Effects of medical device legislation on innovation within Australian manufacturing companies.

SUMMARY

Unlike many other industries in Australia, manufacturers of medical devices must meet strict regulatory requirements to be permitted to supply their products on the consumer market. With the introduction of the Therapeutic Goods Act and Medical Device Regulations, Australian manufacturers became legally obligated to follow specific principles of quality systems implementation in design, manufacturing and product delivery processes. A survey was conducted to determine manufacturers' perceptions of the effects of the regulation on the product development practices within their companies. Results of the survey showed that the majority of respondents are anticipating or have already experienced mostly positive effects of the legislation on quality, reliability and safety of products and legal security of their companies. However, the respondents estimate that the legislation will negatively affect the cost of innovation and delivery time of new products to the market.

KEY WORDS

innovation; legislation; medical devices; rehabilitation equipment

INTRODUCTION

The Australian medical device (MD) industry is regulated by the Therapeutic Goods Act 1989 (TGA) (Office of Legislative Drafting, 1989) and Medical Device Regulations 2002 (MDR) (Office of Legislative Drafting, 2002). In addition to high risk medical devices, such as devices that are used for medical treatment and diagnosis of diseases, soon this legislation will also control the supply to the market of previously exempt low-risk medical devices including a broad range of rehabilitation equipment.

There is a clear need to ensure the quality and safety of medical equipment including low risk medical devices. However, despite the intended overall advantageous outcomes of the legislation, such as the increased safety of products and the removal or reduction of barriers in international trade, the imposition of compliance and aftermarket surveillance requirements may well stem innovation and place a substantial resource burden on small and medium enterprises (SMEs). This could force some small Australian manufacturers to cease design, innovation and development of new products and to become suppliers for local or overseas larger manufacturers.

Industry

Peacock et al. (2001: i) reported that, in 1996, 80% of the Australian MD market was dominated by imported products. However, the size of the medical device industry was still enormously valuable for Australia, with its share of the market still estimated to be approximately AU$150 000 000 (Therapeutics Goods Administration, 2002). An average growth rate of nearly 5% per year was also evident. Peacock et al. (2001: 2) further demonstrated that this growth is likely to be maintained due to an increasing health budget and an ageing population. Their study estimated that nation-wide in 1997 the industry comprised approximately 670 companies employing a total of about 4 600 employees. The proportion of the total number of medical device manufacturers that are SMEs does not differ significantly from the proportion of SMEs nationally and is about 95% (Terziovsky, 2002; Therapeutic Goods Administration, 2002).

Legislation

The Therapeutic Goods Act 1989 is administered by the Therapeutic Goods Administration. In 2002 the Act was updated with a specific regulation to control medical devices. The updated legislation became aligned with the European Union Medical Device Directive and with international best practice to remove technical barriers in international trade. Other main goals of the new legislation include:

* The avoidance of burdensome regulations that would stop innovation and slow down access of new products on the market; and

* The maintenance of public health and safety.

In isolation, these goals are admirable but are also conflicting in some aspects. For example, fast access to new products on the market in practice may compromise the safety of these products. The legislation tries to resolve these conflicts through the use of a new approach. This approach includes the differentiation of all medical devices into five classes on the basis of risks associated with the intended use of these devices (with Class 1 as the lowest risk). Consequently, the conformity assessment procedure depends on the Class of the device. That is, higher class medical devices have to go through more a rigorous assessment procedure than lower class products. In addition, despite strict requirements, and as a realisation of a new approach to legislation, the regulation does not limit the possible ways to achieve these requirements. Thus, manufacturers have a reasonable degree of flexibility in choosing how to achieve compliance. In accordance with the new approach, all manufacturers of medical devices have to demonstrate the compliance of their products with the relevant essential principles (that is safety and performance requirements) of the TGA and must implement an after-market vigilance system. Manufacturers of higher risk medical devices must be formally accredited to the quality standard (starting from Class IIa) and must be subjected to a pre-market assessment by the TGA (starting from Class III).

A range of low-risk medical devices was excluded from the initial edition of the Therapeutic Goods Act (Office of Legislative Drafting, 1989) by the Therapeutic Goods (Excluded Goods) Order No.1 (1998). However, a number of recalls of low-risk medical devices, and particularly of rehabilitation equipment (Therapeutics Goods Administration, 2005), and legal investigations such as the Sandra Lee Rothwell death (South Australia State Coroner Inquest, 2000) possibly influenced the inclusion of these kinds of products into the new TGA MDR (Office of Legislative Drafting, 2002).

Low risk Class I medical devices do not have any explicit requirements for compulsory quality systems and pre-market assessment. However, the legislation does require manufacturers of Class I medical devices to document:

* Design data;

* Proof that their products comply with the relevant essential principles;

* Risk analysis of products;

* Any changes in the design together with explanations and reasons for these changes;

* The manufacturing process;

* The results of post-market surveillance; and

* Clinical evidence that the device is appropriate for its use.

In other words, the legislation does not formally require Class I medical device manufacturers to undergo a quality standard accreditation process but does require implementation of many of the principles of quality systems. As a result, all Australian manufacturers of medical equipment are now formally obliged to implement the principles of specific quality systems in the design and manufacturing processes. Considering this and taking into account that some sectors of the industry have never been regulated and that the industry consists mostly of SMEs that have limited resources, it was difficult to predict the long term effects of the regulation on manufacturers of the sector. Probable adverse results in this situation are:

* The closure of a business (there is anecdotal evidence of such closures in Australia) because of the uncertainty related to the implementation and function of the legislation;

* The false declaration of compliance by manufacturers as observed by Medical Devices Experts Group (2002: 43);

* The cessation of innovation and development of new products by Australian manufacturers and their transformation into dealers for overseas larger manufacturers; and

* Increased consumer costs.

As one example, it appears that in Australia wheelchairs are currently 15%-20% less expensive than in the USA and Europe. The possible negative outcomes of the legislation may affect either safety or cost of rehabilitation equipment and so diminish any pre-existing market advantage.

EFFECTS OF THE LEGISLATION

The effects of legislation on innovation in various sectors of national economies are presently being investigated by a number of European researchers and organisations (European Trend Chart on Innovation Technical Report #2, 2003a; European Trend Chart on Innovation Technical Report # 4, 2003b; European Trend Chart on Innovation Technical Report # 5, 2003c, Medical Devices Experts Group, 2002; Smith, 2002; Thumm et al., 2000). This paper includes a summary of the initial findings for the first such study in the Australian medical device industry.

Methods

A preliminary exploratory survey was conducted between September and December 2005 as a precursor to more comprehensive research that will be undertaken in the near future. This preliminary survey was part of a wider study to determine the effectiveness of selected technological and management approaches. The main objectives of the survey were to:

* Test an hypothesis that the TGA legislation affected the new product development process within Australian SMEs;

* Clarify the directions of the major part of the wider study.

The survey was designed to provide some basic statistical information such as means, frequencies and some multi-variable relationships for use as indicators in further studies.

Samples for the survey were selected from the following lists and databases:

* The online list of current corporate members of Australia's Biotechnology Industry Organisation www.ausbiotech.org (medical device manufacturers);

* NovitaTech Engineering web-list of tested equipment www.novitatech.org.au/test (rehabilitation equipment manufacturers);