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July 13, 2010

Massachusetts Code of Conduct: MIT Study Shows Negative Effects on Medical Device Innovation

In July 2009, the Massachusetts state legislature enacted the Massachusetts Pharmaceutical and Medical Device Manufacturer Code of Conduct (PCOC), which was subsequently adopted by the Department of Public Health (DPH).

The state law requires pharmaceutical and medical device manufacturers to comply with a marketing code of conduct, obey specific compliance activities, and disclose payments to Massachusetts-licensed healthcare providers with a value of $50 or more in connection with sales and marketing activities.

In light of the Massachusetts House repealing the Pharmaceutical and Medical Device Code of Conduct late last week, it is important to shed more light on the impact PCOC has had on Massachusetts. The best way to do that is by looking at the research and thesis of Daniel W. Wolf, MBA, a student in the Biomedical Enterprise Program in the Harvard-MIT Division of Health Sciences and Technology.

Mr. Wolf studied the impact PCOC has had on physician-industry collaboration related to technology development and physician education in the Massachusetts medical device industry.

Study Design

To carry out the research for his thesis, which was submitted to the Harvard-MIT Division of Health Sciences and Technology, and to summarize the initial impressions of the impact of PCOC, Wolf carried out a two part pilot study. First, he conducted 36 informal interviews of medical device manufacturers, distributors, academic medical centers (AMC), venture capital firms, law firms, consulting firms, MassMedic, and the DPH.  He then surveyed 40 stakeholders in the Massachusetts medical device industry, including academic physicians and representatives of medical device companies selling to Massachusetts-licensed physicians during the first quarter of calendar year 2010.

His main reason to choose this research was to show that PCOC has impaired medical device physician-industry collaboration related to technology development and physician education in Massachusetts, a hypothesis which his research overwhelmingly confirmed.  To measure such impairment, Wolf defined innovation as “the process of translating new technologies into commercially successful products with significant impact.”

Introduction and Background

As Mr. Wolf eloquently notes, the “modern physician-industry collaboration has been at the heart of medical device innovation since the 1950’s,” and “over the past six decades, physician-industry relationships have paired the clinical expertise of physicians with the technical, strategic, and financial capabilities of industry.”

This collaboration has been life changing and has revolutionized America’s health care system and delivery by allowing the creation of “numerous devices that have allowed surgeons to intervene where systemically delivered pharmaceuticals and medical managed have failed, through various structural interventions.” This collaboration “between physicians and companies has also accelerated the medical device innovation trend of decreasing invasiveness, improving clinical outcomes and reducing treatment and hospital costs.”

To continue this collaboration, Mr. Wolf noted that “even closer collaboration between physicians and industry” will be needed as “technological and procedural complexities multiply, and “the convergence of delivery devices and scaffolds with biologics emerge as tissue engineering and cell therapies become more clinically relevant.” In order to ensure the success and continued progress of these partnerships, Mr. Wolf recognized that this “collaboration will require strong and transparent alliances between academic institutions, innovative venture-backed companies, and large medical device manufacturers.”

Wolf also points out that the medical device industry is also important to Massachusetts because it “provides and abundant source of employment investment,” with 20,555 people employed by the industry in 2004. This gives the state the second highest device employment per capita and third for absolute employment.

Accordingly, his thesis goes on to discuss how there is a “significant difference” between medical device and drug development, “in that physician-industry collaboration is required throughout the development process [of devices], from bedside to bench to bedside.” These required interactions involve, “physicians collaborating with companies to identify an unmet clinical problem. It also means companies must “interact with physicians to design procedure-based device solutions that leverage the physician’s skill set.”

To establish an effective and efficient partnership between physicians and industry, “this “close collaboration requires constant, frequent, and open communication, so that product defects, limitations, and performance improvements can be translated at minimum cost between manufacturers and customers.” This is especially true considering “product modifications are most frequent during the first six months of market approval, as product limitations are exposed in clinical practice and physicians communicate these issues with manufacturers.”

