The Communications and Technology subcommittee of the House of Representatives Energy and Commerce Committee held its first day of a three-day series of hearings regarding medical device mobile applications (“MMAs”) on Tuesday. The topic of Tuesday’s hearing was “Health Information Technologies: Harnessing Wireless Innovation.” Subcommittee chairman Walden (R-OR) set the stage for the hearing by discussing the rapid expansion of the MMA industry, which is reported to be a $25 billion per year industry. In the face of this rapid expansion, Chairman Walden expressed concern that lack of clarity regarding FDA’s intent to regulate MMAs and the mobile devices on which they operate may stifle innovation. He also expressed concern regarding the potential applicability of the 2.3% medical device excise tax included as part of the Affordable Care Act. Responding to this concern, Rep. Waxman (D – CA) stated that he believes that the retail exemption to the excise tax clearly applies in this instance, a position echoed by the witnesses and that patient safety must be balanced with support for innovation.

The panel heard testimony from six industry representatives. The main points made by the panelist generally were the following:

  • The Expanded Care Opportunity of MMAs: The U.S. is experiencing increasing rates of chronic disease, many of which are costly and preventable. Mobile technology has become ubiquitous in American life, with 223 million mobile subscriptions in the U.S. This technology provides opportunities to expand health care access to the population more broadly, particularly to under-serviced areas.
  • Lack of Regulatory Clarity Stifles Innovation: MMA innovation is hindered by lack of regulatory clarity. FDA released their draft guidance for MMA developers in mid-2011 but has not finalized it. While FDA is the best regulator in this area, the current lack of clarity has left many potential marketers on the sidelines because they are not able to accept the potential regulatory risk of enforcement. The witnesses consistently called on FDA to finalize the draft guidance and provide a consistent, flexible regulatory regime for MMAs. Further, for start-up companies, this lack of regulatory clarity may make it more difficult to obtain venture capital or other funding. More developed companies may seek to offshore their employees and MMAs, potentially introducing them in other countries first where there are lower barriers to entry and less risk.
  • The Excise Tax Does Not Apply to MMAs: The witnesses consistently agreed that Congress did not intend to include MMAs in the types of medical devices subject to the 2.3% excise tax on medical devices per the Affordable Care Act. Dr. Dagi, a neurosurgeon, professor and businessman, stated that the tax is already showing regressive and repressive effects on the medical device industry. He explained that the excise tax is a tax on revenue, not on profits. Small MMA companies may not generate either revenue or profit, however. To tax them before they are tax flow positive would stifle a growing industry, he explained. Dr. George Ford, an economist, agreed that taxing MMAs is effectively a “virtue tax” because, in contrast to a “sin tax,” it taxes things that are actually good for people.