Reimbursement Cuts Less Severe than Initially Feared

HHS’s Leavitt: Rewarding care, not costs.

Medtech manufacturers breathed easier this month following the release by the Centers for Medicare and Medicaid Services (CMS; Baltimore) of the agency’s payment reforms for inpatient hospital procedures for 2007. When the payment changes were initially proposed in April, some medtech segments—particularly cardiovascular stents and implantable cardioverter defibrillators—faced anticipated reimbursement reductions of 20 to 30%. However, the final cuts proved to be far more benign, with no decrease greater than 5.4%.

Under the new reimbursement rules, some cardiac products, including pacemakers and heart valves, will see slight increases in their rates. Not targeted for significant cuts in the initial proposal, the orthopedics sector will also see reimbursement gains in certain implant categories.

Medtronic’s Collins: Fears alleviated.

According to CMS, the reforms will shift the way reimbursement rates for hospital inpatient procedures are calculated by moving to a system based on hospital costs rather than charges. The agency reports that the new system will reduce incentives for hospitals to invest in particular procedures merely because their payment rates significantly exceed costs. In particular, specialty hospitals are prime targets for the agency’s reforms because they are typically designed to provide selective and more-profitable care—and are more closely aligned with physician referrals. Under the new rules, payments to some types of specialty hospitals, particularly those focusing on cardiac procedures, will likely be reduced by more than 5%.

Commenting on the new approach to reimbursement, Mike Leavitt, secretary of the U.S. Department of Health and Human Services (Washington, DC), said, “Hospital payments should promote the best care for all patients, not the treatments that happen to be most profitable, and we are now on a path to making sure that happens.”

MDMA’s Leahey: Difficulties remain.

Medtronic Inc. (Minneapolis), a leading manufacturer of cardiac rhythm management devices, commended CMS for requesting and responding to stakeholder input in establishing the final reimbursement rates. Describing the agency’s move as a transition to a “more accurate, cost-based system,” Art Collins, Medtronic’s chairman and CEO, said the final rule “preserved patient access to some of the newest, most innovative medical technologies by ensuring that adequate reimbursement exists for these procedures.”

AdvaMed’s Ubl: A prudent move by CMS.

Industry associations also responded favorably to the new reimbursement rule for inpatient procedures.

“We are pleased that no diagnosis-related group (DRG) was reduced by more than 5.4% and that some payments were increased,” said Mark Leahey, executive director of the Medical Device Manufacturers Association (Washington, DC). “This will help ensure that patients are not denied access to critical care.” Leahey added that although the reforms announced by CMS are welcome, “Coverage, coding, and payment processes remain a difficult challenge for manufacturers to surmount.”

Stephen J. Ubl, president and CEO of AdvaMed (Washington, DC), said, “We support a more accurate inpatient payment system, and it appears that the rule addresses many of the concerns that were raised by patient, physician, and hospital groups.” Ubl added that CMS was prudent to limit its reform to incremental changes involving a limited number of DRGs, rather than proceeding with the sweeping changes that were initially proposed.

© 2006 Canon Communications LLC

Return to MX: Issues Update.