That sound you heard last Tuesday? It was a collective sigh of relief from medical device makers. And hospitals. And Medicare patients. All three groups would have felt the sting from the proposed Medicare cutbacks on in-patient reimbursements, originally announced months ago. Many figured the cuts were a lock, sure to take a bite out of the profitability of heart device makers and orthopedics companies. Those are two of the industry's fastest-growing sectors. As the device industry lobbied hard, though, the tide changed. Last week, it became clear just how much. The Center for Medicare and Medicaid Services (CMS) backed away from their original stance – double-digit cuts to reimbursement for some devices – to much more moderate reductions over the next three years that everyone is willing to live with.
Because of the number of people on Medicare, the proposed cuts would have had huge effects on many of the industry's top companies. Companies like Boston Scientific, Johnson & Johnson, Medtronic, and St. Jude Medical would have been forced to reduce the cost of essential devices like defibrillators and stents or see hospitals explore alternative treatment methods. The proposed 20-30% reductions would have left them with few options. The new numbers will barely register in comparison.
Just how easily did the medical device industry get off? According to an article published in the New York Times, stent surgeries were spared 30% of the 33% reimbursement reductions that were part of the original plan. Defibrillator makers were spared a similarly significant 21% reduction and an even higher financial loss considering the costliness of the implant procedure.
The news provided a boost to device makers' Wall Street numbers. Or, more accurately, they evened out after the hit that orthopedic and heart rhythm companies took on news of the original plan. An Associated Press article reports that the industry received a 5% bump in stock price when investors anticipated that CMS might lower the reimbursement reductions from the original numbers. Because of the advance word, the announcement had a more moderate effect. It was even dampened a bit by some unrelated bad financial news from industry giant Medtronic that caused that company's stock to drop.
When Medtronic was announcing that its upcoming revenues would not meet Wall Street expectations (the aforementioned bad news), the company offered its thoughts on the CMS reimbursement changes. The company's press statement commended CMS on keeping new, life-saving technologies within reach of Medicare patients by not going too far with the cuts. The company also noted that some reimbursement rates for device procedures would go up, including for pacemakers and spinal products.
So what other effects does this CMS decision have? The industry's lobbying power is pretty clearly a force to be reckoned with. While political lobbying has gotten a bad rap for its connection to numerous scandals as of late, it has proven its worth as an institution with their work on this issue. Companies can breathe easier knowing that the government hasn't priced their products out of the reach of the people who need them. Hospitals won't have to figure out how to help their patients with new financial handicaps. Medicare patients will be able to afford the life-saving treatments device companies can provide. Everybody wins.
Read more on the CMS decision:
Shares of Heart Device Makers Fluctuate after Medicare
S&P Equity Research Has Positive View on New Medicare Medical Device Reimbursement Rules
Medicare rule reduces reimbursement impact
Medicare eases fee cuts -- and Boston Scientific fears
Before : US Senators urge Medicare to delay payment system changes
Medicare | Medical Device Industry Pleased With Changes to Medicare Payments
