With the rise of device-specific licensing laws across states, medical device manufacturers now face a maze of new regulatory hurdles. Unlike the FDA’s unified framework, state rules can vary widely based on specific product types and distribution models. Even devices cleared by the FDA can encounter state-level barriers, adding layers of compliance that risk delaying timelines, driving up costs, and complicating strategic planning.
Understanding State Licensing Requirements
Over 20 states require device manufacturers to hold a license for distribution, adding complexity to a regulatory framework shaped by decades of FDA oversight. But as states roll out their licensing laws, medical device makers are up against a patchwork of requirements that go beyond FDA standards – especially in emerging areas like Software as a Medical Device (SaMD), where software alone can provide diagnostic or therapeutic functions without a physical component. Since traditional licensing targets physical devices, SaMD products often slip into regulatory gray zones, with states still defining how to classify and control these virtual tools. Staying on top of established and emerging state requirements is critical to avoid compliance gaps and smooth market access.
Adding to these challenges, state licensing requirements often pivot from FDA standards, creating compliance gaps for manufacturers unfamiliar with state-specific rules. For example, products like prescription eyewear may be exempt from certain FDA regulations but may still need state licenses if they have diagnostic or patient-facing features. This misalignment exposes manufacturers to risks like fines, distribution delays, or even forced product recalls if state requirements aren’t met.
Challenges for Emerging and Mid-Size Device Manufacturers
State licensing often brings unplanned financial and operational challenges for small or emerging manufacturers. Many don’t budget for these costs, leading to unanticipated expenses that can disrupt launch plans. This “sticker shock” can be especially difficult for companies with limited budgets or compliance teams.
New state requirements now apply to virtual manufacturers without physical manufacturing and/or distribution sites, adding another layer of complexity. With limited advance notice of regulatory changes, proactive monitoring is essential. For small and emerging manufacturers, lacking a structured licensing plan can mean fines or disruptions if they unknowingly ship to states with strict licensing laws. This challenge often stretches resources thin, risking launch delays and limiting market access.
The Risks of Non-Compliance and the “Ask for Forgiveness” Approach
Some manufacturers, particularly in the early stages, choose to sidestep licensing requirements and will only address issues flagged by state regulators. This “ask for forgiveness” approach can carry severe financial and reputational risks. Non-compliance fines vary widely; some states impose minimal penalties, while others levy hefty fines per transaction. In addition to punitive fines, states identifying non-compliant manufacturers may immediately prohibit the sale of commercial products into their state moving forward until compliance is rectified, which could take months at best. Proactive licensing remains the safest route, ensuring compliance from the start and avoiding interruptions to distribution. Even with upfront costs, this approach can save on long-term expenses compared to reactive compliance.
Strategies for Accelerating Market Entry while Managing Costs
Balancing timely market entry with compliance costs is a key challenge for device manufacturers. After establishing a “home state” license as a foundational requirement, one strategy is to expand selectively based on priority states, budget, and resources. Manufacturers can streamline initial entry by focusing on critical regions and building momentum before expanding into more complex regulatory environments. This phased licensing approach allows smoother financial management and resource allocation, reducing compliance risks while managing costs.
Understanding Sunshine Transparency & Aggregate Spend Reporting and Device Labeler Codes
Beyond state licensing, some manufacturers overlook other compliance requirements, such as aggregate spend reporting. Like pharmaceutical companies, device manufacturers must account for transfers of value to healthcare professionals and organizations. Aggregate spend reporting varies by state and is often tied to licensing, requiring a comprehensive view of compliance obligations as manufacturers expand their footprint. Regulatory trends also show an increased focus on device-specific labeler codes, similar to drug labeler codes. While these obligations may seem peripheral, they are critical for maintaining market access and reducing compliance risks.
At Two Labs, we’re dedicated to simplifying the complex landscape of state licensing so manufacturers can stay focused on bringing medical devices to market. Our team’s deep expertise in state-specific regulations allows us to streamline the licensing process and address compliance needs efficiently, reducing companies’ time and resources on regulatory research. Whether preparing for first market entry or expanding into new states, we’re here to ensure a smooth, compliant path to success.
Authors
Carley Kelly, VP of State Licensing Services at Two Labs
Ryan Fields, SVP of Compliance Services at Two Labs