Medicare Spending Decreasing for Medical Devices

In what can only mean bad things for medical innovation, Medicare continues a trend of increasing scrutiny of novel medical technologies in an effort to cut costs. While this frustrates device giants like Johnson & Johnson, it can be particularly painful for smaller companies primarily built around just a handful of new products. Admittedly, Medicare has only a finite sum of money to spend, but if spending only goes to tried and true technologies, where will the next tried and true technologies come from? Bloomberg reports…

In the past two years, the agency has turned down requests for reimbursement for products including Johnson & Johnson’s artificial spine disk and Medtronic Inc.’s continuous glucose monitor for diabetics. It is also cutting payments for treatments it had agreed to pay for in the past, ranging from General Electric Co.’s X-ray machines to St. Jude Medical Inc.’s pacemakers.
“Should we pay for anything that any physician wants to provide to any patient?” says Steve Phurrough, director of coverage and analysis at the Centers for Medicare & Medicaid Services in Washington. “I think the answer to that is no.”
For small companies, such as Duderstadt, Germany-based Otto Bock, the consequences can be devastating. The company says it followed all the procedures that would have ensured approval in the past when developing its $500 cushion, which uses a material designed for the space agency to help prevent sores in wheelchair-bound patients by reducing the build-up of body heat–only to be told by Medicare that it needed to conduct prohibitively expensive research similar to drug studies before the cushion could be approved for reimbursement.
“It is a challenge to the industry, and it’s a frustration for the smaller manufacturer,” says Patrick Chelf, a vice president for the company’s U.S. operations in Minneapolis. “I’m not sure how this technology would make it to the marketplace now.”
Medicare accounted for $333 billion, about 17 percent, of all U.S. health spending in 2005, government officials say. Under pressure from Congress and President George W. Bush, Medicare officials are trying to contain spending that is otherwise forecast to more than double to $677 billion in seven years as the huge baby-boom generation reaches retirement age and a drug- reimbursement program that began this year takes effect.
Phurrough says the program is responding to a broader trend in health care by pressing companies to show that new products are superior to older treatments.
“With the advancement of the general scientific community’s knowledge base, the agency has attempted to match that, to say that we want evidence of benefit for those new technologies that people are asking us to pay for,” he says.
Medicare last year said it wouldn’t reimburse the use of J&J’s $11,500 Charite artificial spine disk. In April, the program said it intends to reject J&J’s bid for payments for its $26,100 iBot stair-climbing wheelchair, citing concerns about the 20-patient study the company used to win Food and Drug Administration approval for the device.
J&J is working to reverse Medicare’s position and will give the agency additional data, says Gregg Howard, vice president of sales and reimbursement at Johnson & Johnson’s iBot unit. Winning Medicare’s approval is key to increasing sales of the iBot. “The industry looks to Medicare as a barometer,” Howard says.
Otto Bock’s Chelf says the problem is that small companies such as his can’t afford to conduct the kind of randomized clinical trials Medicare requested for the wheelchair cushion. The demand “took our legs out from underneath us,” Chelf says.
“That would be difficult if we were Merck,” one of the largest U.S. drugmakers, Chelf says. “For a small manufacturer with a new technology, it’s impossible. It might be the right thing to do in the grand scheme of things, but it is impossible.”

Seems like that last quote might be a little off. Cutting back spending on newer devices is arguably the right thing to do in the short term (if your budget’s tight, it’s best to spend where there’s the least risk). If this trend continues, though, it will certainly slow medical innovation. One thing to consider whenever articles refer to healthcare costs (and particularly medgadget-based treatment) as “skyrocketing over the last 10 (or 15 or 20) years” is the influx of new therapies and devices for previously untreatable conditions.
More from Bloomberg.com…