressively more protective of their IP portfolios.”

He says that, in general, companies don’t make improvements until they are threatened by competition. “Companies that have been seeking to maintain monopolies and keep out competition are actually doing themselves a disservice in terms of their potential.”

Another phenomenon—and one that Loeb says that manufacturers are not necessarily taking advantage of—is that many things that used to be exotic and custom are now standard. “There are huge opportunities to reduce the costs and to reengineer and simplify products—like cochlear implants—that have been around for a while,” says Loeb. But, he points out that there is really no incentive to do so, noting that once a particular class of products has reimbursement at a particular rate, their cost competition disappears. And this is where regulation and reimbursement conspire to prevent technology innovation because they effectively enforce the status quo. “Nobody redesigns a product to take advantage of an opportunity to reduce its cost because getting the new product approved is a huge undertaking. With no price competition, there’s no reason to make it cheaper,” he says.
Is it possible that we’ve arrived at a point where innovation is effectively stifled? “The structure we have now—from intellectual property to regulation to reimbursement—has a very mature, well-developed set of rules that have induced behaviors in companies that are not entirely desirable. So now we’ve got to figure out how to change the rules,” Loeb says.

A wholesale rethinking of the healthcare delivery system is probably the answer but not likely to happen. “If you just try to change insurance without thinking about how that’s related to regulations and intellectual property or medical practice and product liability, you’re not going to solve the problem,” Loeb says. Industry, of course, can and should step in to do its part.

Sherrie Conroy for the Editors

Start a Conversation