United States: Thoughts On Regulatory Constraints Of Business Models

I am often called upon to address the nature of how regulatory controls may apply to the organization of healthcare companies in their ability to create, deliver, and capture value (their 'business models'). While no summation could adequately capture all of the complexity inherent in this question, it would seem appropriate to briefly comment on some of the general recent trends I have seen, and how they may be shaped by various regulatory authorities.

Healthcare is on the leading edge of science, applying new technology to the cure and treatment of diseases. Gene therapy, nanotechnology, and personalized medicine are all actively exploited to bring new and exciting advances in healthcare. While healthcare is technologically advanced, in many ways the business models of healthcare companies have been slower to evolve. For example, the distribution of medical services is still largely mired in the traditional models that have existed for decades. The distribution of medical services is still, for the most part, a local affair, and largely dependent upon the regional availability of such services. By contrast, consumers of household goods are capable of shopping on a global scale, taking advantage of companies such as Amazon.com to obtain economies of scale and access to goods produced in every part of the world. Entertainment is now streamed digitally, allowing for instantaneous delivery of music, software and movies.

Government and industry have come to realize the benefits that could be obtained through such business models, and healthcare is poised to enter a period of evolutionary change. The Center for Medicare and Medicaid Innovation is currently evaluating a number of new payment and service delivery models in accordance with the requirements of section 1115A of the Social Security Act, as well as other Congressional legislation, including the Affordable Care Act. These innovation models address a number of different needs, such as transforming primary care to strengthen and increasing access for patients, speed the adoption of best practices, and accelerate the development and testing of new payment and service delivery models.

Products Versus Services

The U.S. Food and Drug Administration ("FDA") regulates the marketing of medical products (drugs and medical devices), but refrains from the regulation of what it refers to as "the practice of medicine," or medical services. Regulation of medical services is largely left to the various state agencies and professional boards.1

Many healthcare companies, however, are now blurring the line between medical products and medical services by manufacturing products that are primarily designed to offer a service. Pill reminders can be integrated with communication devices to allow users instantaneous access with pharmacists or nurses if they have a question about their medication. Commonly used diagnostic devices such as blood pressure cuffs and blood glucose meters can instantaneously transmit measurements to physicians for remote monitoring. This integration of medicine and technology opens the possibility for companies to profit not just from the sale of the device, but from the associated services. In some cases, an ongoing subscription to a service may be more profitable to a company than the sale of the device.

One of the difficulties faced by companies that move from offering a product to a service is the fractured and inconsistent state regulation of medical services generally. Ideally, the economies of scale are benefitted by providing services from a central location. State licensure and other regulatory requirements may dictate a more diffuse network of service centers.

Related issues arise in the context of cloud computing, which involves the delivery of computing as a service rather than a product. FDA-regulated product manufacturers are required to establish their requirements for cloud computing services, including those related to quality, and ensure that those requirements are being met by the service. If patient records are involved, regulatory compliance with both the Health Insurance Portability and Accountability Act (HIPAA) and Health Information Technology for Economic and Clinical Health (HITECH) Act must be addressed. Further, with shared cloud based systems, controls (including contractual controls) must be established to protect intellectual property.

Contractual Risk Sharing

When a medical product also offers a service, there are questions as to supervision of those services. Of course, if the manufacturer maintains a direct relationship with the patient, such as with services offered through nonprescription devices, the responsibility is clearly on the manufacturer. For devices bundled with a service that are specifically prescribed by a physician or other medical professional, the responsibility over those services may become clouded. For example, a physician that contracts with a device-bundled service on the behalf of a patient may potentially hold some risk of liability when the patient calls the device manufacturer's service center after hours to report a medical emergency. Contractual relationships must address these risks, and the service provider may need to retain appropriate professional coverage to mitigate the liability for their contracting physicians. In other situations, these contractual relationships may be explicitly mandated by regulatory authorities, such as with electronic health records under HIPAA and HITECH.

Modern Distribution Chains

Drugs and medical devices, particularly those restricted by prescription, are distributed through a heavily regulated network. Software marketed for a specific medical purpose, for example the display of medical images, is regulated by FDA as a medical device, and would traditionally be distributed through the same network used by other medical products.

Software, by its nature, does not need to be shackled to this traditional distribution system. It may be downloaded directly from the manufacturer, or it may be provided through an "application store" such as those servicing the various smartphone platforms. This raises a number of interesting issues that have not fully been resolved.

An example of one of these unresolved issues involves user manuals and other required labeling. FDA has a longstanding policy of requiring manufacturers of medical devices to provide user manuals and other labeling in a hardcopy format. While digital copies of such manuals may supplement the hardcopy version, they may not be provided in place of such manuals. Virtual distribution platforms cannot, by their nature, provide a hardcopy manual at the same time the software is distributed to the user.

Another example of an unresolved issue involves the loss of control that manufacturers face with conducting recalls and collecting information on product complaints. Distribution over an application store may present the most direct route to users by avoiding the need for users to have an "unlocked" smartphone. This access, however, comes at a loss of control. Applications offered through application stores generally must be reviewed and approved by the owner of the platform. This could result in delays when manufacturers need to implement critical device upgrades, as review of updates may extend to over a week or more. Further, complaints with the application may be first reported to the owner of the platform, impairing the ability of the manufacturer to report critical adverse events to FDA in the necessary timeframe.

Until FDA addresses these issues, companies must build in safeguards to ensure that regulatory risks are contained. This involves both developing and implementing internal policies, and using contractual risk sharing. Notwithstanding these hurdles, the medical field is poised to see an evolutionary change in business models over the next few years. While there may be growing pains with adapting to the various regulatory requirements, these should not be barriers to innovation.

If you are interested in learning more about how these regulatory requirements impact and influence business models, I invite you to attend Duke University's Fourth Annual Informatics Conference. I will be speaking on the topic "Vision for the Future – Business Models," along with moderator Derek Perkinson, Director, Strategic Planning at Comcast Corporation, and panelists Sam Bastia, General Manager, Global Strategy & Innovation at Verizon, Jimmy Childre, CEO of Washington County Regional Medical Center, and Dr. John Murphy, Head of Clinical Informatics at Quintiles.

Footnote

1 Senior FDA officials have publicly stated that "the legislative history of the Federal Food, Drug, and Cosmetic Act shows that Congress did not intend FDA to interfere with the practice of medicine, and FDA – whose Commissioners typically have been medical doctors, and which has many MDs on its staff – has never had such a goal." Linda A. Suydam, Statement at FDLI Conference on Advertising and Promotion in the New Millennium (Sep. 13, 1999), at   http://www.fda.gov/NewsEvents/Speeches/ucm054540.htm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
3 Dec 2018, Other, Los Angeles, United States

National Contract Management Association’s Government Contract Management Symposium

20 Feb 2019, Seminar, Orange, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

21 Feb 2019, Seminar, Orange, United States

The seminar is designed to provide a guide to Human Resource Officials, Personnel Specialists, Consultants, Supervisors and other management officials through the ever-increasing maze of state and federal employment discrimination laws.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions