Medical Device Daily Senior

Lower procedure volumes, tighter government budgets and confusion at the FDA were just some of the ways the healthcare market was impacted by the sluggish world economy last year. Looking ahead, Richard Cohen, president of The Walden Group (Tarrytown, New York), says that although the U.S. economy is showing some signs of recovery, we'll continue to see a challenging environment in 2012. But, Cohen told Medical Device Daily, things should start looking up in 2013.

The Walden Group, a healthcare investment banking firm, recently released its annual Strategic Healthcare M&A report providing an overview of the 2011 healthcare sector as well as expectations for the year ahead.

While some of the firm's observations from 2011 were more or less expected going into the year, Cohen said it was surprising to see to what extent these factors impacted performance. “It was somewhat surprising that many patients would defer or even forgo certain procedures that were once deemed nondiscretionary,“ he said.

He said many large-volume procedures such as joint replacements are now considered more discretionary because patients are paying more out of pocket and providers are not being reimbursed as much. “Declining procedure volumes were also due to higher deductibles and co-pays that patients now pay as part of healthcare insurance plans,“ Cohen added. “Lower procedure volumes led hospitals to reduce inventory levels which, in turn, back-flowed through the entire supply chain resulting in promotional pricing and margin erosion to gain business.“

On the other hand, Cohen said, a large number of people are turning 65 and older each year so more people in the patient ranks will somewhat compensate for the lower volumes on a per capita basis. He also noted that some of the emerging technologies, like the transcatheter heart valve from Edwards Lifesciences (Irvine, California), will help to open up a whole new area of surgery that was not available to older people in the past because of greater risk factors involved with the more invasive traditional procedures.

Tighter government budgets also affected the healthcare industry last year, according to the firm's report, because the compressed economy limits the funds government can spend on reimbursing the costs of care and stimulating innovation. “Already there is widespread agreement that healthcare costs are out of control and government is seeking to stem the tide by reducing Medicare and Medicaid payments,“ the report notes.

Also, some products such as all metal artificial hips and implantable cardiac rhythm devices have led to a more cautious approach by the FDA and a lengthened R&D and testing process.

Speaking of the FDA, The Walden Group reports that in late 2010 a survey of more than 200 medical technology companies reflected widespread delays and inefficiencies at the agency, prompting some optimism that these problems would be corrected and that approval pathways would be improved. But in July 2011, the Institute of Medicine, commissioned by the FDA to review the 510(k) process, recommended the agency dump the clearance program and start over (Medical Device Daily, Aug. 1, 2011). Now, the agency's “decision-making approach and capabilities remain far from clear,“ according to the report.

On the bright side, Cohen says that “uncertainty often breeds opportunity“ and he notes in his report that during 2011 the number of M&A deals shot up from 453 in 2010 to 482, but the total deal value declined from $116.9 billion in 2010 to $69.8 billion in 2011.

As for what to look for in 2012, Cohen says that parts of the Healthcare Reform law will erode – though which parts will go away and which parts will stick around is difficult to predict. Equally difficult to speculate on is how the parts of the law that are here to stay get implemented.

The only thing that seems certain is that cost containment and healthcare reform – to some extent – is a reality. “Payors – public and private – will increasingly look toward bundled and value-based payments rather than fee-for-service a la carte payments,“ Cohen said. “The healthcare reform law provided for Accountable Care Organizations, as a measure to contain costs, and there will be inevitable movement in this direction.“

FDA confusion will remain a problem in 2012, he notes. “The FDA regulatory approval process will remain cloudy until sometime after the Presidential election,“ he said.

Personalized medicine and companion diagnostics will increase, Cohen predicts, but slowly. “There is significant activity by diagnostic and pharmaceutical firms to target certain therapies to those patients pre-screened to likely benefit from a given treatment,“ he said. “Over 72 companion diagnostics are on the market or in development, but the list of FDA-approved companion diagnostics is short. Only 1% of currently marketed drugs have companion diagnostics.“

Also, given the sovereign debt turmoil, Cohen says the European market should be approached with caution, especially given high-beta currency swings. “Yet, emerging markets will continue to offer promise as a widening middle class develops and the overall population requires higher levels of care. However, China and India are encountering implementation and quality issues, and there is an ever-present risk of overheating and speculation.“

Published: February 6, 2012