I recently had the great fortune of attending Health 2.0 in San Francisco. The conference was abuzz with new medical technologies that are harnessing the power of innovation to solve healthcare problems including many new mobile medical application companies showcasing their potential. As I walked and talked around the exhibit floor, one thing caught my ear, or I should say one thing didn’t catch my ear. Among the chatter about these products, the concern about FDA regulation of this product segment, or even FDA regulation in general was noticeably absent. While many of the application developers are well aware of potential FDA involvement, most would be hard-pressed to outline the impact this would have on their companies and products.
Being labeled a medical device, which is the direction the FDA is leaning, could have a significant impact on business model organization, top-line revenue, and product deployment. For unprepared start-ups, FDA regulation could signal an end for their company. This is in stark contrast to well informed developers who are preparing themselves for the change and would most likely be able to leverage these regulations to their advantage.
USA Today recently published an article detailing the exponential rise in the mobile medical application (MMA) market which is expected to reach $1.4 billion by the end of this year. According to the same article there are about 40,000 MMAs currently available for download on the iOS and Android platforms. While that might come across as a lot, a recent Health Data Management report expects the industry to grow 23% annually for the next five years.
The FDA, always the keen observer, with help from an Institute of Medicine study, has decided that this is their time to shine. The agency is tasked with protecting patient safety and according to the FDA, this sudden yet massive rise in the number of unregulated MMAs has the potential to adversely affect their core constituency: the patient. In July of last year, the FDA released draft guidance on MMAs and stated their intention to regulate those applications that have the ability to turn a mobile platform, like a smart phone or tablet, into a medical device. While they haven’t yet promulgated final rules regarding MMAs, one thing is all but certain: the market needs to brace for impact.
Setting aside the highly controversial and polarizing debate that is federal regulation, the apparent lack of concern is a concern in and of itself. Many industry insiders are well aware of the effects of being labeled a medical device but that knowledge is not trickling down to the target audience, the developers and entrepreneurs looking to capitalize on the extreme MMA growth. Being a medical device has some positive benefits like being able to label a product as FDA approved and ensuring that the product is safe for patients to use, thus decreasing potential product liability. Yet this label comes at a lofty price.
In order to get FDA approval a company must first submit a premarket notification, or 510(k), which allows the agency to determine if any substantially similar device has already been approved, thus allowing the product to “piggy-back” on the previous device’s approval. A 510(k) application is no laughing matter, costing $2,500 just to submit, provided an exception doesn’t apply. And that’s just the tip of the iceberg. In 2010 an independent study conducted by a multitude of parties including the Medical Device Manufactures Association, the National Venture Capital Association and Stanford University medical professors, among others, concluded that “the average total cost for participants to bring a low-to-moderate-risk 510(k) product from conception to clearance was approximately $31 million, with $24 million spent on FDA dependent and/or related activities.” The study also found that the average approval time for a 510(k) application was 31 months from the first communication to the FDA and 10 months from the first filing for clearance. This is by no means an assertion of the actual cost an MMA developer would incur and while the study’s findings are still being hotly contested, the message is clear: The FDA’s 510(k) approval process is cumbersome, costly, and time consuming, all of which come together to create the perfect storm of regulatory hurdles that could stifle medical device innovation.
Yet the MMA market is thriving despite the looming threat of potentially having to spend millions to get FDA approval. It is my belief that the cause of this apathy is not entirely one of willful ignorance but instead rests mostly on the lack of information being supplied to developers. For them the immediate concerns about creating a profitable product are at the forefront while the thought of regulatory problems are pushed to the back. This makes sense if you think about it. Since the FDA hasn’t promulgated final regulations regarding MMAs, the potential for regulation is just that, a potential, albeit a real one. So expending precious resources to gather information about the FDA is just not as important as focusing on immediate profits.
While it might make sense, this myopic thinking is extremely dangerous for start-up developers. By not preparing for the cost of 510(k) approval, in addition to the added time for product deployment, these start-ups are ignoring a barrier that could ultimately cost them their company. I’m not saying that these companies need to secure millions in funding immediately; instead they simply need to inform themselves of the costs and build that additional information into their already existing business model. Not only will this allow them to not be blind-sided by regulation, but they will also become more appealing to venture capital firms who will be more than pleased to know that what they are spending their money on won’t whittle away under the weight of the FDA. Enterprising developers can implement the FDA mandated current good manufacturing practices (CGMP’s) so they don’t have to retrace their steps in the future in order to be in compliance, thus helping speed up the approval process. FDA regulations will be a barrier to entering the MMA market and taking the proactive steps of information gathering and preparation will increase the chance of being one of the first to be approved to market.
What’s the lesson in all of this? The answer is quite easy: information is power. And with that information, a budding MMA start-up can adequately prepare for the effects of regulation. Instead of discounting the future costs imposed by the FDA, companies need to embrace them and create a viable business model with the new information. So the next time I walk and talk around an exhibit floor I will hope to hear chatter about the latest and greatest MMAs while also catching some conversations about regulation. Then I will know that the market is ready for the great challenge that is the FDA.
Ryan Minarovich is Chief Executive Officer of The Tenzing Group, LLC, a regulatory coaching firm providing FDA and legislative guidance to mobile medical application start-ups and developers. He is a member of the AHLA, HIMSS, and serves on the HIMSS Legal Task Force. He is also in his last year of law school at Santa Clara University School of Law where he focuses on agency regulation, EHR legal policy, and NwHIN architectures. You can contact him at firstname.lastname@example.org or by visiting www.tenzinggroup.com.