Soaring Medical Costs Pinned on Medical Devices

June 7, 2011

The following appeared this morning in The Fiscal Times:

While squabbles over the rules for approving new medical devices rarely attract much attention outside the insular world of manufacturers, regulators and medical professions,  a fight is brewing that could have a major impact on efforts to control health-care spending.

The device industry has launched an aggressive campaign to avoid tighter Food and Drug Administration rules that would help generate the information needed to show whether newer devices are actually superior to the ones they replace. The latest devices – from heart valves and defibrillators to artificial knees and hips – are usually significantly more expensive than older devices, and the intense marketing surrounding the introduction of new devices has become a major driver of rising health care costs.

Many medical specialists say tighter rules are needed to ensure newer devices are safe and effective, which could help hold down costs. “Better regulation of medical devices has the potential to reduce health care costs,” said Steve Nissen, chairman of cardiovascular medicine at the Cleveland Clinic. “New devices are often more complex and expensive than existing products, but may not offer any improvements in health outcomes. The current regulatory approach allows these devices to reach the market with little or no clinical data.”

“Requiring evidence of benefit of effectiveness for patients before device approval would prevent billions of dollars from being spent on technologies that are not helpful for patients and are even harmful,” said Rita Redberg, editor of the Archives of Internal Medicine and a cardiologist at the University of California, San Francisco. “There are many examples, such as vertebroplasty and kyphoplasty for back pain [compression fractures], on which Medicare spends approximately  $1 billion  annually. After they were FDA-approved, randomized clinical trials showed they were no more effective than a sham procedure in relieving symptoms.”

Despite the cry for tighter rules, think tanks funded by industry in recent weeks have released several studies claiming that the FDA is standing in the way of improved devices getting to market. Congress is holding hearings to investigate the issue. And a third of the members of the House  has signed a letter calling for legislation that would roll back a small excise tax that proponents claim is choking off “innovation.”

The 2.3 percent tax projected to generate $20 billion over the coming decade was part of the health-care-reform law and was similar to excise taxes slapped on the drug and insurance industries, which have not launched similar campaigns. All three industries are among the most profitable in America.

The controversy has important regional political significance because many of the device manufacturers are major employers in the Midwest – especially in Minnesota, Ohio, and Indiana.  With the backing of Midwestern lawmakers, the industry is fighting back.

Rep. Erik Paulsen, R-Minn., whose district abuts the headquarters of industry giant Medtronic, last week released a letter with 154 co-signers, including four Democrats, that called for repealing the $2 billion-a-year tax. “Device manufacturers will have to cut R&D or may be forced to lay off employees due to this disastrous tax,” the letter said.

Proponents of the industry warn that what they describe as hostile government action could lead to a loss of jobs. Moreover, some manufacturers claim that they are looking overseas for a more permissive regulatory environment.

There are over 8,000 medical device companies in the U.S.; they generated about $136 billion in sales and employed over 422,000 last year, according to industry officials. While the industry did better than the economy as a whole through the recession, losing only 1.1 percent of its jobs compared with nearly 5 percent of all manufacturing workers, its job performance lagged  behind the rest of the health-care economy, which added employment throughout the downturn.

Two years ago, the medical device industry, which manufactures everything from heart valves to ace bandages, came under tougher scrutiny. The FDA had become more aggressive overseeing the industry in response to criticism that it had repeatedly caved  to corporate and political pressure when approving new products.

After health-care reformers targeted the industry for higher taxes to help pay for covering the uninsured,  Democratic leaders in Congress asked the prestigious Institute of Medicine (IOM) to convene a blue-ribbon panel to determine if the industry needed tougher regulations to ensure the safety and effectiveness of its products. With the IOM’s final report due later this month, the industry is mounting a major public relations offensive to blunt calls for stronger oversight.

The Institute for Health Technology Studies, which is primarily funded by the industry, late last month released an industry survey showing American companies are increasingly going to Europe to get new devices approved. Industry executives also claimed that the FDA in the last few years has arbitrarily toughened its standards for new devices that are similar to products already on the market. In the past, those look-alike products usually received a less rigorous review than brand new medical innovations.

