The R&D Tax Aspects of the New FDA Mobile Apps Requirements



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        Now that the FDA has issued the Mobile Medical Applications Guidance for Industry and Food and Drug Administration Staff, mobile device developers have clear guidance on what types of applications (apps) will require FDA approval and what types can be marketed without seeking FDA approval. This new guidance was crucial since, absent the guidance, software developers had delayed working on these important medical apps due to the uncertainty of the regulatory frame work. Many of the research and development projects associated with these apps, regardless if FDA approval is required, can be supported with federal and state R&D tax credits.

        Mobile medical apps are but a subset of current technology development efforts in the medical arena. Medical software and technology related medical innovation in a multitude of fields may also be eligible for federal and state research and development tax credits.



The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for 2012 and 2013 tax years.


FDA Guidance Document

        The FDA encourages the development of mobile medical apps that improve health care and provide consumers and health care professionals with valuable health information. However, the FDA also has a public health responsibility to oversee the safety and effectiveness of medical devices - including mobile medical apps. In order to properly devote resources to this effort, the FDA has defined the following three broad categories in to which most mobile medical apps will fall.

  1. Mobile apps that transform a mobile platform into a regulated medical device by using attachments, display screens, sensors, or other such methods. The FDA considers these to be mobile medical apps. These apps are the focus of the FDA's regulatory oversight because they are considered medical devices that could pose a risk to a patient's safety if they failed to function as intended.

    Some examples of these are apps that provide DNA testing, monitor heart rhythms, control the inflation and deflation of a blood pressure cuff, and work with attachments to monitor blood glucose levels.

  2. Mobile apps that help patients self-manage their health conditions without providing specific treatment or treatment suggestions, apps that help patients organize their health information, and apps that enable patients to interact with electronic health records.

    Some examples of these are apps that provide or facilitate supplemental clinical care by coaching or prompting patients to manage their health in their daily environment. Another example is an app that is developed to enable patients to document and track information to share with medical professionals at a later time. Additionally there are apps that perform simple calculations routinely used in medical practice such as BMI (Body Mass Index), delivery date estimator, etc.

  3. Mobile apps that are not medical devices such as those that provide copies of medical textbooks and reference material including medical dictionaries and apps that provide educational tools for medical training such as flashcards, interactive diagrams, etc. Mobile apps that provide medical facility information such as maps and telephone numbers, those that assist with determining medical billing codes or help with managing hospital staff schedules.

    Opportunities for research and development in the mobile devices market continue to expand at an exponential rate and much of this work, whether related to the medical field or not, may be supported by federal and state R&D tax credits.



Mobile Medical Apps Already Approved by the FDA

        According to an article written by Morgan Reed, Executive Director at the Association for Competitive Technology, we are already seeing evidence of how this technology will revolutionize the way patients monitor their health and interact with healthcare providers. With a smartphone, users can connect to their physician from anywhere in the world and provide diagnostic data. Phones and tablets now serve as a platform connecting to medical devices that allow patients to monitor their blood pressure, glucose levels, and other vital statistics at home and transmit this data daily to a healthcare provider.

        Mobile devices are also able to connect physicians with those in underserved communities, remote areas or with limited mobility for whom office visits are difficult and occur infrequently. With connected wireless devices providing more and more diagnostic data, doctors can spot the early signs of adverse conditions and take preventive measures to improve health outcomes.

        In fact, mobile apps are already saving lives. Ideomed Inc.'s Abriiz app has helped reduce children's emergency room visits by more than 80 percent. The AirStrip app allows physicians to monitor vitals from a number of patients via an iPad from any location. Using the AliveCor ECG app, a doctor on a cross-country flight was able to diagnose a passenger's chest pains as a heart attack and help save his life. Both AirStrip and AliveCor ECG are listed by the FDA as approved/cleared medical apps.

        Abriiz is an app that helps patients with chronic conditions to better engage in their own health care management with reminders, alarms, and documentation. It also allows them to share their information with their medical care team.

        AirStrip is a suite of applications that serve medical professionals and their patients; allowing healthcare provider organizations faster and more organized access to healthcare data which in turn can result in improvements in clinical decision-making, care coordination and workflow efficiency.

        A study of AliveCor's website illustrates how mobile medical apps have the ability to transform healthcare in many ways. The AliveCor Heart Rate Monitor for the iPhone uses a small heart monitor mounted on the back of a cell phone. The user holds the phone with the attached monitor in his/her hands and the app senses skin contact on the sensors within the monitor. Once an acceptable connection has been made, the app can then record and store single-channel electrocardiogram rhythms which can then be viewed by medical professionals through the account set up by the user.

        Another example of an FDA approved mobile medical app is Propeller Health's app that synchronizes to an iPhone with a sensor attached to a standard rescue inhaler. It keeps track of medication use in patients with asthma and COPD. The app is designed to help patients and their physicians better understand and control respiratory disease to reduce preventable emergency room visits and hospitalizations.

        In the category of reference material, Epocrates has produced a whole host of apps dedicated to providing information to health care professionals for use in their practice. They continue to add products and functionality to improve information for health care professionals.


Business Model for Mobile Medical Apps

        Business models for the mobile app industry have iterated rapidly. The most successful apps currently monetize through in-app purchases and targeted advertising generating revenue from user data. This has worked for many app categories, particularly games and entertainment, but these models don't fit the needs of healthcare consumers.

        The medical app industry provides services handling very sensitive personal health data. It appears that consumers are more willing to pay for mobile medical services and less likely to share personal information. Increasingly, the consumers for these mobile solutions are healthcare providers, professionals and enterprise level entities. The scale of these institutions means that incredible opportunities and federal R&D tax incentives exist for app makers working to produce reliable, secure, and trusted applications.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Jacob Goldman is the VP of Operations at R&D Tax Savers.

Lynn Bertrand is a Tax Analyst with R&D Tax Savers.


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