2015 federal policy recommendations

The medical device excise tax became part of the Internal Revenue Code due to the Affordable Care Act. Already, life science organizations have said that this tax impedes research and development at companies and therefore prevents patients from accessing innovative medical technologies. The excise tax is estimated to collect roughly $25 billion over ten years.

Not only does the tax harm life science companies, it also jeopardizes the U.S. as a competitive market for the industry. Medical technology companies pay an average effective federal tax rate of 31 percent on activities conducted in the United States, compared to 14 percent on activities conducted abroad.

In fact, according to a 2014 survey, 85 percent of Advanced Medical Technology Association members would reinstate cancelled R&D projects if the device tax were repealed. Over half of the respondents had already cut R&D activities due to the tax.

Life Science Tennessee advocates for National Institute of Health funding that is steady, sustainable, and accounts for increases in the costs of biomedical research. Proper funding of the NIH should reverse the challenges facing the agency due to flat budgets and rising inflation rates. Additionally, NIH funds are vital to Tennessee’s economy. In 2013, for example, the NIH supported $456 million worth of research in Tennessee, which ranks 13^th out of the 50 states in terms of NIH funding.

NIH funds allow Tennessee researchers to develop life-saving drugs and therapies. Tennessee’s scientific community is actively engaged in investigating possible cures for diseases such as Alzheimer’s, ALS, cancer, and epidemics such as Ebola. The need for this work is only increasing, and Tennessee’s scientists need adequate resources – meaning sustainable funding at a rate that outpaces inflation – to help solve pressing health issues. With NIH support, Tennessee can continue its trajectory as a top-tier research state. Additionally, proper funding for Tennessee scientists will contribute to the effort to maintain the U.S.’s international leadership in biomedical research.

FDA REFORM: Seeking outside counsel

The FDA is currently permitted to solicit expert advice on cutting-edge drugs and devices, The Food and Drug Safety and Innovation Act of 2012 expanded the FDA’s authority to consult with external experts regarding treatments for rare diseases, targeted therapies and other genetic treatments. Life Science Tennessee urges the FDA to strongly consider the advice it receives from these expert panels, and to quickly implement recommendations made. We make this recommendation because the FDA is a large organization that has struggled to evolve at the speed of scientific advances in drug and device development. It would be stronger for tapping into the broad knowledge base regarding advancements in these fields.

Despite its past efforts to take external recommendations into account, the FDA has a history of either ignoring these recommendations, or responding so slowly that lifesaving drugs and devices are only adopted after extended delays or, worse, not at all. We strongly urge the FDA to improve and broaden its use of external scientific and technical expertise. Specifically, the FDA should require advice for a broader range of disease states. As part of these suggested changes, we also recommend that the FDA provide new avenues for sponsors to request consultation during drug development and review.

FDA REFORM: Establishing a new review board

Additionally, Life Science Tennessee endorses BIO’s recommendation for the FDA to establish a Regulatory Science Implementation and Management Review Board to ensure that the regulator appropriately accesses expertise from government agencies, patient organizations, academic institutions, medical research experts and industry leaders. Board members will include representatives from the FDA, CDC, DARPA, the NIH, non- profit entities, patient advocacy groups, medical researchers, industry experts and venture capitalists.

For the advisory board to be effective, it must have teeth. To that end, the FDA should be required to begin implementing Board recommendations within 100 days, except in cases of objection from the Commissioner or by a joint resolution from Congress. This process change will ensure that people with niche expertise are helping the FDA move crucial drugs and devices to market. Moving quickly will keep the FDA’s pipeline clear for the regulator to continue its important work.

MEDICARE REFORM: Covering disposable medical technology – H.R. 1018

Medicare’s durable medical equipment (DME) benefit provides Medicare beneficiaries with access to certain medical technologies in the home and community setting. The statutory definition of DME is decades old and was written at a time when typical DME products included crutches, wheelchairs, oxygen tanks and iron lungs. Over the years, many more types of durable products have been developed for patient use outside of the hospital and accommodated by the DME fee schedule.  Many of these disposable medical technologies (DMTs) are smaller, more convenient to use, and designed for single-patient use. Unfortunately, since “disposable” cannot be considered “durable” under the Medicare statute, Medicare patients cannot benefit from these convenient and cost-saving technologies at home like patients with private insurance can. 

With health care delivery becoming more integrated, it is imperative that Medicare beneficiaries access care they need in the least costly setting specific to their particular condition and health status. Current Medicare DME payment policy could cause beneficiaries to face a gap in care as they transition from the hospital to the home since, under the status quo, a product they receive in the hospital may not be covered once they return home. 

Moreover, because private insurers have the flexibility to cover DMT, many beneficiaries lose access to home-based DMT when they enter Medicare. This lack of continuity of care could lead to an avoidable readmission or other adverse events. Finally, because patients must rely on bulkier, outdated technology, they are often confined to their homes while recovering and have restricted mobility. H.R. 1018 would resolve these problems and enable patients to access better, more affordable products in their homes and communities.

In the 2015 Hospital Outpatient Prospective Payment System final regulation, CMS incorrectly bundles a group of treatments. The rule packages “skin substitutes and similar products that aid wound healing and implantable biologicals.”

This categorization includes a diverse group of therapies, spanning drugs and devices, with drastically different clinical mechanisms and costs. CMS’s policy categorizes biologic drugs used for wounds as devices and fails to recognize that biologic drugs are not like devices at all – specifically, drugs are generally more expensive to develop than devices. Therefore, this policy will reimburse products inappropriately and suppress research and development of innovative biologic drugs and new wound care therapies.

Life Science Tennessee requests that CMS remove the language in the Hospital Outpatient Prospective Payment System that packages biologic drugs. Furthermore, CMS should not evaluate new drugs or biologic drugs under the medical device pass-through process, because these drugs are not devices.

Congress continues to see proposals that undercut Medicare Part B and Part D programs. If drugs or biologics are sold to the government at a loss to the producer, non-Medicare consumers may bear the burden as the loss is passed on to them in the form of higher drug prices. In addition, an inability to recoup drug costs could negatively affect the R&D budgets of pharmaceutical and biotech companies and potentially stifle drug research and development.

The medical device user fee program, originally enacted in 2002, authorizes the FDA to collect user fees from companies submitting applications for review and approval of medical devices. In Fiscal Year 2013, the FDA was not able to access $2.85 million in medical device user fees due to sequestration. The Omnibus Appropriations legislation retroactively restored these sequestered fees to the FDA in January 2014. According to the underlying budget agreement, there will not be sequestration cuts in FY14 or FY15. However, the medical device user fees will again be at risk for sequestration beginning in FY16.

Industry-paid, voluntary user fees are different from appropriated funding. Subjecting these fees to sequestration does not improve the deficit, but does hinder the agency’s ability to conduct timely reviews of medical devices.

Exempting FDA user fees from sequestration has strong and growing bipartisan support in both chambers and is a top priority of both industry and patient groups. Ensuring that the FDA can use the entirety of fees paid by the industry is a common sense fix that will enable the FDA to review new drugs, biologics, and medical devices in an efficient and timely manner, and achieve its mission of bringing safe, effective, and breakthrough therapies and treatments to patients in need.