AdvaMed’s Innovation Agenda:
Background and Detail
Overview
The medical technology industry is central to the development of medical devices and
diagnostics that will provide the life-saving and life-enhancing treatments of the future.
Patient access to advanced medical technology generates efficiencies and cost savings
for the health care system, and improves the quality of patient care. Between 1980 and
2010, advanced medical technology helped cut the number of days people spent in
hospitals by more than half and add five years to U.S. life expectancy while reducing
fatalities from heart disease and stroke by more than half. The industry is also an
engine of economic growth for the U.S., generating high wage manufacturing jobs and a
favorable balance of payments.
But the innovation ecosystem that supports medical technology is severely stressed.
The U.S. has historically been the world leader in medical technology, but our
leadership is eroding. Venture capital investment, especially investment in the start-up
firms that are the seed corn of the industry, has plummeted. While there have been
recent improvements at the FDA, the regulatory process remains too time-consuming,
too inefficient, and too inconsistent. The payment environment is far less hospitable to
new technology today than ever before, with the result that investment in new
treatments is discouraged and patient access to new treatments that are developed is
slower and more difficult. The U.S. tax system is uncompetitive and discourages
location of research and development and manufacturing in the United States, a
situation that has dramatically worsened as the result of the medical device excise tax.
The basic and applied public infrastructure that is critical to long-term advances in the
life sciences is eroding.
To respond to these challenges and rebuild the innovation ecosystem, AdvaMed
proposes a new Innovation Agenda. Enactment of this agenda will unleash the potential
of medical technology to extend and improve lives, reduce the cost and burden of
disease, and maintain and enhance U.S. scientific and economic leadership. Failure to
act will mean lost lives, unnecessary suffering, reduced job formation, and diminished
economic growth.
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AdvaMed’s innovation agenda is built on five pillars:

