Outside the operating room—economic, regulatory, and legal challenges

A device company perspective: Serving patients is the key to sustainable success

By Michael A. Mussallem

I am honored to be here to represent industry. Although medical technology companies compete fiercely with one another in the marketplace, we also have a broad common interest: we want to develop innovations to help patients.

DEVICE AND DRUG DEVELOPMENT DIFFER

Discussing ethical challenges involving industry is easier in the context of pharmaceutical development, for a number of reasons. The pharmaceutical industry is so large that it tends to dominate the discussion. But medical devices, which are primarily what is involved when we speak of surgical innovation, differ from pharmaceuticals in key ways.

The physician-company relationship is central

First, medical devices are not used directly by patients but are tools for physicians, which makes the relationship between industry and physicians more closely intertwined when devices are involved.

An iterative process by nature

Second, it takes years of development and enormous sums of money before a drug is finally approved. The final product then has a market life of 10 or 20 years. In contrast, device development is an inherently iterative process. After Thomas Edison developed the light bulb, attempts to improve the product were immediate and constant: “Can the light be made softer? The bulb smaller? Can it be turned off?” The same type of continuous improvement process happens with medical devices, which typically are refined every 12 to 18 months. Occasional breakthroughs occur and open up a whole new way of thinking, but far more often device innovation is about incremental modifications and improvements.

SUCCESS BREEDS CONFLICTS…AND REGULATION

The development of medical devices is an American success story; we tend to be better at it than any other country. Our system works well and rewards risks and innovation. When technology is racing forward to address an unmet patient need, a tremendous amount of value is created in the form of patients living longer and healthier lives. People pay for that value, which can create substantial payoffs for successful innovators and companies. I believe that six of the companies in the Fortune 500 are medical device companies, and the medical device industry has a $450 billion market capitalization in total.

The medical device business is like an ecosystem with many interacting components. Someone with a bright idea puts a physician and an engineer together, starts a company, attracts some capital, and develops a product. Because they need startup money for production, they might offer physicians a share of the company and some stock options, and immediately an opportunity for conflict of interest arises.

As a result of these many interacting components and the conflicts they can create, medical device companies today are highly regulated by a long list of entities, including the Securities and Exchange Commission, the Food and Drug Administration (FDA), the Department of Justice, the Internal Revenue Service, the Environmental Protection Agency, the New York and NASDAQ stock exchanges, the Office of the Inspector General, and the Foreign Practices Act. This degree of regulation makes every part of the medical device development process more time-consuming and expensive.

LONG-TERM SUCCESS REQUIRES THAT COMPANIES SERVE PATIENTS

The motivation of medical technology companies is often called into question. Medical device companies are certainly motivated to make money, and they certainly have obligations to shareholders. But for a company to be successful for many years, it cannot be single-minded about the constituencies that it serves. Great medical device companies have employees who want to work for them, physicians who want to buy products from them, communities that welcome them, and shareholders who want to own their stock, but the primary goal is always to serve patients: if that is done really well over the long term, the company can count on those other success factors being present. To have a sustainable competitive advantage, one must think beyond the next quarter and run a highly respectable business on an ongoing basis.

It is true that there are outlier medical device companies who do not always operate with full integrity, as there are in any industry. The challenge, both for the medical technology industry and for the broader health care community, is to raise the standards and encourage everyone to operate at a highly ethical level. I refuse to believe that doing so requires pulling apart companies, engineers, scientists, and physicians. Instead, we need to find ways for these various players to engage together.

A good start may be the revised Physician Payments Sunshine Act, proposed by US Senator Charles Grassley. This legislation, which is supported by the Advanced Medical Technology Association (AdvaMed), would establish a national registry of payments made to physicians by medical device, medical supply, and pharmaceutical companies, and seems to make a lot of sense. As we move forward on this and other efforts to raise the ethical bar in health care innovation, it is important that there be a place at the table for everyone involved.