BB&T Washington Editor and Staff Reports

The Senate Finance Committee recently released a thumbnail sketch of its healthcare reform proposal, which didn't sit well with proponents of a public option or with the healthcare sector, including insurers. According to the framework document, the government would hit device makers with a total of $4 billion in fees for each of 10 years, for a total of $40 billion, to help finance the expansion of medical coverage. Diagnostics makers did not make it under the radar screen either, expected to contribute $750 million annually.

However, makers of devices and diagnostics are not the only ones expected to pony up under the framework, which calls on the pharmaceutical industry to offer $2.3 billion annually and the health insurance industry to come up with $6 billion a year.

Reaction from the device industry was not welcoming. In a Sept. 8 statement, Steve Ubl, president/CEO of the Advanced Medical Technology Association (AdvaMed; Washington), said the association "supports broad-based healthcare reform that will ensure all Americans have access to quality, affordable health care," but that industry "will vigorously oppose the proposed $40 billion tax on medical devices and diagnostics that is included in the draft reform proposal."

Ubl argued that the levy is "a form of double taxation, since a portion of the hundreds of billions in cuts aimed at our customers, including hospitals, nursing homes, and home health care agencies, will be passed on to us." Ubl added that small device firms, which are typically responsible for most of the cutting-edge technology, will take a hit as well, stating also that a fee "imposed on clinical labs raises serious concerns in view of other cuts to payments for lab services."

Ubl finished the statement by promising to "continue to work with Congressional leaders and the White House to further real health reform and to eliminate this counterproductive proposal from any reform package."

The framework does not include a public option, but instead calls for a health insurance exchange starting next year that would standardize the format for comparisons of health plans' costs and benefits. The framework would also require plans to publish the percentage of premium revenue "spent on items other than medical care."

The framework includes an enrollment mandate that allows exemptions for those with "religious objections consistent with those allowed under Medicare" and for those whose incomes fall under the federal poverty level. Native Americans would also be exempt. Those whose incomes fall between the federal poverty level (FPL) and three times that amount would be fined $750 a year per person for not enrolling, an amount capped at twice that sum. Incomes beyond 300% of the FPL would incur fines of $950 per person, limited to $3,800.

Medicare Part B doctor fees were also part of the framework, with the document noting that an expert panel - presumably not the Medicare Payment Advisory Commission - would be convened "to identify physicians' services that are overvalued," and any service areas that have grown conspicuously would be subjected to scrutiny to ensure the clinical appropriateness of that growth.

Baucus apparently backs the 90% imaging usage rate convention for Part B imaging services, the framework indicates. This has been a substantial bone of contention because of differences of opinion about the data underlying the assumption that such equipment is typically operated that much of the time during a typical work week. The Centers for Medicare & Medicaid Services proposed earlier this year to set the assumed usage rate at 90%, an idea that had been floated by the Medicare Payment Advisory Commission.

Under the Finance Committee bill, durable medical equipment provided in areas not covered by competitive bidding would be trimmed by 75% of the difference between the national average and that area's spending levels.

FDA directs IOM to examine old 510(k) process

FDA review of devices has been riddled with growing controversy over the last year and now it has culminated with the decision to formally assess the process. For more than three decades, the FDA review process for medical devices has been divided into the premarket approval and the 510(k) process, and accusations that products have been approved without enough scrutiny along with alleged inappropriate decision-making within the agency are all at the root of potential changes.

Hence FDA announced in September that it has commissioned the Institute of Medicine (IOM; Washington) to study the 510(k) process. Although the Advanced Medical Technology Association (AdvaMed; Washington) said that it favors the review, a spokeswoman for the group indicated she has confidence in the current system, even saying that it offers "robust protection to Americans."

"AdvaMed believes the 510(k) process is a well-defined, objective and science- and risk-based regulatory process," Janet Trunzo, executive VP of technology and regulatory affairs for AdvaMed, told BB&T. When asked if newer technologies are blurring the lines of distinction between the different classes of devices, she said, "FDA has well-established criteria for determining the classification of a device. If a newer technology has different technological characteristics that raise new issues of safety and effectiveness compared to an already marketed predicate device, it cannot be cleared through the 510(k) process."

In addition to the IOM study, FDA's Center for Devices and Radiological Health (CDRH) will convene an internal working group to evaluate and improve the consistency of FDA decision-making in the 510(k) process. "Good government conducts periodic reviews and evaluations of its programs," said Jeffrey Shuren, MD, acting director of CDRH. "Our working group and the IOM's independent evaluation will help us determine how the 510(k) process can be improved to better support FDA's mission to protect and promote the public health."

