Medicare rules hit heart device makers
Proposed rules changing the way the U.S. Medicare health insurance agency reimburses hospitals would hurt makers of pricey heart devices the most, and is most favorable to rural hospital companies, analysts said on Thursday.
The U.S. Centers for Medicare and Medicaid Services, a major source of hospital revenue, released draft rules late Wednesday with an aim to redistribute profits from highly reimbursed procedures such as some heart surgeries, to conditions seen as underpaid, like treating pneumonia.
The rules are subject to a public comment period and cover 2007 and 2008.
Reimbursement for implantable cardioverter defibrillators would be cut more than 20 percent under the new guidelines, which could affect sales of makers Medtronic Inc., St. Jude Medical Inc. and Guidant Corp.
Payment for stents—tiny wire devices used to prop open unclogged arteries—also fared poorly, with cuts in the double-digits. Companies affected by that include Abbott Laboratories Inc., Boston Scientific Corp. and Johnson & Johnson.
“The proposed changes ... related to cardiac procedures are dramatic,” Morgan Stanley analyst Glenn Reicin said in a note.
The rules propose boosting payment to all hospitals by 3.4 percent, with rural hospital operators faring best, getting an average increase of 6.7 percent.
Publicly traded rural hospital companies include Triad Hospitals Inc. and Health Management Associates.
Analysts cautioned that the rules could still be changed significantly during the comment period.
Pricing has become a concern for both the orthopedic and cardiac device sector in recent months, as hospital push back in an effort to rein in steep costs of products such as replacement hips and knees, cardioverter defibrillators and stents.
Hospitals, for their part, have struggled with earnings misses and profit stagnation as they grapple with treating the rising numbers of uninsured, now at 46 million in the United States.
The payment changes are driven in part by the growth of so-called specialty hospitals that focus on highly profitable surgeries such as heart procedures, and drive sicker, more difficult-to-treat patients to general hospitals.
Orthopedic devices fared better than expected, analysts said. Orthopedic device companies include Stryker Corp. and Zimmer Holdings Inc.
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