Wooden-Headed Reimbursement Continues, and Medical Device Companies Celebrate

A while back we summarized the perverse incentives caused by Medicare's current wooden-headed reimbursement schemes, and how they drive up the use of high-technology devices, regardless of their effectiveness, while ever constricting primary care, "cognitive" care, basic acute care, and mental health services.

Only a few days ago, stories appeared that the US Center for Medicare and Medicaid Services (CMS) was going to make drastic cuts in what Medicare pays for high-tech devices and procedures, inspiring the MedRants blog to hope that CMS really this time will be "fixing errors" in its payment system.

It took only days to dash that hope.

Per the Pioneer Press, "responding to a torrent of criticism and demands for delay from hospitals, medical-device makers and members of Congress, the U.S. Centers for Medicare and Medicaid Services scrapped a plan that would have meant double-digit cuts in reimbursement for the most profitable heart devices made in the Twin Cities." The Boston Globe further documented the efforts to derail the cuts,

During the 60-day public comment period that ended June 12, Medicare logged more than 2,100 comments by e-mail and letter.

The chief lobbying group for the medical-device industry, Advamed, sent a 29-page letter to Medicare chief Mark McClellan urging him to delay the proposed changes or make them less severe.

Boston Scientific sent its own 26-page letter by courier, urging the agency to delay implementing the rule for at least another year, saying it 'will redistribute billions of dollars and could substantially alter clinical practices.'

Letters signed by more than 200 US representatives and senators, including Massachusetts Senators Edward M. Kennedy and John F. Kerry, urged Medicare to delay the new rules till 2008 and phase them in gradually, saying 'the proposed rule may inhibit adoption of new technology.'

The Pioneer Press quoted Piper Jaffrey securities analyst Thomas Gunderson, "they didn't even back off - they folded."

So, "the initial proposal would have cut reimbursement rates for procedures involving implantable defibrillators by 26 percent; the revised version has them actually getting a small increase." Also, "reimbursement for drug-coated stents, one of the biggest losers under the draft proposal, went from a 33 percent cut to less than 1 percent under the revised rule."

And it's party time in the world of device manufacturing:

In fact, securities analysts expect the revised reimbursement rules are cause for celebration among such device makers as Fridley-based Medtronic, Little Canada-based St. Jude Medical and Boston Scientific, whose main divisions are in Maple Grove and Arden Hills.

'Call it the 694 block party,' said Jan Wald, an analyst with A.G. Edwards, noting the companies are scattered along Interstate 694.

This story gives some insight into how wooden-headed perverse incentives are maintained. CMS, although it is a federal agency and so in theory supposed to operate for the good of all Americans, responded to comments that predominantly came from the big organizations, for-profit device makers and hospitals, which had been making plenty of money from the current reimbursement system from high-technology devices. Furthermore, members of Congress, including two Senators from an adjoining state who are well-known for their left-wing stances, were also happy to weigh in on the side of big for-profit medical device manufacturers.
Yet, as MedRants noted, the Medicare budget is in many ways a fixed pie. If Medicare pays out more for fancy high-tech devices, it can pay less for primary care, cognitive services, acute hospital care, and mental health.

But nobody was speaking up for the unglamorous individual patients who need those services, or the unglamorous physicians and health professionals who provide them.

Thus, leaving decisions in the hands of "expert" executives and politicians benefits special interests more than the public.

And wooden-headed reimbursement continues.

ADDENDUM: See related posts at MedRants and The Health Care Blog.