Debate Over Costs Key for Medical Device Sector

With politicians on the campaign trail pledging to lower health care spending, medical device companies are pushing to ensure their technology isn’t targeted by federal cost-cutting efforts.

From a demographic viewpoint, times have never looked better for the medical device industry, which earned $180 billion in sales last year, according to Ernst and Young. The largest generation in US history is entering their elder years, increasing demand for hip replacements, heart devices and hundreds of other implants made by companies like Medtronic Inc. of Minneapolis, MN, and Johnson & Johnson of New Brunswick, NJ.

Despite such promising trends, most analysts temper their expectations for the sector by pointing to challenges from an increasingly cost-conscious federal government.

Both presidential candidates, Sens. John McCain, R-Ariz, and Barack Obama, D-Ill., have said they want the government to play a bigger role in determining which treatments are most effective in an effort to help curb spending on unnecessary care.

The U.S. spends over $2 trillion each year on health care, more than any other nation.

Many countries in Europe already have systems to compare the cost effectiveness of drugs, devices and medical procedures. Perhaps no program is more intimidating to US companies than the United Kingdom’s National Health System, which has often been accused of rationing care of pricey drugs and devices.

Pfizer challenged the UK government agency in court last year after it ruled that certain Alzheimer’s drugs are not cost effective for patients in the early stages of the disease.

The director of the U.K.’s evaluation program told medical device executives at a recent conference that his country’s approach could help the U.S. manage its spiraling health care costs.

“You can’t export arrangements from one health system to another, but I think some of the methods and processes we use would work elsewhere,” said Andrew Dillon, chief of the National Institute for Health and Clinical Excellence. “At some point you reach the end of the portion of national wealth you can plug into health care.”

Many health experts say the U.S. already passed that point, with the government’s Medicare plan for seniors on track to go bankrupt by 2019.

As Washington begins groping for solutions, the medical device lobby maintains that any government evaluations of cost effectiveness should serve as suggestions to physicians, not enforceable standards.

“When you dictate a course of action that suggests there is such a thing as an average patient, and that everyone should be treated the same, and we know that’s not the case,” said Mike Mussallem, Chief Executive of Edwards Lifesciences Corp. of Irvine, CA, and chairman of the industry trade group AdvaMed.

The group spent nearly $1.6 million lobbying the US government in the first half of the year, including bills to create a domestic system for comparing medical treatments.

Washington’s cost-cutting efforts already have been felt in some corners of the medical device world. Sales of scanners made by companies like General Electric Co., Siemens AG and Toshiba Corp. tumbled 20% in the first half of 2007 after the government’s Medicare program cut payments to doctors for running MRIs, X-Rays and other scans.

Aware of the increasingly fiscal concerns in the health care system, device companies have been developing technologies to catch medical problems before they become catastrophic – and costly.

Medtronic, Boston Scientific Corp. of Natick, MA, and St. Jude Medical Inc. of St. Paul, MN, have all outfitted their heart devices with electronic transmitters that send updates on the patient’s progress to their physician’s computer. Physicians can then spot dangerous heart rhythms before they become life threatening.

But industry experts say the companies have struggled to get government and industry health insurers to pay more for the new technology.

“It’s not that the technologies aren’t there, it’s that they haven’t been embedded in our payment system yet,” said Paul Keckley, a director with consulting firm Deloitte.

SOURCE: Associated Press