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Improving FDA’s regulatory processes so that the cost and time of
development and approval of devices and diagnostics is reduced and the
CDRH mission statement that American patients will be the first in the world
to have access to new devices is achieved, while maintaining the highest
standards of safety and efficacy.
Restructuring CMS’s coverage and payment processes to support
development of new technologies that improve treatment, diagnosis, or
prevention and provide prompt patient access to these technologies.
Reform the U.S. tax system to create a level playing field, starting with repeal
of the medical device excise tax—a tax that is draining resources from
American manufacturing jobs and research.
Improving access to international markets by insisting on free and fair trade in
medical technology and working with foreign governments to achieve
innovation-friendly regulatory and payment policies.
Supporting the maintenance and growth of an R&D infrastructure second to
none.
Background on the medical technology industry
The medical technology industry is composed of companies that develop and
manufacture medical devices and diagnostics. These products are diverse, running the
gamut from tongue depressors to the most complicated molecular diagnostic tests,
advanced imaging machines, and cardiac implants.
Structurally, small firms are a key part of the medical technology industry. A 2007 study
by the U.S. International Trade Commission (USITC) found a total of 7,000 medical
technology firms in the U.S.1 The U.S. Department of Commerce estimated that 62
percent of medical technology firms had fewer than 20 employees and only 2 percent
had more than 500.2
Small firms, often funded by venture capital, are particularly critical to the future of U.S.
scientific and technology leadership because they are the source of a disproportionate
number of the breakthrough technologies that drive medical practice and industry
growth.3
Whether created by large or small firms, medical technologies are characterized by a
rapid innovation cycle. The typical medical device is replaced by an improved version
every 18-24 months. To fuel innovation, the medical device industry is research
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intensive. U.S. medical technology firms spend over twice the U.S. average on research
and development. Medical device companies specializing in the most complex and
technologically advanced products devote upward of 20 percent of revenue to R&D.4
In no small measure as the result of the diagnostics, treatments, and medical tools
developed by the medical technology industry, the health advances of recent years
have been breathtaking. Between 1980 and 2010, medical advancements helped add
five years to U.S. life expectancy.5 Fatalities from heart disease were cut by 57
percent;6 Deaths from stroke were reduced by 59 percent;7 Mortality from breast cancer
was cut by 31 percent;8 and disability rates declined by 25 percent.9 Moreover, the pace
of positive change has quickened. In the most recent decade, between 2000 and 2010,
life expectancy increased by nearly two years.10 Fatalities from heart disease were cut
by 30 percent;11 Deaths from stroke were reduced by 36 percent;12 and mortality from
breast cancer was cut by 18 percent.13
The dramatic improvements in health have gone beyond reduced mortality to improved
quality of life. The proportion of the elderly with a functional limitation has declined and
the years of disability-free life expectancy have increased.14 To cite one example of
technology’s impact, patients who received total hip or total knee replacements typically
transitioned away from disability within one year. Their risk of dying was cut in half and
their risk of a new diagnosis of heart failure or depression was significantly reduced.15
The medical technology industry is highly competitive. A study of medical device prices
from 1989 to 2009 found that they increased, on average, only one-fifth as fast as other
medical prices and less than one-half as fast as the regular CPI.16 Because the highly
competitive market kept prices low, medical devices and diagnostics accounted for a
relatively constant 6 percent of national health expenditures throughout the 20-year
period despite a flood of new products that profoundly changed medical practice.17
The U.S. medical technology industry is also a source of economic growth and good
jobs. The industry employs more than 420,000 people in the U.S. It generates an
additional four jobs in suppliers, component manufacturers, and other companies
providing services to the industry and its employees, for every direct job—for a total of
more than two million jobs nationwide.18
The jobs the medical technology industry provides are good jobs. The average medical
technology worker enjoys wages that are almost 40 percent higher than average pay for
the economy as a whole and 22 percent higher than the average for manufacturing
wages.19
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The impact of medical technology on economic growth and competitiveness goes well
beyond the jobs and economic activity associated with industry R and D and
manufacturing. A recent study by the Milken Foundation examined four diseases and a
limited number of technologies used to treat those diseases. It found significant
increases in labor force participation and productivity directly attributable to the
technologies’ contribution to reducing the burden of illness. These increases in labor
force participation and productivity, in turn, had expanded 2010 GDP by $106 billion.20
While the gains in health over the last thirty years have been impressive, and those of
the last ten years even more striking, past progress pales compared to future
opportunities. In this century of the life sciences, technological advances driven by
fundamental advances in knowledge of human biology and continued progress in
computing, communications, materials science, physics and engineering can be
expected to fuel creation of new and better medical technology products—if there is a
sound innovation ecosystem supporting not only continued scientific progress but the
translation of scientific advances into better health.
The innovation ecosystem under stress
These gains in health and the associated economic benefits—as well as maintaining the
U.S. technology industry’s competitive edge—require a healthy innovation ecosystem
that supports the key steps in the innovation process. Unfortunately, however, for the
nation’s medical technology industry, every part of the innovation ecosystem is under
stress.
The danger signs include:

Reduced investment. Venture capital flowing to the medical device sector is both
an essential generator of future progress and an index of the attractiveness of
investing in the development of new treatments and cures. Many of the true
breakthrough therapies and diagnostics in the medical technology industry flow
from venture funded start-ups.21 Venture investment in medical technology
declined by 42 percent between 2007 and 2013. Even more ominous is the
decline in investment for start-up companies at the earliest stage — the seed
corn for the next generation of treatments and cures. First time funding for
medical technology start-ups dropped by almost three-quarters over the same
period.22 There was an increase in 2014 from the low of 2013, but much of the
increase was concentrated in digital health, informatics and self-pay
technologies, leaving potential technological breakthroughs to diagnose and treat
major diseases still starved for resources.23
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Movement of clinical trials and first product introduction out of the United States.
For more complex products, the new normal is to conduct the first clinical trials
and product introductions outside the U.S. Often, patients in other nations get the
second or even third version of a novel treatment or diagnostic while patients in
the U.S. are still waiting to get the first version.24 Among other factors, the
decisions to introduce abroad first are driven by the higher cost and time involved
in conducting clinical trials in the U.S.; delays and inconsistencies in FDA
review; and, increasingly, uncertainties about coverage and payment.