The Role of Sales and Marketing in Medical Device Innovation

The most effective way to communicate to physicians such information is through device manufacturer representatives. As Mr. Wolf correctly asserts, “the sales and marketing functions in the medical device industry enable manufacturers to collaborate with physicians to design and develop clinically relevant products, expose physicians to new products, train physicians on new device procedures, and support general physician education.” The nature of these interactions allows “manufacturer representatives to work with physicians to solicit valuable feedback and constructive criticism of existing devices and discover new clinical applications.”

Such exchanges are critical because the communication between representatives and physicians “enables more effective and efficient product development of new device iterations, and can similarly lead to breakthrough innovations of new device approaches to solve unmet clinical problems.”

The process by which these interactions occur is by device manufacturers “engaging physicians through consulting agreements on preclinical and clinical research for novel device concepts” when a clinical need is identified and the market assessed. Accordingly, “physicians may be reasonably compensated for their time, reputation, and expertise on research through consulting agreements and reimbursed for related expenses.” This compensation can also include “royalty, financial interest, and cash compensation components to optimally incentivize and reward inventors.”

Consequently, it is through these agreements, often with key opinion leaders (KOLs) at academic medical centers who assist with clinical validation of a new technology, that marketing representatives “solicit valuable feedback to direct incremental improvements to devices.” It is also important to note that KOLs are often “the first physicians to use the implantable device on patients in experimental cases to prove the technology’s safety and efficacy (e.g. Dr. Lawrence Lenke).

This experience is crucial because “as a product finishes clinical trials and approaches FDA approval, KOLs work with clinical specialists and sales representatives from the manufacturer to optimize the surgical procedure for a given clinical application.” To aid in this work, “physicians attend training events on-site at manufacturers to learn new procedures and they are compensated for their time.” Such training is also provided at AMCs, where attending physicians “are responsible for training the fellows on the new device procedure and the fellows are responsible for training the residents.”

In fact, this process even includes “clinical specialists and sales representatives from manufacturers to visit hospital settings and often train attendings, fellows, and residents on new device procedures as well.” The role of these sales representatives to train physicians on new procedures is even “larger” at community hospitals. In addition, manufacturers also play a significant role at major AMCs by sponsoring “fellowships as a method of supporting physician education, encouraging device innovation, training physicians, and promoting their products.”

Sales representatives also “play a notable role in a physician’s preferences and decision to use one device over another.” This is significant considering Wolf cites research, which shows that “physicians often make this decision without cost in mind, relying on factors like clinical data, personal experience with a device, and their relationship or trust in the manufacturer.”

Wolf also points out that “sales representatives play an important function in the adoption of new medical devices by physicians, serving in a technical support and inventory stocking capacity to surgeons during procedures.” This is particularly beneficial to physicians and patients receiving such procedures because as Wolf asserts, “sales representatives often have an extremely specialized knowledge in their products’ capabilities and technical function, and are often relied upon by their physician customers for their product expertise, procedural support, and inventory reliability.”

For example, since sales representatives have “seen numerous procedures under a variety of circumstances and different physician techniques, they are often able to serve in an advisory and inventory stocking capacity to the physician, ensuring the correct device’s components are used and match the patient’s specific needs.” Access to sales representatives in these instances is extremely important for “community hospitals that often have less inventory and whose physicians rely on them for inventory and procedural consultation.”

Another important role sales representatives play is their ability to “expose physicians to new device technologies and to keep them up to date on new products.” This type of exposure “occurs in the hospital, at promotional events and tradeshows, educational conferences, continuing medical education (CME) events, and information professional gatherings for academic departments.” For Massachusetts-licensed physicians however, strict regulations from PCOC on providing meals and gifts to doctors usually leave them with none of these options.

