Hospitals, physicians and surgery centers are all preparing for the immediate impact of the Healthcare Reform Act on the healthcare industry. As these changes occur, medical device companies should also prepare for market and industry changes. Kristian Werling, JD, MBA, healthcare attorney with McGuireWoods, discusses how new regulations will impact orthopedic and spine device companies.
Q: What drives the major trends in medical device companies today?
Kristian Werling: A lot of companies are looking at different industry sectors post-healthcare reform. Not many changes about healthcare reform have come out for device companies. It's been business as usual, for now. However, in a few years there's going to be more cost-control initiatives, and when these initiatives are implemented the medical device companies will be impacted. It could be comparative effectiveness or cost controls coming from commercial payors servicing more patients than they are now or from the Medicare program itself.
Q: Which types of orthopedic and spine device companies have the best chance of success in the future market?
KW: The smart companies are looking down the road three, five, 10 years at where the products and specialties are going to be. Mousetrap companies (companies offering products without a clinical benefit over other products on the market) are usually offering the most expensive and least differentiated products. These types of products will have trouble moving forward because Medicare is only going to pay for or use the device that is the most cost-effective to get the job done. Some of the fancy devices or devices that have minimal physician preference might not see the light of the market in future years. Overall, good medical devices that are designed to help patients, cost effective and provide clear clinical benefits are going to be funded by venture capitalists and get the market.
Q: How will current and future changes in FDA regulations impact medical device manufacturers?
KW: There have been a variety of different controversies recently. The current administration is focused on heavily regulating big business. A key change is that many devices will require more clinical data before they will be approved. In the past, the devices could be approved through referencing clinical data. Now, the companies will need to provide device-specific clinical data regardless of whether a similar device has already been introduced. This will most likely mean going through a longer process to receive FDA 510k clearance and it could have the affect of weeding out weaker devices.
Q: What major changes from the Healthcare Reform Act should orthopedic and spine device companies be aware of?
KW: In the next two years, all companies will be required to disclose their relationships with physicians. A few years back there were some major settlements that happened with hip and knee companies (Stryker, Zimmer Holdings, Smith & Nephew, Biomet) and the outcome was to require those companies to disclose their relationships with physicians. If a physician is a marketing consultant for the company or helped develop a product that was licensed to the company, the companies must post that information as well as physician payments on their website. The concern was the companies were making these payments as kickbacks for referrals. That idea got a lot of steam and was included in the healthcare reform bill as a requirement.
Q: Will disclosing payment information discourage physicians from working with medical device companies?
KW: When the previous investigations first started, a lot of physicians were hesitant to work with the companies because they were worried there would be some taint. The physicians worried others would think they were accepting kickbacks. Now that every company will have to disclose this information, there could be less of a taint. I think physicians will continue to work with companies, though some may think twice about it.
Q: The current trend in hospital reimbursement is to utilize cost-effective equipment and compensate based on quality instead of quality. How does this impact medical device companies?
KW: A hospital right now might receive $8,000 for a surgery that uses three or four devices as major components. In the future, if the hospital only receives $5,000 for the same surgery, the hospitals will have to ask the device companies for lower prices. It's a trickle down effect.
Additionally, some reimbursement organizations, such as accountable care organizations, have the possibility of limiting the number of devices a physician uses. The physicians could be financially incentivized to improve their quality and reduce their costs. One of the ways a lot of physicians reduce their costs is by reducing MRI scans and reducing supplies. If it catches on for orthopedic groups to become part of ACOs, that change could really have an impact on the device companies.
Learn more about McGuireWoods.
Read more coverage on orthopedic and spine industry news:
- Medicare Advisory Committee to Meet Over Spine Fusion Technology Reimbursement
- Research on Infection-Resistant Orthopedic Implants Receives NSF Funding
- 26 Orthopedic and Spine Devices Receive FDA Clearance in July
Q: What drives the major trends in medical device companies today?
Kristian Werling: A lot of companies are looking at different industry sectors post-healthcare reform. Not many changes about healthcare reform have come out for device companies. It's been business as usual, for now. However, in a few years there's going to be more cost-control initiatives, and when these initiatives are implemented the medical device companies will be impacted. It could be comparative effectiveness or cost controls coming from commercial payors servicing more patients than they are now or from the Medicare program itself.
Q: Which types of orthopedic and spine device companies have the best chance of success in the future market?
KW: The smart companies are looking down the road three, five, 10 years at where the products and specialties are going to be. Mousetrap companies (companies offering products without a clinical benefit over other products on the market) are usually offering the most expensive and least differentiated products. These types of products will have trouble moving forward because Medicare is only going to pay for or use the device that is the most cost-effective to get the job done. Some of the fancy devices or devices that have minimal physician preference might not see the light of the market in future years. Overall, good medical devices that are designed to help patients, cost effective and provide clear clinical benefits are going to be funded by venture capitalists and get the market.
Q: How will current and future changes in FDA regulations impact medical device manufacturers?
KW: There have been a variety of different controversies recently. The current administration is focused on heavily regulating big business. A key change is that many devices will require more clinical data before they will be approved. In the past, the devices could be approved through referencing clinical data. Now, the companies will need to provide device-specific clinical data regardless of whether a similar device has already been introduced. This will most likely mean going through a longer process to receive FDA 510k clearance and it could have the affect of weeding out weaker devices.
Q: What major changes from the Healthcare Reform Act should orthopedic and spine device companies be aware of?
KW: In the next two years, all companies will be required to disclose their relationships with physicians. A few years back there were some major settlements that happened with hip and knee companies (Stryker, Zimmer Holdings, Smith & Nephew, Biomet) and the outcome was to require those companies to disclose their relationships with physicians. If a physician is a marketing consultant for the company or helped develop a product that was licensed to the company, the companies must post that information as well as physician payments on their website. The concern was the companies were making these payments as kickbacks for referrals. That idea got a lot of steam and was included in the healthcare reform bill as a requirement.
Q: Will disclosing payment information discourage physicians from working with medical device companies?
KW: When the previous investigations first started, a lot of physicians were hesitant to work with the companies because they were worried there would be some taint. The physicians worried others would think they were accepting kickbacks. Now that every company will have to disclose this information, there could be less of a taint. I think physicians will continue to work with companies, though some may think twice about it.
Q: The current trend in hospital reimbursement is to utilize cost-effective equipment and compensate based on quality instead of quality. How does this impact medical device companies?
KW: A hospital right now might receive $8,000 for a surgery that uses three or four devices as major components. In the future, if the hospital only receives $5,000 for the same surgery, the hospitals will have to ask the device companies for lower prices. It's a trickle down effect.
Additionally, some reimbursement organizations, such as accountable care organizations, have the possibility of limiting the number of devices a physician uses. The physicians could be financially incentivized to improve their quality and reduce their costs. One of the ways a lot of physicians reduce their costs is by reducing MRI scans and reducing supplies. If it catches on for orthopedic groups to become part of ACOs, that change could really have an impact on the device companies.
Learn more about McGuireWoods.
Read more coverage on orthopedic and spine industry news:
- Medicare Advisory Committee to Meet Over Spine Fusion Technology Reimbursement
- Research on Infection-Resistant Orthopedic Implants Receives NSF Funding
- 26 Orthopedic and Spine Devices Receive FDA Clearance in July