Kevin Outterson, an associate law professor at Boston University, is an expert on patent law and intellectual property as it applies to the pharmaceutical industry. He works to balance the incentives behind innovation with making sure low-income people have access to life-saving therapies.

MassDevice spoke with Outterson about the background behind states’ efforts to rein in industry, specifically “Big Pharma,” and how medical device makers came to be folded into the strict Massachusetts regulations governing industry payments to physicians.

MassDevice: Can you give us a quick history of the roots of the gift ban in efforts to regulate the pharmaceutical industry?

Kevin Outterson: The healthcare payers have all kinds of techniques to try and control drug costs, such as co-pays or tiered co-pays, but many times states didn’t have the flexibility to be as aggressive as the private companies. They’ve tried many different things, like “counter-targeting,” which is where they hire someone to go out and educate people on the industry.

But it’s hard to do counter-targeting when there are 70,000 to 80,000 people in the field trying to sell pharmaceuticals to doctors. States want to get people to counter promotion about which drug was better; the idea is the state is trying to help protect its citizens.

But the pharma industry has bright, good-looking people in the field in the doctors’ offices every day. The states have a hard time finding two to four people to do this, because in many cases the pharma companies will hire them.

It’s very difficult for a state to match, dollar-for-dollar, the firepower of the pharmaceutical industry. In Massachusetts there may be more than a thousand drug sales people working with doctors every day and the state was trying to hire, I think, 10. That’s a difficult battle to fight.

So the states are trying to figure out ways to change the rules of the game and data mining is one of those rules of the game. When one of these drug salesmen comes into the doctor’s office, they know exactly how many prescriptions over any historical period for any drug [that doctor has written]. So if this salesperson’s job is to sell Lipitor, or whatever it may be, he or she knows exactly how many times this doctor has written a prescription for Lipitor versus all the competitive drugs and will have a historical time series on that. The sales rep will have it on their computer and look at it before they go in for their sales call.

MassDevice: Was there a particular genesis or watershed moment that caused all this new regulations?

KO: I don’t know if there was a specific moment. I think the industry has hurt itself with the kind of continuing series of revelations about, for example, a negative study that the company did that did not get published. People have looked back retrospectively and found out that the positive stories got published in the medical journals and the negative studies were hidden.

Part of that is the medical journals fault, but companies should promote the negative results with equal energy. If it were any other product we would be fine with it. We don’t expect the publishing industry to promote its least favorite book with the same energy of a best-seller, but there’s a public health aspect if you promote drugs that aren’t as safe and encourage people to take the less effective drug.

So I think some of the promotional activities didn’t help. I think the whole Vioxx thing didn’t help at all, or the influence of the industry in getting the Medicare Part D passed in the middle of the night. The provisions that came with that had people looking at it and wondering how those things made it in there.

I think it’s just an industry that, besides doing excellent science — they have great researchers — has had a public relations nightmare that’s been going on for at least a decade. A couple of years ago, it seemed like there was a wave of anti-pharma books. The companies are somehow attracting [this negative attention]. Some of that has to do with price and part of it has to do with a perception that these are powerful companies. There’s a perception that they care more about profits than looking out for the public health. Some companies have done better and some have done worse than others. You hear Glaxo CEO [Andrew Witty] talking a lot about re-orienting his company into public health and fair pricing. His comments received positive press because they were different.

MassDevice: How did medical devices get rolled into these movements?

KO: In the first wave, medical devices didn’t apply to these sorts of efforts, but the feedback from the people who paid the bills in the state health plan said that medical devices were also quickly increasing costs and that they were being promoted in a very similar manner.

In fact, the word on the street was that they were being promoted in ways that were even more aggressive than pharma companies. Pharma companies have historically taken doctors on trips and had lavish dinners, the sort of things that are prohibited under the Massachusetts legislation now. In the device sector the stories were much more egregious.

Part of that is that if you’re going to build an orthopedic device you can’t do it in a lab, you’re going to have to be in there with an orthopedic surgeon and that doctor’s going to play a large role in developing that device. If you’re a spine surgeon, you’re going to be involved with the screws and such. You have to be part of the process. The actual doctor using the device is also part of the research.

That gave at least the appearance of marketing abuse. The doctor is using these things to promote and gain financially in a very direct way, as the use of their device spreads around the country.