Increasing difficulty in achieving coverage by public and private insurers for new
medical devices and diagnostics. The openness of the U.S. medical system to
new treatments and diagnostics has been a major strength in stimulating U.S.
leadership in development of new products and rapid patient access to improved
care. Public and private insurers, however, are raising the evidentiary threshold
for coverage. Over time, it has become increasingly difficult for new technologies
to gain a favorable national coverage decision from Medicare. A new study found
that in the ten years between 2002 and 2012, technologies being considered for
national coverage were twenty times less likely to be successful.25 When
coverage was granted, it was more limited than the FDA approved indications in
40 percent of the cases.26 A survey of insurers reported that large proportions
said that they had raised their requirements for coverage in the last three years
and a larger proportion expected to raise requirements further over the next three
years.27 New payment methods such as ACOs and bundling and other provider
risk-sharing programs are spreading rapidly in both the public and private sector
and can have the effect of penalizing providers who adopting new, more costly
treatments, even if they represent therapeutic improvements.28
Start-up companies are reporting that one of the first questions that investors
now ask is often about the prospects for coverage and payment, while the
previous focus was almost exclusively on the FDA.
The solution is not to move back from appropriate incentives to provide high
value care or to suggest that products that do not offer therapeutic benefits
should be covered; rather it is to make the public policy changes necessary to
assure that the new emphasis on cost does not result in the unintended and
unwanted consequence of undermining development and adoption of new and
better treatments.
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Declining U.S. competitiveness. Other countries are anxious to wrest leadership
from the U.S. in biomedical research and in the life sciences industries. The U.S.
medical technology industry has been the unchallenged world leader for many
years. We still lead, but our continued leadership is threatened. A study in 2011
by Price Waterhouse Coopers showed U.S. leadership on each of five pillars of
medical device innovation to be eroding.29 All the factors mentioned above
contribute to this decline, but the noncompetitive U.S. tax system is
unquestionably a key element driving medical technology R&D and
manufacturing abroad. Medical technology companies pay an average effective
federal tax rate of 31 percent on activities conducted and taxed in the U.S.
versus 14 percent on activities conducted and taxed abroad.30 The medical
device excise tax raised the federal tax obligation of medical device companies
by 29 percent.31 The corporate income tax and the medical device excise tax,
taken together, raise the effective tax rate on medical technology companies’
U.S. operations to 40 percent, surely one of the highest corporate tax burdens of
any industry in the world. Other countries not only have lower general tax rates
but many provide specific tax incentives, such as “patent” or “innovation boxes”
designed to further reduce rates for domestic development of intellectual property
and manufacturing based on that property, in order to attract high wage, high
value-added knowledge-based manufacturing industries.

Shrinking public research infrastructure. The U.S. has historically led the world in
cutting edge biomedical research. Public funding of NIH and our great
universities and academic health centers has been central to the basic and
clinical research that has been the foundation stones of development of new
treatments and cures. These institutions have also been essential to developing
the trained scientists and physicians who advance the frontiers of medical
science. But public investment has been shrinking even as opportunities have
grown. The purchasing power of NIH funding has declined 13 percent in real
terms since the mid-2000s. The total U.S. medical research effort, as a share of
global medical research, declined by more than one-fifth in just eight years
(between 2002 and 2012).32 A number of studies have documented the relative
decline of America’s science base by such measures as R&D investment as a
share of GDP, new patents as a share of the global total, global share of
scientific researchers, and new doctorates in science and engineering. 33
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The innovation agenda: Summary

The breakthrough pathway: The breakthrough pathway straddles both CMS and
FDA. It would create an accelerated, seamless pathway for FDA approval or
clearance and Medicare and Medicaid coverage and payment for products that
represent an opportunity to achieve significant improvements in treatment or
diagnosis of life-threatening or irreversibly debilitating diseases or conditions.

