The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2013

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The last decade has seen rapid advances in the medical devices industry.

With the development of biodegradable implant materials, novel imaging techniques and device miniaturisation, the future possibilities for improvement in public health appear limitless.

At the same time, there has been a rise in large-scale product recalls and withdrawals following much-publicised safety concerns about devices such as prosthetic hip replacements, breast implants and implantable defibrillators.

A recall for an implantable medical device is likely to have complex and costly medical, legal and insurance consequences.

The regulation of medical devices in the US and Europe has come under intense scrutiny over the last year. The two systems differ in several substantial ways, which has resulted in products reaching the EU market that were never approved in the US.

What are the implications of these differing regimes for insurers of medical devices? If US and EU regulators cannot agree on which products to approve or the long-term risks posed to the public, how can the insurance industry be expected to quantify their potential exposure?

The risks posed by medical devices can be better evaluated by understanding the differing systems in which medical devices are approved.

Europe
Device approval in each EU country is supervised by a governmental body, known as the Competent Authority. In the UK, this is the Medicines and Healthcare Products Regulatory Agency (MHRA).

When a medical device is approved, it obtains a CE mark (Certificate of European Conformity). Complex devices, such as implantable devices, are handled by Notified Bodies - independent commercial companies that specialise in evaluating products for CE marks.

Manufacturers of a medical device choose which Notified Body they wish to send their data to in order to obtain approval. They then submit performance and reliability testing data to the Notified Body, which ensures that the device successfully performs as intended and that the benefits of the device outweigh the risks.

While there is some general guidance on the EU requirements for the clinical evaluation of medical devices in the pre-authorisation phase, these are framed only in general terms. This leaves manufacturers in the position of having to determine what data is sufficient for CE marking; for example, the number of subjects to trial the product on, the type of study design and the minimum patient follow-up period.

Whereas devices approved in Europe have required submission of clinical data involving tens of subjects, the same device has required clinical data from hundreds of subjects in the US. And these pre-marketing data requirements have been the subject of criticism.

Insurers are able to scrutinise the quantity and quality of pre-clinical data as a means of better understanding their potential exposure.

During the post-marketing phase, manufacturers are required to report all serious adverse events to the Competent Authority. Since May 2011, manufacturers also have to report events to the European Databank on Medical Devices (EUDAMED).

The coordination of data held by the Competent Authorities has come under fire, while the lack of formalised device registers and transparency has also been raised as a possible deficiency in the European system. It has been suggested that the lack of centralisation hinders the collection of safety data, causing some adverse events to take longer to come to light.

Insurers may therefore wish to consider adopting policy wording that requires the insured to maintain some form of medical device register as a way of limiting the costs of any recall and ensuring that safety issues are highlighted speedily.

The United States
The US regulator, the Food and Drug Administration (FDA), has the function of protecting public health. The FDA ensures that the public has access to innovative, safe and effective medical products and therefore approves and regulates medical devices. The US regulatory process does not involve the use of Notified Bodies, unlike the EU.

As part of the decision-making process, the FDA may consider the severity of the disease and the available alternatives when assessing whether or not to authorise a particular medical device. In contrast to the EU process, the FDA is not only concerned with performance-based data and may withhold medical device approval where an alternative exists.

Where a device has been approved in the EU but rejected by the FDA on the basis that a cheaper alternative exists rather than due to safety concerns, an insurer may still be willing to insure the product in the EU market.

The US system has not been immune from criticism, having attracted controversy over the 510(k) review pathway. High risk products, which include prosthetic hip replacements and other implantable devices, usually require the submission of clinical studies evaluating the safety and efficacy of the device, which is contained within a Premarket Approval (PMA) application.

The 510(k) process, however, allows the FDA and the manufacturer to rely upon similarities between the device seeking approval and a previously approved device. The manufacturer must show that the existing device and the device seeking approval are "substantially equivalent". Most devices are now cleared through the 510(k) process.

Following criticism of the 510(k) process, the FDA commissioned several internal reports. In January 2011, it announced it would undertake various actions to improve the safety of the process. Insurers may consider that they should give greater scrutiny to high-risk medical devices that have been approved via 510(k).

The reporting of post-marketing data under the US system appears, therefore, more transparent compared to its EU counterpart, with adverse event reports being submitted to both the manufacturer and the FDA.

These reports are available on a searchable, publicly available database called the Manufacturer and User Facility Device Experience. This is in direct contrast to EUDAMED, the EU equivalent, which is not accessible to the public.

Devices approved in EU but not in US
The differing processes for the regulation of medical devices in the EU and US recently came under the spotlight after a internal FDA report was leaked and obtained by the Star Tribune, entitled "Unsafe and ineffective devices approved in the EU that were not approved in the US".

Within this internal report, the Star Tribune reported that the FDA highlighted 12 classes of apparently "malfunctioning or needlessly invasive high-risk medical devices approved for sale in Europe but not in the United States".

The report remains unpublished to the general public, although it has been suggested that the FDA was using it tactically as a way of defending its own approval processes. However, many will be keen to see what devices have been highlighted in this report.

On 14 May, UK health minister Earl Howe published his review into the silicone breast implant incident on behalf of the Department of Health. He concluded there was no evidence or reason to believe there should be a fundamental change to the EU regulation of medical devices, such as a move to the model operated in the EU for pharmaceuticals or that used in the US.

Knowing the difference
We are left with a situation where the regulation of devices differs in the US and EU. The result is that certain products available to the EU market are not approved in the US.

Manufacturers, suppliers and insurers need to be alive to the differences between the two systems as well as the possibility that devices placed onto the European market have a greater risk of leading to product liability claims.

To the extent that reassurance is sought from a product being approved by the European process this may, albeit in rare cases, be misplaced.

If rapid innovation continues in this sector, coupled with the speedier regulatory approval process, insurers must take onboard the possibility of more claims being presented under European product liability and recall policies, leaving aside the US compensation culture.

Alison McAdams is a partner in the Product Liability Group at DAC Beachcroft

Dr Alison Macrae is a solicitor in the Product Liability Group at DAC Beachcroft