Medical Device Daily Washington Editor

WASHINGTON — The second day of the reimbursement conference held by the Medical Device Manufacturers Association (MDMA; Washington) offered perspectives from the two biggest players in the world of medical device finance: venture capitalists and the Center for Medicare & Medicaid Services (CMS).

These two realms are keeping much closer tabs on each other than ever before, and the importance of this relationship prompted CMS to create a new position a couple of years ago — that of the capital markets adviser to the administrator.

Presenting at the conference was the first inhabitant of that office, Lambert van der Walde, and he told conference attendees that his job consists of “keeping officials apprised as to what is going on in the capital markets” and to serve as a liaison between the agency and those in the finance business.

Marc Hartstein, the deputy director of the division of acute care at CMS, discussed some of the features of — and the public comments offered in response to — the proposed final rule for inpatient prospective payments (IPPs) for 2007. He remarked that over the 20 years of the use of DRGs, “we haven’t gotten a lot of fan mail” from stakeholders. However, he said that the feedback has improved of late and that neither the agency nor those who have offered recent comment and criticism sees any point in scrapping the system for a fresh start.

As is widely known, the consolidated adjusted DRG (CS-DRG) system that CMS will employ for next year is based on the algorithm developed by 3M (St. Paul, Minnesota) and makes some allowances for severity.

Hartstein said, “We felt that the issues associated with specialty hospitals” were important enough that we needed to make changes immediately, while the agency hammers out a more comprehensive retooling. This immediate adjustment resulted in “20 new DRGs over 13 clinical areas,” he noted.

CMS dropped another eight DRGs altogether, and the net effect of these and other changes will affect “about 10%-15% of the total volume” of claims, which will come out to roughly 1.7 million cases.

“We will make an add-on payment” for new technology, Hartstein said, but such technology “has to be new, has to be costly, and has to demonstrate substantial clinical improvement.”

The maximum add-on payment for next year will be the lesser of two figures. One of those figures is arrived at by adding half the cost of the technology to the standard DRG reimbursement, and the other figure is half the total cost of the case “above the DRG payment.”

Hartstein said that one of the applications for technology add-ons for next year, the C-Port, did not meet the substantial clinical improvement criterion because the data “was not convincing because of potential selection bias” in connection with the location of the graft.

The C-Port, made by Cardica (Redwood City, California), fastens a bypass graft onto the host artery with small staples, thus eliminating the need for hand-sewn sutures that incur time and labor in the operating room.

Another applicant, St. Francis Medical (Alameda, California), got the green light from the agency for a pass-through payment for its X-Stop, a titanium implant for lumbar stenosis, because “we actually did feel that it provided a new level of treatment on the continuum of care that did not previously exist,” Hartstein said. The X-Stop essentially relieves compression by lifting vertebrae apart and requires only “a small incision,” according to the company web site. Surgical times are estimated by St. Francis to run between 45 and 90 minutes and may require only local anesthesia.

Hartstein noted that of the 23 total new technology applications received for the operational years 2003 to 2007, seven won approval, which “would seem to suggest that our criteria are too stringent.”

However, one product, the coagulant agent NovoSeven by Novo Nordisk (Princeton, New Jersey), had not passed muster with the FDA, and another eight applications bottomed out because they failed the newness criterion.

Four applications fell through due to lack of demonstrable improvement and CMS refused a pair of applications because “they were not substantially different from [their] predecessors,” Hartstein said.

“Seven of the 13 were approved where discretionary judgment applied,” he said, adding that “in our view, we have applied the criteria appropriately.”

Several of the presenters offered an update on how the world of finance sees the devices and diagnostics industries. Despite the indigestion incurred by the continued roll-out of proposals to cut CMS payments, the markets are bullish on this sector.

David Blaszczak, a senior vice president at the Washington Research Group (Washington), told attendees that he deals a lot with mutual funds and hedge funds, the latter of which he said is still growing substantially despite recent controversies over short-selling behaviors. He also confirmed one of the suspicions held by many in the healthcare industry.

“More than any other sectors, regulations have a major impact on stocks” in the healthcare market, Blaszczak said, adding that firms thrive or die depending on CMS coverage decisions. As is commonly understood, “[w]hat happens at CMS will eventually happen in private industry,” a reference to the agency’s credibility with private payers.

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