Proposals to improve FDA’s regulatory processes:
o Meet and exceed the groundbreaking 2012 user fee agreement goals for
such key objectives as reductions in total review times and more frequent and
substantive interactions between FDA and product sponsors.
o Revitalize the “least burdensome standard” for regulatory review through
enhanced reviewer training and encouraging the use of valid scientific
evidence from such sources as registries, experience in foreign markets, and
peer-reviewed journal articles where appropriate to support safety or
effectiveness determinations.
o Encourage FDA to accept international consensus standards.
o Streamline the CLIA waiver process to accelerate the availability of point-ofcare, rapid diagnostic information to physicians and patients.
o Allow the use of central IRBs to facilitate the conduct of multicenter clinical
trials.
o Reduce the review burden on FDA and companies by allowing companies to
self-certify minor changes to devices if their quality system has been certified
as capable of evaluating such changes.
o Improve the advisory committee process to reduce delays in product
approvals and enhance the fairness and transparency of the process.
o Encourage the development of technologies for rare diseases and pediatric
populations.
o Work with FDA to assure that post-market surveillance is effective and
efficient; provides timely, reliable, and actionable data; minimizes
unnecessary burdens on providers and industry; and is facilitated by smooth
implementation of the Unique Device Identifier program.

Proposals to improve Medicare’s coverage and payment processes:
o Establish automatic Medicare coverage of FDA approved clinical trials rather
than requiring a duplicative and potentially time-consuming separate
Medicare approval process.
o Expand coverage of telehealth services, including remote monitoring, and of
disposable, prevention and treatment technologies used in the home.
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o Streamline Medicare’s process for granting temporary outpatient and
physician payment codes to new technologies and prohibit Medicare
contractors from arbitrarily denying payment for these technologies.
o Require state Medicaid programs to take patient views into account in making
coverage decisions
o Increase the transparency and fairness of the local coverage determination
process.
o Improve the new technology add-on payment program to capture a larger
share of important new technologies and set payments more appropriately
o Establish payment levels more promptly for new technologies used in the
inpatient setting, using the best available data.
o Improve the methodology for establishing payment for technologies used in
the outpatient setting and for updating payments to ambulatory surgical
centers.
o Implement ICD-10 this fiscal year.

Proposals to make the U.S. tax system more competitive and supportive of
innovation:
o Repeal the medical device excise tax.
o In the context of comprehensive tax reform, create a level competitive playing
field for made in America medical technology:
 Enact new tax incentives to invest in start-up companies creating new
treatments and diagnostics;
 Lower the overall corporate tax rate;
 Provide incentives comparable to other countries for development and
manufacturing of technology; and
 Conform the treatment of international earnings to that of competitor
nations.