Additionally, as Wolf points out, because of fixed payment per case for surgical procedures determined by Medicare DRG or APC code, hospitals have an incentive to use “new technology review committees to contain costs by limiting physician exposure to expensive technologies by weakening their relationships with manufacturers or limiting access of sales reps to physicians.”

Potential Negative Consequences of PCOC

The Massachusetts law is harmful to medical device innovation because it disrupts the cycle of technology development through physician adoption that is needed for innovation. This cycle includes identifying an unmet medical need, market assessment, preclinical and clinical research, product promotion, physician exposure and adoption, physician training and education, and post-market approval product refinement.”

Accordingly, Wolf acknowledged the overwhelming concern that “Massachusetts regulations increase the barriers between physicians and medical device companies, impairing physician-industry collaboration on technology development, new device training, and medical education.” Wolf also recognized “additional concerns from Massachusetts-licensed physicians that industry withdrawal will impair their ability as physicians to innovate and deploy new device therapies, educate the next generation of physicians, and provide optimal patient care.”

Wolf also notes there are concerns that “companies prefer to collaborate with physicians not licensed in Massachusetts, because the law poses excessive transaction costs and legal liabilities on manufacturers to interact with Massachusetts-licensed physicians.” He also discussed concerns that “companies are reducing the number of invitations to Massachusetts-licensed physicians for education and professional gatherings.” Additionally, he noted that “physicians are concerned that companies are reducing or eliminating financial support for academic departments to hold informal educational events that companies once energetically supported.”

Another negative consequence from the PCOC is that it “potentially poses unnecessary economic costs on manufacturers, which can negatively impact their ability to dedicate adequate resources to research and development.”  For example, compliance to PCOC “can become extremely costly for companies and draw resources away from valuable projects within the company.” This leads medical device companies to “work with physicians in less regulated states for cost reasons in order to avoid the legal liabilities of not keeping up with every state’s unique compliance regulations.”

A related effect of this financial burden is that it “hinders innovation in Massachusetts because it regressively falls on smaller medical device companies.” While larger companies are already compliant with the Advanced Medical Technology Association (AdvaMed) Code of Ethics, which helps ensure compliance, “these same conduct, compliance, and disclosure policies overwhelm small companies.” As a result, “the increase in barriers that small companies might face when trying to promote new technologies to physicians would inhibit their ability to exposure physicians to new device technologies.”

The impact of PCOC could also mean a “market power shift,” where “large manufacturers will gain market share from smaller companies,” causing “already established brands” to overshadow smaller companies.


In summarizing his informal conversations with various stakeholders, Wolf acknowledged that representatives from manufacturers and distributors expected “their companies to withdraw from technology development and education relationships with Massachusetts-licensed physicians,” mainly because the state laws increase barriers between physicians and medical device companies, which impairs physician-industry collaboration. Other conversations Wolf conducted with representatives emphasized the “significant ambiguities that still remained in the law’s interpretation.” For example, since DPH created the legislation with pharmaceutical companies in mind, “DPH was relied upon to incorporate specific needs of medical device companies.” But this sort of guidance has largely been absent, leading to more confusion that has led manufacturers and distributors to incur “high costs of interpretation and implementation of the regulations, and the need to hire legal counsel and buy new software tracking systems to obey disclosure requirements on a state-by-state basis.”

Accordingly, in summarizing his survey results, Wolf noted that “physician-industry collaboration related to physician education and technology development was impaired by the Massachusetts regulations, with evidence of a larger negative impact on physician education.” In addition, “within physician education, new device procedure training, non-CME-accredited education, and promotional events experienced the most significant impact.”

The survey also found that a “majority of physicians claimed that physician education has been impaired as a direct result of the Massachusetts regulations, and a majority of company representatives stated that their ability to keep physicians updated had been impaired as a result of the law.”

Another survey finding indicated that “over half of all physicians believed that the Massachusetts regulations would have a negative impact on patient care in the long term, through impaired physician education and ability to stay updated on new therapies.”