MassDevice: But isn’t there an argument that says, “Well, that’s how innovation happens. It happens in conjunction with the doctors?”

KO: It’s certainly true in medical devices. You have to work with the doctors, there’s no doubt about that. But in most of the areas of innovation in our economy, the people doing the innovating are not also the people who decide who buys the product.

{IMAGELEFT:http://www.massdevice.com/sites/default/wp-content/uploads/headshots/Outterson_Kevin_100x100.jpg}Imagine if Microsoft could tell you when you get to buy a computer and what sort of operating system is going to be on it, because you’re lying on your back really sick and can’t make a decision. If Bill Gates tells you you’re going to do it, you’re going to do it.

If a surgeon comes to you and says, “We’re going to do the knee replacement,” you don’t even ask what kind of device he’s going to use. And if you do, they’re going to say, “Well, I’m going to use device x,” and if you ask more carefully he’ll say, “… and I helped invent it.”

Well, that sounds great to a patient. Who’s going to second-guess their doctor when they go into surgery like that? We’ve given doctors the power to decide our medical treatment and we defer to them a lot. We want to trust them, but there are all sorts of financial incentives that could cloud their judgment.

We don’t allow any other industry to do that. We don’t let the car company tell you which car to buy in a way that compels you. Anything else in our economy that’s innovative, we try to separate the function of research and development from sales, but its hard to do that in medical devices.

MassDevice: So how do you do that?

KO: If somebody can figure out how to separate that in medical devices, it would help a lot. It would be interesting to hear from industry on this issue, to sit down with a wide group of people, not just the lobbyists, to talk about a way that that could work. Because the alternative is for states to regulate medical devices the same way they regulate pharmaceuticals and not to draw a strong distinction.

MassDevice: Is it possible that the restrictions for medical devices could become stricter than those governing pharma?

KO: I have no idea. But the amount of money in medical devices is so dwarfed by pharma that it does have a lower priority for people who are interested in costs.

On the other hand, the embeddedness of people in research for the development of medical devices is so much tighter that it increases the appearance of impropriety. I think they may have gotten away with a lack of attention while the pharmaceutical industry has been hounded this last decade. The medical device industry is about to get a taste of what pharma has enjoyed for a while.

MassDevice: Is there a point where we cross over from “necessary for the public good” to disrupting innovation?

KO: In the history of regulation there are many examples of regulations that have been disruptive and inefficient and ineffective. Clearly regulation is not always good. I don’t think we can answer this question yet in this sector. This regulation is too new and we haven’t had time to study it. This is just fairly out-of-the-box.

But I’ll tell you, if the pharmaceutical companies thought carefully about these gift bans and marketing restrictions they might embrace them, because what happened for a decade was that every company increased the size of their sales force year over year. They spent more money marketing, more money on lavishing doctors, partially because it was an arms race: “If I didn’t do it, the other company would.” That was pervasive in the industry. I’m not as aware of whether the same dynamic occurred in medical devices as in pharma, but as long as everyone has to pay attention to the rules and those rules are cheaper for the companies, the companies should actually be happy with the marketing restrictions. As long as everyone has the same set of rules to play by. They’re going to be able to cut their promotional budgets by hundreds of millions of dollars. They should be okay with that.

On data mining it’s also true. IMS makes revenues of several billion dollars globally (PDF). Who pays for that but the pharmaceutical companies? They’re one of the primary payers, so if you think about it those data mining centers are a multi-billion cost for the industry. If it all went away, sure they would lose a valuable marketing tool, but so would all their competitors and they would save a couple of billion dollars.

Again, I think its impossible for one company to say, “Okay, I’m going to jump off this arms race,” but they could almost thank Sen. [Charles] Grassley, if he’s successful in putting a national gifts ban into place, for causing them all to save money. I don’t think you’ll get from an executive, embracing that quite yet, but I can’t believe they haven’t thought of it privately.

MassDevice: Are we going to see a lot more of these gift bans on a state level?

KO: A lot of states are interested in them, especially now that the First Circuit Court of Appeals ruled that they’re legal.

The question people are arguing about is if the Sunshine Act is going to pre-empt state laws. That’s why a lot of industry has actually embraced the Sunshine Act in exchange for for full pre-emption, although the act as it is written does not call for full pre-emption of state laws.