Improve access to international markets:
o Work with the U.S. government to encourage foreign governments to
establish regulatory and payment systems for medical technology that are
fair, transparent, nondiscriminatory and based on international best
practices.
o Enact Trade Promotion Authority to negotiate the Transpacific Partnership
and the TransAtlantic Trade and Investment Partnership and assure that
those agreements include provisions that improve market access for
medical technology.
o Enforce provisions of existing trade agreements such as the U.S. Korea
Free Trade Association to assure fair access for U.S. technology products.
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Proposals to support the maintenance and growth of America’s R&D
infrastructure:
o Provide steady growth in funding for the National Institutes of Health and
the National Science Foundation.
o Improve the SBIR and STTR programs by raising the amount of funding
(in the context of rising NIH and NSF funding), allowing larger individual
grants to better recognize the costs actually incurred by start-up
companies.
o More effectively tap the vast intellectual resources of our nation’s
universities and academic health centers by providing federal technical
assistance to establish and diffuse technology transfer best practices.
Conclusion
AdvaMed’s innovation agenda is an ambitious one. But this century of the life sciences
offers unprecedented opportunities for turning basic scientific advances into new
diagnostics, treatments and cures that can produce quantum leaps forward in life
expectancy and quality of life. Given the challenges medical technology faces today,
only bold policy changes can assure that the promise of breathtaking medical progress
will become a reality and that the United States will continue to be the word leader in
medical technology and in all the life sciences. The American people deserve no less.
1
United States International Trade Commission, “Medical Devices and Equipment: Competitive Conditions
Affecting U.S. Trade in Japan and Other Principal Foreign Markets,” March, 2007.
2
U.S. Department of Commerce, unpublished data, 2002.
9
3
Michaela Platzer, Patient Capital: How Venture Capital Investment Drives Revolutionary Medical Innovation,
2007.
http://www.contentfirst.com/past/Patientcapital/NVCAPatientCapital.pdf
4
USITC, “Medical Devices and Equipment: Competitive Conditions Affecting U.S. Trade in Japan and Other
Principal Foreign Markets,” March, 2007.
http://www.usitc.gov/publications/332/pub3909.pdf
5
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
6
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
7
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
8
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
9
The Value of Investment in Health Care: Better Care, Better Lives. Report compiled for The Value Group by
MedTap International, 2004. Data cited on disability rates is limited to 1982-2000.
10
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
11
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
12
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
13
National Center for Health Statistics. “Health, United States, 2012: With Special Feature on Emergency Care.”
Hyattsville, MD. 2013.
14
Federal Interagency Forum on Aging-Related Statistics. “Older Americans 2012: Key Indicators of Well-Being.”
Federal Interagency Forum on Aging-Related Statistics. Washington, D.C.: U.S. Government Printing Office. June
2012; D. Cutler, K. Ghosh, M. Landrum. “Evidence for Significant Compression of Morbidity in the Elderly U.S.
Population,” National Bureau of Economic Research, July 2013.
15
S. Lovald, K. Ong, E. Lau, et al., “Mortality, Cost, and Health Outcomes of Total Knee Arthroplasty in Medicare
Patients,” The Journal of Arthroplasty (2012), http://dx.doi.org/10.1016/j.arth.2012.06.036.
S. Lovald, et al. “Downstream Costs and Health Outcomes for Hip Osteoarthritis Patients after Total Hip
Arthroplasty.” Data presented at the American Academy of Orthopaedic Surgeons 2013 Annual Meeting, Chicago.
http://icjr.net/news_66_aaos_lovald.htm#.UZ2TeNJJM1I. Data also reported March 28, 2013, in Medscape Medical
News (by Kathleen Louden) at http://www.medscape.com/viewarticle/781620
16
Genia Long, et al., “Recent Average Price Trends for Implantable Medical Devices, 2007-20011, the Analysis
Group, February 2013.
17
Donahoe, Gerald and King, Guy. “Estimates of Medical Device Spending in the U.S.” June, 2011. Available
from www.advamed.org under the “Reports” section.
18
The Lewin Group, “State Economic Impact of the Medical Technology Industry,” June 7, 2010 and February,
2007.
http://www.socalbio.org/studies/MTI_Lewin_2010.pdf
19
Ibid.
20
Anusuya Chatterjee, Jaque King, Sindhu Kubendran, and Ross DeVol, Health Savings: Medical Technology and
the Burden of Disease, July 2014.
21
National Venture Capital Association, Patient Capital 3.0, April 2013.
22
PWC and National Venture Capital Association, “Venture Capital Investments Q1. 2014—Money Tree Results,”
April, 18, 2014.
23
See Sabin Russell, “Investor Drought and regulatory Headwinds Slow Device Innovation,” Health Affairs,
February, 2015, and Jonathan J. Fleming, “The Decline of Venture Capital Investment in Early-Stage Life Sciences
Poses a Challenge to Continued Innovation,” Health Affairs, February, 2015, for further discussion of this issue.
24
California Healthcare Institute and Boston Consulting Group, “Taking the Pulse of Medical Device Regulation
and Innovation,” 2014.
25
James D. Chambers, et al., “Medicare is Scrutinizing Evidence More Tightly for National Coverage
Determinations,” Health Affairs, February 2015.
10
26
James D. Chambers, et al., “Factors Predicting Medicare National Coverage: an Empirical Analysis,” Medical
Care, March 2012.
27
Genia Long, et al., “Evolving Provider Payment Models and Patient Access to Innovative Medical Technology,”
Journal of Medical Economics, December, 2014. .
28
In bid
29
PwC, “Medical Technology Innovation Scorecard: The Race for Global Leadership,” January, 2011.
30
Survey of AdvaMed member companies.
31
Ernst and Young, “Effect of the Medical Device Tax on the Federal Tax Liability of the Medical Device
Industry,” November 2012.
32
Hamilton Moses, III, MD, et al., “The Anatomy of Medical Research: U.S, and International Comparisons,”
JAMA, 2015;313(2): 174-189.
33
Ibid. See also Robert D. Atkinson, “Role the U.S. Government can Play in Restoring U.S. Innovation
Leadership,” testimony before the Committee on Science and Technology, Subcommittee on Technology and
Innovation, U.S. House of Representatives, March 24, 2010.
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