Legislators have even jumped into the fray, with three members of the House, led by Henry Waxman (D-California), chairman of the House Energy and Commerce

Committee, writing a letter to the FDA stating that "given the questions raised by the FDA scientists about the lack of data on the safety and efficacy of" the controversial Menaflex, made by ReGen Biologics (Franklin Lakes, New Jersey), "we believe this is a prudent course of action" referring to their intention of further investigating potential inappropriate actions related to the approval. The other two letter signers were Frank Pallone (D-New Jersey), health subcommittee chairman, and Bart Stupak (D-Michigan), chairman of the subcommittee on oversight and investigations.

With a budget of $1.3 million for the project, IOM will address several questions, including whether the current 510(k) process optimally protects patients and promotes innovation in support of public health. If IOM concludes that it does not, it is tasked with determining what legislative, regulatory, or administrative changes are needed to achieve the goals of the 510(k) process. The review is scheduled for completion in 2011.

FDA: Menaflex stays for now, but process warped

The application for the Menaflex collagen scaffold has been under the microscope by many parties of late, and FDA released the results of its investigation into the controversy recently, announcing that the Menaflex will stay on the market for the time being. However, deputy FDA commissioner Joshua Sharfstein, MD, also said in a related conference call that there was no guarantee the device will stay on the market pending a fresh review of the device's clinical data.

The press conference followed the announcement by FDA that it has requested that IOM examine the 510(k) program at FDA (see previous story), but the agency's representatives on the conference call declined to address whether the predicate creep cited as a driving concern can be addressed in strictly regulatory terms.

The Menaflex, a collagen scaffold for the knee, morphed from an IDE filed in 1992 in pursuit of a PMA to a 510(k) earlier this decade, but the sponsor had no luck with the agency's reviewers. FDA, apparently at the prompting of several parties including Rep. Frank Pallone (D-New Jersey), convened an advisory committee hearing that resulted in a recommendation that the agency clear the product due largely to outstanding safety data, but largely unpersuasive efficacy data.

Sharfstein said on the conference call that the review was conducted "out of concern that we were made aware of by Congress and the media," prompting him to ask several senior managers "to lead a review of this process targeted at several questions," including whether established procedures were followed.

"There were in fact numerous departures" from standard operating procedures, Sharfstein acknowledged, adding that the report "makes a series of recommendations all of which will be adopted," including the IOM review of the 510(k) program.

The report notes that reviewers also deviated from procedures, including that they returned a decision deeming the Menaflex not substantially equivalent to the predicate on the first 510(k) review, an action that is widely known as being contrary to standard practice.

"The message is that there were problems with the integrity of the decision making process," Sharfstein noted, but he added that those problems "have solutions."

St. Francis, C.R. Bard suit dismissed with prejudice

C. R. Bard (Murray Hill, New Jersey) said that the U.S. District Court, Eastern District of Missouri, has granted Bard's summary judgment motion and dismissed with prejudice all counts in the previously-disclosed class action lawsuit titled St. Francis Medical Center, et al. v. C. R. Bard, Inc., et al. St. Francis (Cape Girardeau, Missouri) may appeal the court's decision to the Eighth Circuit Court of Appeals.

The court dismissed all counts of a class-action lawsuit led by St. Francis that alleged the company conspired to exclude competitors from the urological catheter market. The medical center was seeking damages of up to $200 million, a figure Bard said was "unsupported by the facts."

Bard and Tyco International (Princeton, New Jersey) had faced a class-action complaint in early 2007 led by Southeast Missouri Hospital (Cape Girardeau, Missouri). The complaint was later amended to add St. Francis and was later renamed when Southeast's motion to serve as class representative was dismissed. Tyco was also later removed from the action. St. Francis further alleged the company sought to maintain market share by engaging in conduct in violation of state and federal antitrust laws, C.R. Bard disclosed in its 10-Q Securities and Exchange Commission filing in July. St. Francis can appeal the decision.

Boston Sci, J&J settle protracted stent battle

Media outlets have dubbed the ongoing legal battles between stent makers, the Stent Wars, but a recent settlement between Boston Scientific (Natick, Massachusetts) and Johnson & Johnson (J&J; New Brunswick, New Jersey) promises to be one of the most significant chapters in the epic as it takes nearly a dozen of these cases off the board. Boston Sci reported that it will pay $716 million to settle long-standing litigation with J&J over intellectual property rights tied to Boston Sci's cardiac stents. Boston Sci said the payment will be made using existing cash reserves.

The settlement retires more than a dozen lawsuits involving the companies' vascular stent technologies. Both companies are primary players in the multi-billion dollar stent business, with Boston Sci considered the market leader.

The settlement comes on the heels of an announcement by J&J subsidiary Cordis (Miami Lakes, Florida) and drugmaker Wyeth (Madison, New Jersey) that they were suing Abbott (Abbott Park, Illinois) and Boston Scientific. Cordis alleged infringement of a coating patent for coronary stents, citing specifically the Xience V and Promus stents.

