Mass. Sen. hopeful Elizabeth Warren on the device tax, the FDA and a climate for innovation

A climate for innovation

by Elizabeth Warren

When it comes to turning good ideas into innovative businesses, Massachusetts has always set the standard. From Alexander Graham Bell’s telephone in 1876 to the microwave in 1945 to iWalk’s bionic ankle just last year, we’ve proven that we’re the most innovative place in the world.

Innovation is a vital part of who we are.  Here in the Commonwealth, the medical device and diagnostics industry employs around 24,000 people and is responsible for 13 percent of all state exports. I am proud that Massachusetts companies are creating the new treatments, diagnostics, and cures that lead to better and longer lives for millions of patients.  Innovation is important, and we should do everything that we can to create a stronger climate for it.

Innovation starts with a creative spark—but that spark turns into a great invention only if the right conditions are in place. Steady financing and a smart, highly skilled team are critical.  The government also plays a critical role in speeding – or slowing – the pace of innovation. Three changes in government policy are essential: a more efficient regulatory system at the FDA, repeal of the medical device tax, and an increased national commitment to research and education.

There is no greater problem facing the medical technology industry than the decline in FDA performance in recent years. In February, the Government Accountability Office, an independent, non-partisan agency in Washington, released a report showing that the time the FDA takes to reach a final decision in 510(k) and PMA submissions has increased substantially. From 2005 (when the first performance goals were in place) to 2010, the average time to final decision for a 510(k) increased from 100 days to 161 days—a 61% increase. The decision time for original PMA products increased from an already lengthy 462 days in 2003 to 627 days in 2008 (the last year for which complete data is available)—a 35% increase.  This is the wrong trend line.  FDA delays drive up costs for innovators hoping to launch new products, deterring the early investment that is essential for new product development, and depriving American patients access to improved therapies.

The solution to the problem isn’t to cut funding or to attack regulators.  That won’t do anything to make the system more efficient.  What we really need is smarter regulation—and some fresh ideas for how to get there.

When I was setting up the Consumer Financial Protection Bureau, my goal was to build a 21st century agency that would be effective and efficient. We recruited smart, talented people who were committed to the mission of making consumer credit markets work for regular people. We focused on creating simple, streamlined, and easy to understand regulations, like combining multiple mortgage disclosure forms into one and cutting the fine print that can hide tricks and traps in credit cards. We made it easier for customers to understand credit agreements while also pushing to reduce regulatory costs and level the playing field for smaller institutions.

We need a similar approach at the FDA. The FDA works hard to keep patients safe, and let’s be clear: its work saves lives. But the FDA needs to be able to put life-saving devices on the market quickly. Delays and regulatory uncertainty don’t just hurt companies – they hurt the patients and families who rely on those devices. The FDA can also provide better guidance documents that are simple, clear, and up-to-date.  This is particularly important for the small businesses that don’t have an army of lawyers to help them navigate complex processes and requirements.

The recently negotiated user fee agreement between FDA and industry is an important step forward to address some of these issues. As part of the user fee agreement, the industry came to the negotiating table and doubled the amount they were willing to contribute. Now Congress needs to do its part by moving quickly to reauthorize the Medical Device User Fee Act and fully fund the FDA’s Center for Devices and Radiological Health. User fees are intended for product review – not to fund the FDA’s other functions. Congress must ensure the FDA has the appropriated funds necessary to be an effective and efficient agency that can attract highly qualified professionals.

Smarter regulation is key, but it isn’t enough: innovation also depends on a fair tax system. When Congress taxes the sale of a specific product through an excise tax, as the Affordable Care Act does with medical devices, it too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential. It also pushes companies of all sizes to cut back on research and development for life-saving products. With an appropriate offset, we can repeal the medical device tax without cutting health care coverage for millions of people or forcing Americans to fight the whole health care battle all over again.

Finally, we can nurture continued innovation with a national commitment to research, development, and education, including university-based research and education. R&D creates the pipeline of ideas – the innovations and experiments that fuel breakthrough technologies, lead to lifesaving inventions, and spawn successful businesses. Massachusetts companies alone spent $2.6 billion on R&D in 2010. Nationally, American device companies invest a whopping 13 percent of their sales in research and development.

Unfortunately, our national commitment to R&D has faded. Instead of making the R&D tax credit permanent, Congress has let it lapse. Congress has also slashed federal support for research, as a percentage of GDP, by more than half since the 1960s. Basic science research by NASA and the NIH has been critical to the breakthroughs in medicine, in computing, and in materials science that have helped medical technology companies innovate. Without robust government funding of research and strong pipeline of scientists and engineers, America cannot foster an innovative future.

Investments in a better FDA, in fairer tax laws, and in research and development are critical to a strong medical technology industry and a strong economy. As a Commonwealth and as a country, we must strive to be the most innovative place in the world – but we will only achieve that goal if we dedicate ourselves to creating a climate for innovation.  It is up to us here in Massachusetts to lead the way.