Medical Devices

Medtronic worries about states’ roles in deciding device coverage

It’s probably safe to assume that Medtronic Inc. (NYSE: MDT) won’t be championing states’ rights anytime soon.

From product liability claims to doctor payment disclosures, the medical device maker based in Fridley, Minnesota, always has preferred a uniform federal standard — better than 50 different laws, the company likes to say.

Yet there is one issue looming on the horizon that worries Medtronic: the power of states to determine how much or even whether to pay for its devices in light of weak economies, tight budgets and healthcare reform.

Under new healthcare  law, nearly 40 million Americans will receive new coverage, mostly through the creation of state insurance exchanges and a large expansion of Medicaid, the insurance program for the poor that is financed by both federal and state governments.


Cash-strapped states already are having trouble paying for their part of Medicaid. According to the National Governors Association, Medicaid spending — which accounts for 22 percent of state budgets — averaged 7.9 percent growth in fiscal 2009. That’s the highest rate since the end of the previous recession six years ago. The association expects Medicaid enrollment to spike 21 percent over the 2008 to 2011 period.

Meanwhile, states will see a collective budget shortfall of $137 billion over the next two years. The Congressional Budget Office estimates states will need to pay $20 billion more over the next decade just to cover the new Medicaid enrollees.

With millions of new patients joining Medicaid and the insurance exchanges, states — already facing ballooning deficits — inevitably will make tough decisions on what and what not to cover. How that will be done and who will do it are top concerns for Medtronic and other medical device makers, said Rob Clark, Medtronic’s senior director for corporate and state affairs.

For example, Washington State already has established a Health Technology Assessment committee (HTA). The group, consisting of six doctors and five healthcare experts, review “the most valid and reliable” evidence to determine the efficacy, safety and cost effectiveness of surgical instruments and procedures, medical devices and diagnostic tests.

Most importantly, HTA can recommend whether the state should fully cover, cover with conditions, or reject paying for the products and services.

“If the committee determines that a technology should not be covered, that recommendation supersedes any determination of medical necessity — public payers in Washington State simply cannot cover it,” according to a article published last fall in the New England Journal of Medicine.

The HTA means business. Of the nine assessments the committee has performed thus far, the group rejected five technologies, including CT colonography, implantable drug delivery for chronic pain, upright or positional MRI scans, and surgeries to treat uncomplicated degenerative disc disease and osteoarthitis of the knee.

The committee approved the remaining four technologies with conditions. Even more telling, the group has yet to green-light technologies without some sort of catch. By some estimates, the model will save Washington State $21 million during the first year, at a cost of $1 million.

No wonder Medtronic is nervous. This is a pretty big deal. Until now, the concept of comparative effectiveness — the idea that payers should pay only for treatments shown to work compared to other technologies — has been mostly theoretical. President Obama’s economic stimulus law provided the National Institutes of Health with several millions of dollars to study the issue.

It seems that Washington State already is practicing what others have been only preaching. Imagine if other states adopted Washington’s model? Medtronic and other device makers would have a lot of work to do to convince skeptical, cash-strapped states to  pay for their products.

“In addition to reducing the use of products and services that are of questionable value, the HTA program has the potential to increase the use of currently underutilized health care services,” the New England Journal of Medicine paper says. “Only with both types of strategies are we likely to see a sustained decrease in cost escalation that is sufficient to balance the long-term costs of health care reform.”

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