There are dozens of cases regarding patent infringement between med-tech companies. Between Jan. 1, 2004, and Aug. 13, 2008 there were more than 20 lawsuits involving Medtronic (Minneapolis), all of which deal with patents. Boston Sci has been named in more than 20 patent lawsuits in that time, eight of which were filed in the first eight months of 2008, according to Justia.com, a database of legal news. The company recently settled patent claims with Medtronic and, earlier this year, Medtronic said it would pay $400 million to Abbott to settle patent litigation over stents.

PTO drops proposal limiting claims, continuations

The U.S. Patent and Trademark Office announced last week that it has dropped the proposed rules limiting the number of claims and continuations available for patents. The announcement came as no surprise, given that the Department of Justice had asked the Court of Appeals for the Federal Circuit (CAFC) in August to put a related lawsuit on hold.

Another augur of this outcome is that the new director of PTO, David Kappos, had filed a friend-of-court brief on behalf of the two entities that had filed suit against the proposed regulations, GlaxoSmithKline (London) and Triantafyllos Tafas, MD, founder of device maker Ikonisys (New Haven, Connecticut). PTO's Oct. 8 statement notes that it has also filed a joint motion with Glaxo and Tafas to dismiss the lawsuit.

Kappos said in the statement that the regulations "have been highly unpopular from the outset and were not well received by the applicant community." He adds that the agency's hope is that the withdrawal will allow PTO "to engage the applicant community more effectively on improvements that will help make the [PTO] more efficient, responsive, and transparent to the public."

Gene Quinn, a patent attorney and founder of IPWatchdog.com, told BB&T that the announcement doesn't obviate the need for some sort of tweak of the current rules for independent and total claims. "I don't know what they're going to do, but one of the problems PTO is facing ... is that over the years, applications have become much more complicated." He also said that those fees "are not enough to have a real and honest examination" of the more complicated applications. "These applications are so big that anything they can do to cut the size down makes sense" so long as patent protection is not watered down, he said.

Commerce backs gatekeeper function

The push for patent reform legislation seems to have stalled as healthcare devours Congress's time, but the Department of Commerce has not forgotten about the subject. In an Oct. 5 letter to the chairman and the ranking member of the Senate Judiciary Committee (Vermont Democrat Pat Leahy and Alabama Republican Jeff Session), Commerce Secretary Gary Locke writes that Commerce "strongly supports" the committee's patent reform bill and wants to get legislation passed "as soon as possible."

Locke may or may not have had in mind the Supreme Court's decision to hear the method patent case of Bilski when writing the letter, but one passage indicates that Commerce supports patent protections that "only [reward] truly innovative ideas."

Locke takes a definitive stance on PTO's authority to make substantive changes to rules, stating that it would "remove doubts raised regarding the PTO director's authority to adopt rules in light of Tafas v. Dudas." He notes further that such authority would give PTO more flexibility "in the administration of patent rules and procedures."

Locke states his support for the provisions in the Senate patent reform bill (S. 515) for inter partes re-examination of patents, which purportedly would cut down on lawsuits and speed resolutions, but he notes that this would increase PTO's cost of doing business. He suggests that "intermediate steps" may be needed to deal with this "until a new fee schedule can take effect."

On the subject of fees, Locke indicates a favorable view of S. 515's provisions giving PTO more leverage to raise patent fees, but he states, "the administration would like to work with Congress to ensure that intermediate steps ... can be taken while a longer-term fee schedule plan is developed."

The damages question is never far off, and Locke indicates sympathy to S. 515's gatekeeper approach in reference to a provision that would require judges to spend more time instructing juries as to which of the Georgia Pacific 15 factors should be applied in a damages calculation.

Still, Gene Quinn of IPWatchdog.com noted that IBM (Armonk, New York) recently sent out a press release indicating that it could live with the gatekeeper function in lieu of apportionment, a seeming breach in the computer tech industry's wall on the issue. He said IBM's statement may indicate that big tech has come to terms with Senate Judiciary on the damages issue.

Regarding Locke's comment about "only rewarding truly innovative ideas," Quinn said the statement might be in reference to the Bilski method patent case, given that the newly appointed deputy director of PTO, Sharon Barner, might not object to a negative outcome for Bilski. "Her view is that ... we shouldn't just be giving patents away like they're candy," Quinn said. On the other hand, the statement might also be fueled by the fight over biotech patents.

"I suspect that it has more to do with gene patents," which Quinn acknowledged as a "hot-button issue," especially in light of a report filed last week by the Task Force on IP and Genetic Testing at the Department of Health and Human Services. The report is said to have concluded that patenting of genes does not encourage investment in genetic research into diagnostics or for therapeutic drugs.

As for Locke's discussion of substantive rule-making authority, Quinn described it as "absolutely ridiculous." He said that had PTO possessed such authority in 2007, "we would have had the claims and continuations rules thrust upon us." All the same, such ideas are not likely to gain much traction on Capitol Hill. "There has historically been zero support in Congress," for such a move, Quinn pointed out. "I think Locke knows that," because "the way I read that is that Locke was making that argument to make someone happy."