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Medical devices are health care products distinguished from drugs for regulatory purposes in most countries based on mechanism of action. Unlike drugs, medical devices operate via physical or mechanical means and are not dependent on metabolism to accomplish their primary intended effect.As defined in the federal Food, Drug, and Cosmetic (FD&C) Act, the term medical device : ...means an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article...intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease...or intended to affect the structure or any function of the body...and which does not achieve its primary intended purposes through chemical action within or on the body.... 1

The investigational device exemption (IDE) provides an release for medical devices from various sections of the federal Food, Drug, and Cosmetic (FD&C) Act. 1 Without the exemption, medical devices would have to comply with performance standard, premarket approval, or notification requirements to be lawfully shipped and used for investigational purposes. 2 Furthermore, itwould be exceedingly difficult—if not impossible—to conduct clinical trials for devices to support premarket approval applications (PMAs) or 510(k) premarket notifications without violating the act, if the IDE did not exist. Indeed, according to Congress and the Food and Drug Administration (FDA), the twin objectives of the exemption are “to encourage discovery and development of useful devices for human use” 3 and “to protect the public health by requiring safeguards for human subjects of investigations, sound ethical standards, and procedures to assure development of reliable scientific data.” 4

More device manufacturers are recognizing the importance of considering Medicare coverage and reimbursement principles during the development of their new technologies. By adopting long- and short-term strategies that incorporate these principles, manufacturers can avoid certain foreseeable delays in bringing devices to market. Although the roadmap for demonstrating to the Food and Drug Administration (FDA) the safety and efficacy of a device has been fairly well established, the steps for obtaining third-party payors’ approvals have been less apparent. This chapter highlights Medicare coverage and reimbursement principles and considerations that might be incorporated into a company’s business plan during and after the product development stage.

The Food and Drug Administration (FDA) has developed multiple interrelated mechanisms for monitoring, evaluating, and taking remedial action (when necessary) against medical devices after they have gone to market. This chapter provides an overview of the various postmarket requirements that can be imposed on manufacturers, importers, distributors, and device-user facilities. 1

The fundamental idea in the Bayesian approach is that one’s uncertainty about an unknown quantity of interest is represented by probabilities for possible values of that quantity. For instance, unknown quantities of interest in device trials are the parameters of the clinical safety and effectiveness distribution for the treated and control groups.

Intellectual property (IP) broadly encompasses the concepts derived from the intellectual and artistic achievement of innovators. More specifically, IP includes discoveries, inventions, technological advancement or development, literary or artistic works, and unique names for trade or business. A concise summary of the available IP tools appears in Table 1.

The passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) has generated widespread concern that clinical research may be increasingly difficult to conduct. Certainly, those involved in clinical research may feel frustrated or confused by HIPAA’s requirements, particularly when the media report that investigators have been denied access to patient records or that patient enrollment in studies has dramatically decreased. Innovative drugs and devices that improve and save lives would not be possible without the contributions of clinical research and human subject volunteers.

The Social Security Act establishes several criteria that must be satisfied in order for an item or service to be eligible for reimbursement under the Medicare program. These threshold Medicare coverage criteria include the requirement that the item or service be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body member. Administrators of the Medicare program have generally held that experimental therapies are not reasonable and necessary. This interpretation of the reasonable and necessary criteria traditionally precluded Medicare coverage for services provided to beneficiaries as part of clinical investigations. Denying Medicare reimbursement for investigational interventions and costs related thereto created a barrier to Medicare beneficiaries’ participation in clinical trials. This posed a dual problem. First, in the short term, it could deny Medicare beneficiaries access to potentially useful therapies available in the clinical trial context. Second, limited enrollment of Medicare beneficiaries in clinical trials hindered collection of sufficient evidence to demonstrate a new therapy’s effectiveness for use in the Medicare population.

The development of combination products (CPs) is a challenging field that faces complex product jurisdiction and development issues. Despite these issues, companies are driven by the potential therapeutic success of combining two components into a single product. The driving force behind this new enthusiasm is the local delivery of drugs or biologics to a specific tissue, thereby minimizing the exposure of the whole body to potential toxic compounds as well as maintaining drug/biologic levels at a specific site within a tissue to obtain a desired therapeutic response. As a recent example, Cordis, a subsidiary of Johnson & Johnson, successfully commercialized the CYPHER™ Sirolimus-Eluting Coronary Stent, bringing cardiologists a promising new therapy for the prevention of restenosis. The CYPHER Sirolimus- Eluting Coronary Stent consists of a device that brings a drug component to the coronary tissue to maintain vessel patency by minimizing the occurrence of restenosis following stent implantation. The device component provides mechanical prevention of restenosis, whereas the drug component delivers a pharmacologic/biologic locally to assist in the vessel’s recovery from any injury caused by the stent implantation. Cordis developed this product with both speed and regulatory finesse. The dramatic clinical trial results indicate the CYPHER Sirolimus-Eluting Coronary Stent is a very promising new therapy. 1

Corporations create value for their shareholders by earning a return on invested capital that exceeds its cost of capital. A company’s ability to do this depends largely on its competitive advantage. In the medical device industry, success is categorically linked to new product flow, transitively marrying innovation and shareholder value creation. The medical device industry follows the punctuated equilibrium interpretation of Darwinism rather than the traditional theory of gradualism. The puncuated equilibrium theory states that evolution tends to happen in fits and starts, sometimes moving fast, sometimes moving slowly or not at all. A particular device market tends to chug along with little change to speak of as companies introduce iterative, “me-too” products; however, every so often, a game-changing new technology emerges that revolutionizes the standard of care. As a result, innovation invariably governs the competitive dynamics in medical devices, with the industry constantly trying to address unmet clinical needs or improve existing treatments to create a sustainable competitive advantage.