Costs Surge for Medical Devices, but Benefits Are Opaque By BARRY MEIER

November 5, 2009
The Work-Up
Costs Surge for Medical Devices, but Benefits Are Opaque By BARRY MEIER

When makers of heart defibrillators wanted Medicare to vastly expand the types of patients eligible to receive the devices, which can cost upward of $25,000, agency officials were skeptical. It was not clear how many of those patients would actually need a defibrillator, a device that can deliver a life-saving shock to restore a faltering heart to normal rhythm.

So government and industry struck a deal back in 2004. Medicare agreed to expand the device’s use, nearly doubling the number of patients who qualified for one. The companies, in return, agreed to pay for a study to see which patients really benefited.

Five years later, Medicare underwrites more than half of the $4 billion the nation now spends annually on defibrillators, but the agency is no closer to knowing how many lives that big investment is saving. That is because the device companies did not finance the study beyond their initial $4 million commitment, and Medicare did not pick up the slack. As a result, researchers still cannot gather data that would identify the types of patients who would most benefit from a defibrillator.

And so, doctors keep implanting costly defibrillators in patients who may not benefit from them. And doctors and patients have no way of knowing whether one producer’s model performs better than a competitor’s.

The picture is no clearer for the many other types of medical devices that taxpayers, through government-run programs like Medicare, underwrite. Every year, for instance, doctors give patients tens of thousands of artificial hips and knees, without having the data to indicate how long they will last or which ones work best, and Medicare picks up the bills.

As Congress seeks to revamp the nation’s health care system, medical devices might seem an inviting target to better control Medicare spending. Outlays on implanted devices stand at about $76 billion annually in this country and are rising at a rate faster than the cost of drugs, according to a recent study by the McKinsey Global Institute, a consulting group. With an aging population in America, Medicare is picking up more of those costs.

But legislation pending in the House and Senate may not help, some experts say, because the proposals do not require device makers to compete on the same ground as other manufacturers — product performance and price.

Medical devices pose unique challenges for lawmakers. Medicare does not set or negotiate prices for the implants. Instead, it pays a flat rate to a hospital for procedures to give a patient a defibrillator or a hip, leaving it up to the hospital to negotiate the price of the device with the maker — a negotiation in which hospitals may have little leverage.

Unlike other hospital products, implants are so-called physician preference items, meaning that doctors — not the hospitals — often choose which manufacturer’s implant to use. It is a decision that can be skewed by a doctor’s relationship to a company and can also undercut a hospital’s ability to negotiate the best price, experts say.

Medicare’s laissez-faire approach has big implications for taxpayers because every year, spending on device-related procedures soars ever higher.

“This is a dysfunctional market if you take the perspective of the consumer or public programs like Medicare,” said Jeffrey C. Lerner, the president and chief executive of the ECRI Institute, a nonprofit organization in Plymouth Meeting, Pa., that evaluates medical devices for clients that include hospitals.

No one questions that implants like defibrillators and artificial hips extend and improve lives. But profit margins on medical devices are also among the highest for any medical products — over 20 percent, in the case of a defibrillator or an artificial hip, according to analysts.

In an effort to slow federal spending, the bill passed by the Senate Finance Committee would require the device industry to pay the government $4 billion a year for five years, with the portions allocated among individual companies based on their market shares. But device makers, including the ones that initially financed the defibrillator study — Medtronic, Boston Scientific and St. Jude Medical — have fiercely resisted the provision, calling it an unfair “tax” that will stifle innovation and cause job losses.

The companies have the support of some elected officials from the device makers’ home states, including Al Franken, the freshman Democratic senator of Minnesota, where Medtronic, the nation’s biggest device producer, and St. Jude Medical and some other device companies are based.

Although a political compromise over the issue is expected, the type of revenue claw-back contained in the Finance Committee bill would do little to address the underlying scientific and economic challenges that devices pose, several experts said.

The big problems, in such experts’ view, is that there is little data available to compare the benefits of competing makers’ products or to determine how much buyers, like hospitals, should be paying for them, said Eugene Schneller, a business professor at Arizona State University in Tempe.

For example, even doctors acknowledge that they typically have little reason to be concerned about a device’s costs when it comes to deciding which one to use. One doctor compared it to giving a car buyer a blank check and letting him choose between a Maserati or Honda.

“You are going to walk out of a dealership with a really nice car, if you don’t have to pay,” said William Maisel, a cardiologist at Beth Israel Deaconess Medical Center in Boston.

