MassDevice Q&A: Charles Mathews

Charles Mathews is no stranger to Capital Hill, having worked as a legislative aide to Reps. David Price (D-N.C.) and Rob Andrews (D-N.J) in the early years of the decade. That experience comes in handy in his role a director at Boston Healthcare Associates, where he’s keeping tabs on the ever-evolving debate over healthcare reform in Washington.

Ahead of his keynote speech at the MassMEDIC 11th Annual Medtech Investors Conference, Mathews spoke with MassDevice about how the various proposals working their way around the Beltway might affect the medical device industry, laying out their potential to harm — and help — device makers.

MassDevice: How does the current healthcare debate differ from the stillborn Clinton Administration initiative during the early 1990s?

Charles Mathews: The dynamics are little bit different than they were the last time around, in terms of having more of a tailwind. A lot of the groups that were diametrically opposed to the Clinton reforms have at least expressed interest, conceptually, in doing something in the healthcare reform space. The devil, of course, is in the details.

In previous years, you had not only the health insurance industry, but pharma and a lot of the key stakeholders (who spend a lot of money lobbying and doing PR campaigns) opposed to it. Now what you see is that lot more of those folks have been brought in to participate in the process.

So those dynamics are improved, but I think there are some fundamental divides in terms of the public plan option, there are questions about the Baucus bill losing some of the liberals in the Senate and House that are very supportive of the public option, and you just wonder whether they can pull enough people together to make it happen.

MassDevice: What aspects of the proposed reform bills are of particular concern to the medical device industry?

CM: The proposed 10-year, $40 billion tax on device makers appears to be disproportionately affecting the medical device industry than the deal that pharma cut with health reform sponsors earlier in the year. That tax, of $4 billion a year, represents slightly less than 10 percent of the annual industry profits, whereas the pharma piece would be about 4 percent.

So I think what a lot of the medical device industry is thinking is that if there is to be some kind of tax, can we at least have parity with the other industries in the space? Why should medical devices be disproportionately affected by this?

One concern is the elements of complexity in implementing this. The Baucus bill came out with much broader language. They tried to refine that some, in terms of exclusions to companies that are making under $5 million in annual domestic sales, and exempting the lowest risk products. There was some discussion that this could wind up being a “Q-tip tax,” meaning every single medical device, including tongue depressors, might be rolled into it. So they said, “O.K., we’re only talking Class II and Class III devices,” which helps but doesn’t help everybody, and then, “We’re only talking about companies with more than $5 million in annual domestic sales.”

They’re trying to alleviate some of the burden on small businesses and early-stage startups. But AdvaMed as a whole is still very opposed to this conceptually.

The total amount of venture capital money invested in medical device companies in 2007 was $3.7 billion. So we’re talking about a tax that could exceed the amount of annual VC investment.

MassDevice: Are there any moves afoot to alter the tax? We’ve seen a report indicating that negotiations are under way to halve the proposed tax.

Sure. This is reflected in some of the amendments we’ve seen to the Baucus bill. Sen. Orrin Hatch (R-Utah) had an amendment under which none of the four new industry taxes in the Baucus bill — drugs, devices, clinical laboratories or high-cost insurance plans — would apply to companies whose annual profit is less than 10 times the amount of the fee.

It’s offering an olive branch to help some of these companies that would lose their profitability as a result of this.

What this really is coming down to is trying to figure out how to pay for the reform. It’s basically asking each industry to pay some portion of it, but when you drill down into the nuances, even within the medical device industry, the question becomes, “Who is going to bear different portions of the share? Is it going be larger companies or smaller companies? Is it going to be established entities versus companies that aren’t showing a profit yet?

I used to work on Capitol Hill and I’ve seen this disconnect before, in terms of the lofty language of the legislation that talks about taxing based on market share. Then some government agency has to sit down and actually try and figure that out. It can get really complicated. For example, if you talk about market share of medical devices as a whole, what classes are involved?

MassDevice: What other issues in these bills have pinged your radar?

CM: Comparative effectiveness. There’s $1 billion put aside for that in the stimulus legislation. All of the bills that are out there have some kind of institute for medical improvement. They each have a different concept for that, but it’s the same idea of developing this additional data, to look at medical technologies and which ones make sense.

The medical device industry has some concerns about how this might actually roll out. Specifically, in the device world you see a lot of incremental innovation over time. If you go back with five years of data with a certain medical device, that device has probably changed multiple times since then. It’s very different than the pharma model, which is create a pill and people keep getting that pill over an extended period of time.

So there’s some complexity in terms of generating that data. Right now I don’t think any of the bills have anything that says Medicare coverage will be guided by comparative effectiveness, but a lot of people watching this know there’s a slippery slope between the generation of this data and then putting it into coverage policies.

Comparative effectiveness is something we’re watching very carefully, because it could have an impact in terms of changing evidentiary standards. The medical device industry has been very focused on securing FDA approval. Investors and the medical device industry are increasingly becoming focused on the data they’re going to need to secure coverage and payment for their technologies.

Comparative effectiveness is not necessarily a bad thing. If you have truly innovative technology, it could help you gain market share. I don’t think anybody presenting at the MassMEDIC Investors Conference is developing products until somebody studies it and figures out it’s not actually helping anybody. But there is some concern that something like an angioplasty might never had made it if you studied just the early versions of it.

MassDevice: Is there anything else that’s of particular concern?

CM: The last piece is the device registry. It’s not in the Baucus bill, it’s in the House bill. The idea is to start collecting not only the adverse event information that’s captured through FDA mechanisms, but to capture clinical data and health outcome data and use it to feed into something like a comparative effectiveness exercise, to figure out what’s working and what’s not working.

I don’t think the industry is inherently opposed to having better data out there, but I do think they have some concerns about how they’re tracking exactly what’s happening with these devices. Think about implantables and the lack of continuity of care that you see in the health system, with people moving from one place to another. Tracking that is going to be important to understanding what sort of additional burden is this going to be on the device industry, in terms of tracking their products.

MassDevice; So what are the chances that we’ll actually see a bill pass into law this year?

CM: That’s the million-dollar question, really. It’s taken a long time for us to get here, with a kind of impetus to do it now or never. Often legislation is spurred by a particular crisis. The thing about healthcare is that people are always getting sick and dying, but there isn’t necessarily a specific crisis that’s going to push something to move.

But now you have businesses on board, because I think they’ve realized that their premiums are going to continue to go up at an unsustainable rate. And they’re realizing that they’re paying for a lot of the care of the uninsured.

The tailwinds are a lot stronger, but I don’t think the details have really been worked out, in terms of who’s going to be brought in board and who’s going to be unhappy with the final result. There are elements of commonality in all the proposals, so you could see something with regard to pre-existing conditions or the end of “Cadillac plans.”

Obama is willing to make concessions here. He’s sent out a number of messages saying, “I just want something done here.” He’s willing to cave on the public plan, but I think he’ll lose a lot of liberals in the process.

If I had to put my money on anything, I’d say what we’re probably going to see at the end of the year is some kind of big, omnibus bill like we see every year, and it’s going to have some stuff in there about changing the sustainable growth rate for physicians. The elements that people support are health information technology, better data and improving the cost mechanisms.

I think people focus on what happened in Massachusetts, where we moved forward and expanded coverage and said, “We’ll work out the cost piece later.” We’re seeing the impact of that now, in terms of the state budget and how we’re going to pay for all this.

I don’t know if that same dynamic will play out at the federal level. What’s a little bit different now is we’ve already moved well beyond the single payer argument, apart from some liberals. Maybe we’re closer than we have been, but I’m not getting a strong sense that something’s guaranteed to happen.