Findings from the survey also showed that the state law impacted company representatives “decisions to collaborate with physicians with regard to research, scientific advisory boards, new device procedure training, non-CME accredited educational events, CME accredited educational events, and promotional events.” Additionally, “company financial support of non-CME educational events had the largest impact, followed by promotional events, and support for CME-accredited events.”

With regards to physician willingness to participate in several categories of industry collaboration, without expense reimbursement or compensation, Wolf found that “promotional events had the largest physician withdrawal, followed by non-CME educational events, research, and training events for new device procedures.”  

Moreover, 62.5% of physicians claimed “they would not attend a training event without expense reimbursement or some other form of compensation.” And only 37.5% of physicians agreed to attend a new device procedure training event without reimbursement or compensation.”

-    70% of company representatives claimed that their company’s ability to collaborate with physicians had been impaired.


-    82.6% of physicians claimed their ability to collaborate with industry had been impaired, and of that group, 73.3% said it was “severely impaired.”


-    79.2% of physicians responded that physician education has been impaired or severely impaired as a direct result of the state law, and 66.7% said it was a “severe impairment.”


-    52.2% of physicians believed the law will have a negative impact on patient care in the long term, through impaired physician education and a decreased ability to stay updated on new therapies.


-    69.2% of company representatives claimed a decrease in the number of opportunities to expose physicians to new device therapy options, and 47.8% of physicians claimed a decrease in their exposure to new device therapy options. Also, 52.2% of physicians claimed a decrease in their exposure to sales representatives carrying new device.


-    43.5% of physicians claimed a decrease in their ability to introduce new devices to other physicians within their own institution, through formal committees or informal conversations.


-    90.9% of company representatives state that their ability to keep physicians updated had been impaired or severely impaired by the law, whereas 58.3% of physicians claimed that their ability to stay updated on new device therapies had been impaired or severely impaired.


-    76.9% of company representatives claimed a decrease in training opportunities with new devices for Massachusetts-licensed physicians and 80% reported a decrease with existing device training opportunities.


-    Similarly, 56.5% of physicians cited a decrease in opportunities to train in new device procedures, which supports “anecdotal evidence of industry withdrawal from training engagements with Massachusetts-licensed physicians.”


-    80% of companies decreased the number of event invitations to Massachusetts-licensed physicians, relative to last year, and a significant number of educational events have been canceled in Massachusetts as a direct result of the regulations.


-    75% of physicians surveyed stated a significant decrease in the number of their event invitations, relative to last year.


-    66.7% of the companies responded that they had canceled at least one educational event as a direct result of the law.


-    82.6% of physicians claimed a decrease in industry funding for their academic department in the form of fellowships, informal non-CME educational events, and research sine the law’s adoption.


Wolf suggested the public need for “broader preemption by federal provisions, which might preempt all state and institutional policies governing the marketing behaviors of medical devices and disclosure requirements related to physician-industry engagements.” He also discussed the need to “more deliberately separate medical devices from pharmaceuticals with regard to all future legislation, given the differences in technology development, clinical adoption, and physician research relationships.”

These recommendations are important to follow because “without broader federal preemption, individual states and institutions will continue saddling medical device companies with excessive costs that could be dedicated to research, development, and physician education.” He also warned against overreaching institutional policies, which can “impair physicians from engaging in research and educational activities, with negative consequences for medical device innovation, physician exposure, and ultimately patient care.


Accordingly, the results of his study have a significant impact on state and federal regulatory implications for the medical device industry, and serve as a guide for future analysis and study. This breakthrough is extremely important considering the recently enacted Physician Sunshine Payments Act is likely to have the same “chilling effect” on physician-industry collaboration, but on a much larger scale, which will potential hurt technology development and physician education nationwide.

Consequently, with an “increasing number of unmet medical needs that cannot be solved by medical management and systemic delivery of pharmaceuticals or biologics,” Mr. Wolf correctly asserted that “now more than ever, there is a dire need for close collaboration between physicians, academia, and industry.”

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