This Week it Got a Little Harder to be a Medical Device Company

Mark Mansour, Partner, Bryan Cave, LLP

This has been an eventful week for the medical device industry. On the heels of Congress’s efforts to address the issue of federal preemption in the context of medical devices, we learned within the space of several days that:

Attorney General Eric Holder and Health and Human Services (HHS) Secretary Kathleen Sebelius today announced the creation of a new inter-agency effort, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to combat Medicare fraud;

President Obama issued an executive order rolling back Bush administration regulations that shielded manufacturers from product-liability lawsuits in state courts.

As part of a New Jersey investigation into the financial relationships between device makers and physicians, Stryker received a subpoena from the state Attorney General’s Office. In an SEC filing posted last week, Stryker said the New Jersey attorney general is requesting various documents related to the financial interests and arrangements with physicians participating in certain clinical trials.

Without reading any more than is necessary here, any objective assessment suggests that the worlds of regulation, compliance and risk management are getting more difficult by the day. A cursory look at FDA’s daily communications reveals more energetic activity on numerous fronts, as does my own experience. There are more enforcement actions, both federal and state, and China, India and other international markets are moving to tighten their regulatory structures, to some degree in response to US pressure.

Regulatory activity, in its most extreme form, begets litigation. We expect to see more class actions, more multi-district litigation and more lawsuits from boutique plaintiff’s lawyers specializing in FDA action. The plaintiff’s bar will follow the breadcrumb trail set by federal and state regulators, and the nexus seems to be devices and foods, along with the inevitable uptick in fraud and abuse claims that are likely to emanate from the inter-agency collaboration between HHS and Justice. All of this is happening as the FDA is flexing its muscle in the wake of an administration budget increase request of 19% and word that Deputy Commissioner Dr. Josh Sharfstein has re-energized the agency during the transition from the old regime to Dr. Margaret (Peggy) Hamburg’s taking of the reins this week. The next few weeks should provide an even clearer road map of where FDA is headed. We believe the agency will be much less hesitant to litigate than it has been in the past, which should leave the courts some interesting decisions over the course of the next several years.

Next month, we’ll turn to the future of combination products.