“As the FDA considers regulatory revisions, what’s at stake is the ability of companies to attract investors in order to continue developing innovative, life-saving products and sustaining American competitiveness in the global marketplace,” said John Linehan, a professor of biomedical engineering at Northwestern University and lead author of the survey.

Paulsen, the Minnesota lawmaker, cited the example of Xtent, a Menlo Park, Calif., device maker that tried to gain approval to start a U.S. clinical trial for its coronary stent. Surgeons had already inserted the company’s stent in hundreds of European patients. When the FDA refused to consider data from the European experiences  and insisted on a prospective clinical trial, the company closed its doors and sold the technology to foreign investors.

Last week, the House Oversight and Government Reform Committee called in the FDA’s top device regulator to explain the changes underway at the agency, which Republican members claimed had gone too far. “In some cases, the conveyor belt for medical devices has come to a grinding halt,” charged Rep. Trey Gowdy, R-S.C., who chairs the health subcommittee.

Jeffrey Shuren, a lawyer and physician who 18 months ago replaced the previous head of the troubled Center for Devices and Radiological Health at FDA,  promised to “do a far better job to make the process more efficient without compromising our standards for safety and efficacy.” Earlier this year, the FDA proposed new rules that would give companies more certainty about what would be expected from them when bringing new products to the agency. But it postponed consideration of any major changes in the oversight process pending the IOM report, which could propose companies do more clinical trials proving efficacy for follow-on devices.

The current rules are a product of the 1976 law that ushered in the modern era of medical device regulation. They require any new device whose failure would pose a serious risk to public health to go through rigorous clinical trial testing in humans for both safety and effectiveness before going on the market.

But the law also set up a regulatory scheme, known as the 510(k) process, which allows follow-on devices deemed substantially similar to something already on the market to get approved without the same level of testing. Regulators have discretionary power to order more tests.

The vast majority of new devices use the follow-on process, even though their manufacturers often claim superior performance to the older models and charge accordingly. The result is a lack of scientific data for making those comparisons, which leaves Medicare, private insurers and physicians in the dark as to their relative worth.

The regulatory framework for potentially life-saving devices differs from drugs, where follow-on products – say, the four or fifth statin to come to market for lowering cholesterol – must still go through rigorous clinical trial testing. While that doesn’t meet the gold standard of head-to-head comparisons between competing products, at least that gives medical analysts sufficient information to know if one drug is significantly better or worse than another product in the same class.

Safety issues can arise when there are no clinical trials for follow-on devices. And that also contributes to rising health care spending, since it can result in costly recalls or even follow-on operations to replace faulty devices.

The updated devices often change materials or tweak the engineering, which can alter their performance once put in the body or deployed in health care settings. A study published earlier this year in Archives of Internal Medicine found that of 113 major product recalls between 2005 and 2009, only 19 percent had gone through the more rigorous clinical trial testing required for new products, while 71 percent had used the follow-on process. There had been only 49 major recalls in the prior five years.

“Yes, the FDA’s getting tougher and it’s long overdue,” said the study’s lead author, Diana Zuckerman, executive director of the National Research Center for Women and Families. “Too many things were sailing through without clear evidence they were safe and effective.” She cited last December’s recall of 359 million glucose test strips manufactured by Abbott Laboratories, whose malfunction could give diabetics false readings and lead to under or over-medication.

Last week Redberg of UCSF told the Oversight subcommittee to reject calls for speeding up the regulatory review process in the name of fostering greater innovation. She cited a 2009 Government Accountability Office report that found that a majority of high-risk devices do not go through clinical trial testing prior to marketing. “Only high-quality clinical trials can assure safety and effectiveness, especially when it comes to high risk devices that are used with invasive procedures,” she said.

Related Links:
They’ve Got Rhythm, But Not Regulation (The Fiscal Times)
The Rise of the Machines (The Fiscal Times)
Sales Tactics on Implants Raise Doubts (The New York Times)

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4 Responses to Soaring Medical Costs Pinned on Medical Devices

  1. Joleen Chambers on June 7, 2011 at 9:23 am

    Thank you for this succinct analysis. Patients (and their families) pay dearly for failed implants in reduced quality-and length- of life and financial distress. The medical device manufacturers are legally insulated from acknowledging this and being accountable. To be selfishly whining about taxes and jobs when so many are suffering from their “business” is callous. A slow down in the growth of the U.S. medical device industry to ensure the viability of Medicare is in order. Once joint implants have the trust of the citizenry, the U.S. will again be the “go to” country for medical procedures.

