The demise of the device tax and other fun med-tech stories

It’s mighty tempting to run a little play on words with regard to eyesight in this new year, but I need reading glasses, so far be it from me to pepper a blog with wisecracks about 20-20 vision in 2020. Still, there are a few things to look forward to in this new year, including some great expectations and one or two desperate hopes.

Show up or shut up for investors

One of the more remarkable events in 2019 was the repeal (at long last) of the 2.3% tax on medical devices. This story has been making the rounds in the trade press for a decade, and there were times when it seemed to have more lives than the doc fix.

In contrast to the doc fix (a.k.a., the sustainable growth rate mechanism), the repeal of the device tax might come with some expectations. Device makers have argued that even a two-year suspension does little to alleviate the impact of the tax on planning and financing, and thus one assumes that investors may have been less enthused about med tech than would otherwise have been the case.

But 2020 will be different for investors for another reason as well, given that Medicare coverage for breakthrough devices is inching closer to an across-the-board reality. The Centers for Medicare and Medicaid Services has proposed this in the outpatient fee schedule for calendar 2020, but there is also some legislation that would expand this dramatically. If the end of the device tax and a much-improved coverage framework isn’t enough to get investors off the sidelines, what is?

It’s not as though congressional supporters have all kinds of time to worry about investment volume in med tech, so there won’t be any legislative backlash if investors take a pass, but it certainly would look odd. My only regret in all this? I can’t find the website someone had set up several years ago to track whether device makers were passing along the cost of the tax.

IVDs not quite DOA … yet

Makers of in vitro diagnostics (IVDs) have a lot more to worry about than their brethren in the therapeutic devices business for several reasons. The first and most obvious for those who track patent case law is the subject matter eligibility hangnail. As is widely discussed of late, the Section 101 test under the Mayo and Alice cases are seen as confusing subject matter eligibility with other considerations, specifically obviousness and priority, a predicament some say has converted the Court of Appeals for the Federal Circuit into a patent-killing machine that is nearly as effective as the inter partes review process.

The thing I can’t seem to flesh out about the companion diagnostic end of IVD patents is how drug makers are getting their offerings to market sans a CDx. The FDA’S 2014 guidance on CDx indicated that the availability of such a test is pretty close to compulsory, but if these tests are not getting patent protection, are the drug makers just paying for lab-developed tests that enjoy nothing more than trade secret status? The list of FDA-approved companion diagnostics just looks a bit meager when one considers how many novel drugs the agency has approved over the nearly six years since this guidance came out. The possibility remains, however, that I’m not even posing the most pressing question, if it’s true that fewer than one cancer patient in 10 receives a treatment that is driven by the mutation in question.

Solicitor General Noel Francisco has urged the Supreme Court to hear Athena v. Mayo in briefs regarding other patent cases, and it appears the case is in distribution. How this will all unwind is impossible to predict, but it’d be nice if the Federal Circuit and the Supreme Court could find a way to just get along on the Section 101 question.

Makers of lab tests also have to concern themselves with the reset of the clinical lab fee schedule mandated by the 2014 Protecting Access to Medicare Act, and there is still this business of FDA regulation of LDTs. Ergo, 2020 could prove to be a renaissance or a calamity – but more likely something in between – for makers of IVDs.

Predation of the predicate

At a med-tech conference last year, I posed the question of whether a predicate device was principally useful as a marketing tool rather than as a regulatory reference point. The observation was not well received, but guess what: I’m not the only one who wonders about that, at least when it comes to class II devices subjected to exhaustive biocompatibility testing (see page 3 of the pdf included in the link).

Those who remember this $2 million government boondoggle on the 510(k) process might also recall the member of the Institute of Medicine who proposed that the 510(k) process could turn a camel into a commercial jetliner. That was one of the more epic moments in the recent history of med-tech regulation, but it served to nicely highlight some of the more absurd contortions regarding the substantial equivalence discussion.

The ironic part of this conversation is that industry seems entirely on board with leaving substantial equivalence behind in favor of safety and performance testing. Well, at least there’s something objective about bench testing, but it’s difficult to avoid the conclusion that Jeff Shuren won this one. He has had to concede a number of things over the past eight years thanks to congressional meddling, but he certainly has the substantial equivalence win to crow about.