FDA Process, Taxes Spurring Exodus of Medical Device Firms

by Barry Cohen | October 14, 2011 8:30 am

Once the envy of the world, the U.S. medical technology industry is at risk of drying up and moving overseas, according to Rep. Erik Paulsen, R-Minn.

Testifying at a House committee hearing, Paulsen called the Food and Drug Administration’s premarket review processes opaque, inconsistent and unpredictable.

The numbers back up Paulsen’s contention about the exodus of U.S. medical device companies. Between 2004 and 2010, more than half of all innovative devices were first approved in Europe. Because more devices now launch in Europe, companies increasingly study the products there. In 2004, nearly 87% of all medical-device studies listed in www.clinicaltrials.gov were being carried out in the U.S. By 2009, only 45% of such studies were being conducted here.

One of the primary reasons countries outside the U.S. are becoming more enticing to medical device companies is their less onerous review and approval process. “It’s getting harder and harder to bring lifesaving devices to the marketplace in the U.S. because of a lack of consistency, predictability and transparency in the FDA’s premarket review processes,” testified Paulsen, according to a news release issued by his office.

He cited several examples where U.S. medical device companies where whipsawed by FDA review inconsistencies. As a result, Paulsen said, the competitive edge enjoyed by American companies for decades is disappearing. “Currently, devices are approved two years earlier in Europe than in the U.S., denying our patients access to lifesaving technology,” he said. “If this trend continues, more companies will look for greener pastures, and take their innovations and their 400,000 high-paying jobs with them.”

In addition to a lengthy and cumbersome approval process, U.S. medical device companies face other obstacles. A huge one is a 2.3% excise tax on the medical device industry, which is part of the new health care law; it is scheduled to take effect in 2013. According to a study titled “Employment Effects of the New Excise Tax on the Medical Device Industry,” released by the Advanced Medical Technology Association and coauthored by senior fellows at free-market think tanks Manhattan Institute and Hudson Institute, this excise tax may encourage U.S. device makers to relocate manufacturing to foreign countries. It also threatens the competitiveness of U.S. device makers, allowing foreign-based device makers to enter the U.S. market and take market share from U.S. device companies.

So what can be done to protect U.S. leadership in medical devices and save the $33 billion in compensation earned by the more than 400,000 people employed in the industry?

A recent study published by independent think tank Milken Institute, “The Global Biomedical Industry: Preserving U.S. Leadership,” listed several suggestions:

These seven recommendations, the report concluded, are critical to the continued growth, sustainability and preeminence of the U.S. medical device industry.

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