Medicare eases fee cuts -- and Boston Scientific fears

After three months of lobbying by hospitals and the medical-device industry, Medicare yesterday backed away from a plan that would have sharply reduced the amount of money it pays for heart repair and other high-cost procedures.

The Centers for Medicare and Medicaid Services, known as CMS, released a massive document dictating how much it will reimburse hospitals for hundreds of medical procedures in 2007. Medicare pays $125 billion to hospitals nationwide each year, making it the single most important payer in the American healthcare system. Changes in its policies can trigger shifts in both the American hospital system and the medical-device industry.

The changes detailed yesterday are far less dramatic than the federal agency first proposed in April, when it said it was considering slashing payments for some heart-repair procedures by one-third, and cutting reimbursement for defibrillator implants by one-fifth.

Although that document was only a draft proposal, shares of three leading heart-device companies -- Boston Scientific Corp. of Natick and St. Jude Medical Inc. and Medtronic Inc. of Minnesota -- all sank the next day on investor concern that less money from Medicare would cause hospitals to use fewer of the companies' top-selling devices, or affect profits by pushing product prices down.

Last night, however, analysts said the new rule should relieve those concerns.

``This is clearly going to help them," said device-industry analyst Bruce Nudell of Sanford C. Bernstein & Co.

Hospitals and healthcare companies have been watching Medicare unusually closely this year because the agency has launched a major change to the way it pays hospitals. Medicare pays a fixed amount for each type of procedure, and studies had found that those payments had become highly unbalanced. Hospitals were profiting on certain cases, such as cardiac procedures and orthopedic surgery, but losing money on others, such as stroke victims and lung patients.

The revision increases the amount Medicare pays overall by $3.4 billion.

But it shifts the money around in an effort to rebalance its payment system and clamp down on a new breed of hospitals that has emerged to take advantage of discrepancies in the system.

So-called `` specialty hospitals," owned by doctors, concentrate on the most profitable procedures, such as coronary angioplasty and orthopedic surgery, leaving the bulk of less profitable medical care to community hospitals.

Massachusetts does not have any specialty hospitals.

Joe Kirkpatrick, finance vice president of the Massachusetts Hospital Association, said Medicare listened to the concerns of hospital administrators in crafting its new payment system.

``It won't be a drastic change" for local hospitals, he said in an interview last night. ``They'll be able to see it coming and they'll be able to adjust to it, and it won't be catastrophic for anybody."

Boston hospital officials reached last night said it is too early to estimate the likely effect of the new 1,500-page CMS payment rule.

The steep cutbacks initially proposed were of special concern to firms such as Boston Scientific, because they would have significantly reduced payments for cardiac stenting and defibrillator implants -- two procedures that involve some of the most lucrative medical devices in the world.

Costs vary at hospitals around the country, but one financial firm estimated that under the April proposal for cuts hospitals would have seen a 33 percent reduction in payments for one stenting procedure, from $11,400 to $7,600, and a 24 percent decrease in payments for one particular defibrillator procedure, from $41,000 to $31,000.

Those proposed cuts triggered a flurry of lobbying and comments from hospitals and the medical-device industry. 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."

In a conference call yesterday, McClellan said the agency considered the feedback from industry and hospitals, and was aiming for a smoother transition that would avoid ``dramatic changes" to the current system.

The final changes will reduce payments for stenting procedures, but by far less than proposed. For one procedure, for example, the draft rule called for a 35 percent reduction, but the new rule calls for only a 14 percent reduction, phased in over three years.

Payment for defibrillator implants, originally scheduled to be reduced by 21 percent, will increase by less than 1 percent.

Stephen Heuser can be reached at sheuser@globe.com.