Policy Issues Impact the Medical Equipment Industry

Many areas are working to grow their medical equipment industries. This article identifies some major public policy trends that should be considered as ED organizations work within this sector.

Federal and State Budgetary Problems Impact Prospects

The growing U.S. budget deficit could have wide ranging implications for all industry players in the healthcare market. This includes medical equipment and supply vendors, pharmaceutical companies, and healthcare facility operators. Though, medical equipment manufacturers have not received as much flack over pricing as pharmaceuticals have experienced, they too could be exposed to more federal Medicare cutbacks which will reduce prospects. Federal budget problems will increasingly weigh in on the availability of funds . In addition, health insurers are increasingly shifting more financial responsibility on the insured.

Economic recovery among different states continues to be mediocre, uneven, and unpredictable. Problems persist in midwest states with relatively high unemployment levels such as Indiana, Michigan, and Ohio. In addition, western states such as California are mired in huge state deficits with state bonds coming due with little support to pay for the state's mushrooming infrastructure. Southern states such as Alabama and Tennessee have state spending pressures which remain intense despite cost reduction measures. The problems in individual states will ultimately impact and reduce Medicaid expenditures.

According to the Congressional Budget Office (CBO), the Medicare Prescription Drug, Improvement, and Modernization Act will increase federal spending on healthcare substantially through 2013. This could represent up to $400 billion dollars over the next 10 years which represents about 0.4% of GDP.

Growth of Medicare is a Major Concern for Society

Medicare is the second largest federal program with outlays representing about $280 billion dollars in fiscal 2003. We anticipate this growth will be much more intensive with passage of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003. The Congressional Budget Office projects Medicare spending will rise about 9 % through year 2014. Medicare is a potential target for budgetary cuts which puts extreme pressure on medical equipment companies for re-imbursement rates for medical device equipment, orthopedic products, and related goods.

It does not appear there will be significant Medicare cuts for equipment and devices. Here's why. If new technologies and technological developments can be shown to lower the cost of patient care and overall healthcare costs, there could be a boost to reimbursement rates for certain types of medical devices such as drug-coated stents, implantable defibrillators, spinal implants, and ventricular devices. We believe there would be Medicare cuts where there are reasonable alternatives and substitutes for healthcare needs such as increasing the use of generic pharmaceutical drugs instead of branded pharmaceutical drugs. Or using lower cost private outpatient services to keep hospital costs down.

Medicare Reimbursement Rates are Rising

A boon to all medical equipment and device manufacturers is the continued rise in reimbursement rates. The Centers for Medicare & Medicaid Services (CMS) under the Health Care Financing Administration has proposed medical reimbursement rates increases for all sectors of the medical equipment industry. For orthopedics, the hospital inpatient prospective payment rules have increased about 5% from $100 billion to $105 billion dollars for fiscal 2005. Within each category, hip and knee total joint replacement procedures experienced a 3% rate increase, cervical fusion rose 4.5%, and bar spine fusion rates received a 6% rise in reimbursement.

The cardiology sector proposals include a 2.1% increase for implantable cardioverter defribrillators (ICDs). In addition, the CMS has approved add-on payments of up to $16,262 per case for newer devices that are designed to treat congestive heart failure and for those patients at risk for sudden cardiac death. Heart pacemakers have experienced a 2.6% rise for standard devices and 4.1% for devices that incorporate cardiac resynchronization therapy. The drug-coated stent sector will largely remain unchanged except for patients with acute myocardial infarcation, in which reimbursement will rise 2.2%. This is surprising considering the industry is using more drug-coated stents and will eventually become the primary method that stents will be administered in hospitals by cardiologists. Without an increase in reimbursements, hospitals will probably absorb the cost of multiple stents used in each patient. At a cost of about $2,800 per stent, this could become a substantial burden to hospitals.

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