Medical Device Daily Washington Editor

WASHINGTON - The April 11 meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT) has yielded a substantial amount of progress in efforts to liberalize trade with the Asian giant.

Just one week before a scheduled meeting between the two nations' presidents, George Bush and Hu Jintao, Beijing agreed to eliminate the duplicative testing and certification requirements applied to imported medical devices.

Stephen Ubl, president of the Advanced Medical Technology Association (AdvaMed; Washington), praised China for "taking this important step" and noted that the barriers "have added needless time and expense to the process while doing nothing to enhance safety and effectiveness."

The announcement regarding barriers to medical device imports was accompanied by similar announcements on the subjects of beef and telecommunications.

According to AdvaMed, among the complaints are that China regulates "certain diagnostic products as pharmaceuticals instead of as devices" and that foreign companies have to deal with regulations promulgated by three state agencies. The association has also complained that Chinese firms have manufactured replicas of imported medical technology and that a previous threat of price controls had been accompanied by a requirement for proprietary business information.

China's trade policies have stirred rancor almost from the day the communist nation gained entry into the World Trade Organization, accomplished with substantial help from the U.S.

Timothy Stratford, assistant U.S. trade representative, said in testimony before Congress last week that China's record on free trade is "decidedly mixed," adding that those free trade commitments that were "easiest to fulfill have largely been fulfilled," leaving behind commitments that will "require a more serious level of bilateral and multilateral focus."

Stratford also complained that China "has not yet submitted a single subsidies notification since joining the WTO in December 2001."

Still, medical device and diagnostics makers have seen increases in shipments to the world's most populous nation. According to figures supplied to AdvaMed by the U.S. Department of Commerce, U.S. medical technology exports to China totaled $698 million in 2005, a jump of 21% over the previous year.

However, Nancy Travis, AdvaMed's associate vice president for global strategy, told Medical Device Daily that China's numbers indicate that it imported $953 million in medical equipment from the U.S. in 2004. She said that the discrepancy may reflect a difference in the respective nations' tracking procedures as well as shipments made from overseas plants operated by American firms.

Travis told MDD that while large firms have found China's great trade wall difficult to hurdle, "these barriers are more difficult to deal with for smaller firms because most do not have a trade representative office in China." However, she declined to speculate on what impact the decision would have on any incentive to locate production capacity in China.

Beijing is also on record as promising to crack down on intellectual property crime by raiding pirate CD factories and by allowing computer makers to pre-install software.

In the future, the JCCT will take up the issue of government healthcare procurement procedures that discriminate against foreign companies.

CMS to revise inpatient payment system

The Centers for Medicare & Medicaid Services (CMS) has issued a notice of proposed rulemaking that it said will begin the transition to "the first significant revision" of the Inpatient Prospective Payment System (IPPS) since its implementation in 1983.

CMS said that, when fully implemented by FY08, the revised IPPS would improve the accuracy of payment rates for inpatient stays by basing the weights assigned to Diagnosis Related Groups (DRGs) on hospital costs rather than charges, and adjusting the DRGs for patient severity.

The estimated market basket increase of 3.4% in FY 2007 would increase payments to acute care hospitals by $3.3 billion. More than 1,000 hospitals in rural areas would see an average increase of 6.7%.

"The hospital payment reforms we are proposing today will mean payments for hospital inpatient services will more accurately reflect the costs of providing the services," said CMS Administrator Mark McClellan, MD, PhD. He said the changes also "assure assure beneficiary access to services in the most appropriate setting."

CMS is considering a two-step process to do this. The first step would assign weights to DRGs based on hospital costs, rather than hospital charges. This would eliminate what CMS called "biases" in the current DRG system, arising from the differential markup hospitals assign for ancillary services among the DRGs. The new DRG weights would go into effect Oct. 1.

A second step, scheduled for FY 2008, would replace the current 526 DRGs with either the proposed 861 consolidated severity-adjusted DRGs or an alternative severity adjusted DRG system developed in response to public comment. CMS said it also is considering ways of improving recognition of severity in the current DRG system by FY 2007.

AdvaMed in a statement issued yesterday said that the proposed changes would have a "disproportionately negative effect on patients receiving advanced medical treatments.

AdvaMed expressedconcern about Medicare's proposal to base future payments on historical costs because the data that would be used to calculate rates does not accurately reflect the procedures and services available today and would penalize the hospitals that use newer, more advanced technologies.

Ann-Marie Lynch, executive vice president for payment and healthcare delivery, said the changes need careful study"to avoid unintended consequences that will prevent patients from receiving the most effective treatments."

AdvaMed said it supports "a measured approach" to refining inpatient hospital payments.

Heart devices hit by new rules

While CMS billed the new system as fairer, it could mean steep cutbacks in key areas of cardiovascular technology - primarily stents and implantable cardioverter defibrillators, several analysts were quick to point out.

Reductions for reimbursement of stents will be in the double digits, clearly hurting drug-eluting stent makers Boston Scientific (Natick, Massachusetts) - at a time when it is incurring steep debt with the acquisition of Guidant (Indianapolis) - and the other leading provider in this space, Johnson & Johnson (New Brunswick, New Jersey).

Cutbacks in defibrillator reimbursements also obviously will hurt Boston Scientific's proposed rhythm management division, to be developed with the Guidant purchase, and the two other major players, Medtronic (Minneapolis) and St. Jude Medical (St. Paul, Minnesota).

Some analysts predicted, however, that the cutbacks would ultimately be moderated through negotiations with these companies.