Washington. Healthcare. Translated.

Medical Devices: Next on the Chopping Block?

Folks may just waking up to the impact that health reform will have on their businesses. Not just doctors or hospitals, and not the health care sector alone. Everybody. But even industries active in the pre-passage negotiations might find themselves blindsided by regulatory developments both within health reform and beyond. One such group may be the medical device industry. Bless their hearts, Medicare might sideswipe them in ways not even on their radar screen. Please read more! Medical Devices: Changes Beyond Just Medicare One of the industries that got a little lost during the final chapter of health reform debate was the medical device community. For them, the Medicare “tail” wags the “dog” of other payers in many ways. Any drop in medical device payments, for example, may lead to similar pressure in the private sector. Some industry figures predict a 2-3% drop in reimbursement for existing devices under both Medicare and private-sector plans. Weighed against this drop, though, is the possibility that newly-approved technologies will enjoy more favorable coverage decisions. New devices may also see higher initial reimbursement rates due to their higher complexity and lack of reimbursement history. Adding 32 million more covered lives to the marketplace won’t hurt, either. One early prediction of the device market under health reform came from the Chief Executive of device maker Medtronic, who predicted 2-3% cuts in overall device pricing. He also predicted price pressures might become more intense because of a trend for hospitals rather than physicians to control the purchasing decisions. Still, he believes that earlier trends may hold where companies can introduce new technologies at higher prices. The market for health technologies extends beyond the domestic US market. One Department of Commerce industry analysis estimates the device market at $100 billion in 2008 (42% of the world total), with a $31.4 billion US export market. Further, overseas markets are growing faster than the relatively-mature US market. Pre-existing (Financial) Conditions facing Hospitals. The uncertainty of Medicare cuts under health reform falls on top of other financial pressures on hospitals. One financial planner, speaking to the Healthcare Financial Management Association, laid out some of the pre-existing conditions that could push cost-cutting steps: “bond covenants, investment losses, pension funding, access to capital, growth fund strategies, physician shortages, reimbursement issues and competition.” He also stressed that it’s still impossible to predict health reform’s impact on hospitals: “For every page of law, you can expect 200 pages of regulations… what we think we know today will be changed tomorrow.” He’s predicting 200,000 pages of regulations. Reading the Tea Leaves for Device Makers under Medicare. Most experts agree that rates are heading down, but no one seems willing to provide a figure on the global changes over the years of implementing health reform. The future Medicare environment, even ignoring health reform, will be more challenging for health technology. A favorable Medicare coverage decision is more likely than before to involve a separate federal advisory committee, and might even be conditioned on expensive conditions for long-term data collection. Even more vexing than the coverage policy is reimbursement policy, including the all-important “add-on” payments for DRG hospital rates that involve certain expensive medical devices and the advisory committee looking at coverage. Summary What do all these near-random factoids mean to health reform watchers? Simply that the true impact of health reform will be impossible to predict for many years, while companies may find ways to avoid some of the potential penalties in the Medicare system and even take advantage of a larger market.


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