Analyst: Innovation Under Attack

Federal reimbursement cuts and a reluctance among payers to fund new technology are threatening innovation in the orthopedic device sector, a publisher and industry analyst said.

“We are at a crossroads,” Robin R. Young told attendees at the start of the fourth annual Orthopedic Design & Technology Conference in Fort Wayne, Ind.

“There are key issues swirling around that are making innovation take second stage. Orthopedics has been the most innovative of all sectors. This is the place where you can try out new products relatively safely. But because ofthe changes going on, innovation is going to become a cost mediator thatwill help rationalize comparative effectiveness and a pay-for-performance mandate.

Besides reimbursement cuts, other threats to innovation include: lawmakers’ attempts to regulate the relationship between physicians and orthopedic device companies; and closer scrutiny of the 510(k) process, said Young, founder and president of RRY Publications, industry analyst andpublisher of market research reports based in Wayne, Pa. His keynote addresskicked off the first day of the ODT conference.

Young claimed the proposed $4 billion annual tax ($40 billionover 10 years) that medical device firms are being asked to pay to help fund healthcare reform would not kill innovation, as opponents fear, but instead would drive between 400,000 and 500,000 new patients to the sector. He said the “tax”—which amounts to about 2 percent annually—could be considered an investment. Industry trade groups have been vocal in their desire to havethe fee removed from the proposed legislation.

“For a 2 percent fee, it’s well worth it,” Young noted. “There isa knee-jerk reaction on the part of AdvaMed and the large [device] manufacturers that ‘no tax is a good tax.’ But this tax can be used to bring in more patients. The real issue is are you going to get enough patients tomake the tax worthwhile? That is the issue. We are at a crossroads for sure.”

To make the tax worthwhile, Young said that about half of the 20 million people without health care coverage would have to sign up. At least one third, or 6.5 million uninsured folk would have to opt for coverage in order for the tax to benefit orthopedic companies.