    • John Harper on June 8, 2011 at 1:36 pm

      Your post shows a distinctly uneducated and slanted view of the device industry. People “suffering” from the medical industry? Really? Talk to anyone whose pacemaker, medications, or surgeries have increased their quality of life or in many cases saved it and I think they will have an opinion dimatrically opposed to yours. There are always risks associated with medications, surgeries and implantible devices but patients are told about these before being administered. Suffering is the thousands laid off as companies try to pay for these taxes the administration has levied while the insurance companies simply raise rates to compensate for the ACA. You want lower costs? Lets start with Tort reform and cutting the billions of administrative costs associated with Medicare… Stop blaming industry as the sole problem in this equation, everyone has a piece to fix.

  2. Julia Schopick on June 7, 2011 at 2:22 pm

    Thanks so much for this article, Merrill. As the author of the recently published book, HONEST MEDICINE: Effective, Time-Tested, Inexpensive Treatments for Life Threatening Diseases, I am especially interested in ways to keep healthcare costs down.

    As you know, medical devices aren’t the only products that are keeping costs high. High-cost medications are culprits, too.

    My book features four treatments that—if utilized more often by doctors, instead of the very expensive, often toxic treatments they usually favor—could, in my opinion, go a long way toward keeping costs down, and in the process, saving healthcare.

    My favorite example involves the multiple sclerosis drugs most doctors prescribe, as compared with a time-tested (25 years) MS drug I write about in my book. The usual progression is this: First, doctors prescribe what are called the CRAB drugs—an acronym for four highly toxic, often ineffective injectable medicines: Copaxone, Rebif, Avonex and Betaseron. In addition to being toxic and (in many cases) ineffective, they are certainly costly. If the CRAB drugs don’t work, or if the side effects are too awful, doctors next usually prescribe another highly toxic drug, Tysabri, which must be infused in an infusion center, such as a facility where they infuse chemotherapy. After that, actual chemotherapies are often used to deactivate the immune system. And lots of MS patients also take steroids, too, which have terrible side effects.

    To discuss costs, let’s first take the CRAB drugs and Tysabri. They cost an average of $2000 to $4000 a month, and this doesn’t take into account the tests that have to be performed in order to make sure the drugs aren’t harming the patient irreparably. Case in point is Tysabri. Since this drug can cause a deadly brain infection, patients have to have MRIs on a regular basis. So the cost of these drugs is huge—even more than the $2000-$4000 per month cost of the drugs themselves.

    On the other hand, one of the low-cost medications I write about in my book—Low Dose Naltrexone—costs $40 a month, maximum. Yet, doctors often won’t prescribe it, even when presented with evidence by patients. (Low Dose Naltrexone is an off-label use of the drug naltrexone, which was approved in the mid-1980s at 50mg for another use—alcohol and drug addiction. Patients who use Low Dose Naltrexone for autoimmune diseases use it at 3.0 mg to 4.5 mg—one-tenth the FDA-approved dose.)

    Many smaller trials have been conducted on Low Dose Naltrexone, all with stellar results. (Please see,, and, for starters.) Its champions—and there are hundreds of them, both doctors and patients like—hope to be able to interest a pharmaceutical company in conducting a larger scale trial, but such low-cost treatments often don’t give a company a reasonable return on their investment.

    Again, thanks so much for this posting, Merrill—and for your wonderful newsletter. I’m a big fan.

    Julia Schopick

  3. Ginny Dudek on June 7, 2011 at 8:16 pm

    There are 3 FDA approved drugs for fibromyalgia that each cost hundreds of dollars per month. Pharma has millions of dollars of advertising out there to promote their drugs, yet naltrexone, an old generic drug in low doses (thus LDN) is tolerated better and has better efficacy than Lyrica, Cymbalta and Savella. Two small studies of LDN for fibromyalgia have been completed at Stanford with very promising results.
    Ginny Dudek RN, MPH

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