However, unlike a car buyer, who can see a vast array of comparative information about competing products, a cardiologist or an orthopedic surgeon has little if any comparative data when choosing a device.

Also, many doctors are unlikely to shop around, because they tend to stick with a single producer — either because they have been trained on a particular maker’s devices or because they have financial ties to the company.

Meanwhile, hospitals are often hampered in their ability to negotiate prices with device makers because the selling price of a defibrillator or hip joint is not easy to determine. In selling products, device companies have required hospitals to sign contracts that contain confidentiality clauses under which facilities agree not to disclose what they paid for the product.

As a result, a big hospital that is a large-volume buyer of heart devices or hips may pay higher prices than a smaller one that buys fewer units, said Dr. Lerner of ECRI.

In 2007, Senator Charles E. Grassley, Republican of Iowa, helped introduce legislation that would have required device makers to regularly disclose the average selling price for their products. Current health care reform proposals do not contain such a provision, said a spokeswoman for the Advanced Medical Technology Association, the device industry’s trade group.

In some other countries, medical device databases have been established to provide both doctors and patients with more data about how competing products differ. In such a database, or a registry, information about a product and the surgical technique used by a doctor is recorded at the time of an implant. And then by tracking whether and when the patients return for a replacement procedure, or experience other problems, registries can show which producers’ models are failing faster than others.

The information can help doctors and insurers avoid less reliable devices, while also avoiding the high additional medical costs of remedial treatments and replacement procedures.

But while the United States is the world’s largest user of orthopedic devices, efforts to set up registries have largely failed. The result is that orthopedic patients here are twice as likely to require an earlier-than-expected replacement procedure for a hip or a knee than in countries, like Australia, that have registries.

Doctors in such countries often are less eager to embrace newer, more costly models than doctors in the United States because evidence shows that new models are more prone to failure during their initial years of use.

Eliminating unnecessary replacement procedures could potentially save Medicare hundreds of millions annually. But Medicare has not pushed the use of registries, and the industry has also not embraced it. To date, hip and knee producers have contributed $500,000 to underwrite an effort by the American Academy of Orthopaedic Surgeons, a professional group, to create a national artificial hip and knee registry. But that is a relative pittance — about what many individual companies pay to a few doctors each year to retain them as consultants.

Some experts like Dr. Maisel, the cardiologist in Boston, said it was naïve to expect the industry to underwrite registries, because it was not in a company’s interest to see its products compared against those made by competitors.

The federal government could also play a more aggressive role in making sure it is getting better value for its money, he added. A case in point — requiring that makers of heart devices use batteries that last longer than five years, the period of time when patients must now undergo an additional, potentially dangerous operation to have a costly device replaced.

Dr. Maisel said, “Why would you build a better light bulb that lasts longer if it is going to reduce your profits?”

Defibrillators Are Lifesaver, but Risks Give Pause By BARNABY J. FEDER

September 13, 2008
Defibrillators Are Lifesaver, but Risks Give Pause
By BARNABY J. FEDER

The implanted defibrillator, a device that can automatically shock an erratically beating heart back to a normal rhythm, has been proved to save lives. Hence its nickname: an emergency room in the chest. Major medical groups have recommended that more patients receive the devices.

But in the last two years the number of patients receiving defibrillators has actually declined, as more doctors and patients decide the risks and uncertainties the devices pose may outweigh their potential benefits.

This trend — the first decline since implanted defibrillators were introduced in 1985 — has spotlighted a shortcoming that health experts have struggled with for years. Simply put, there is no adequate tool or test to predict which of the heart patients who might seem good candidates to get the expensive devices are the ones most likely to ever need their life-saving shock.

Defibrillators have undoubtedly saved the lives of tens of thousands of Americans. That is why insurers still typically pay for the devices and the surgical procedure to implant them, which can top $50,000 for each patient.

What makes many doctors and patients increasingly wary, though, is a string of highly publicized recalls in recent years, along with mounting evidence suggesting that a vast majority of people who get a defibrillator never need it.

Industry estimates and medical studies indicate that defibrillators have saved the lives of 10 percent of the more than 600,000 people in this country who have received them, at most. While survivors would no doubt take those odds, 9 of 10 people who get defibrillators receive no medical benefit. One big long-term medical study indicated the odds of a defibrillator saving a patient’s life might be even slimmer — about 1 in 14, over the five-year period studied.

The problem that defibrillators pose is in some ways singular among medical technologies. For devices like artificial knees, which improve lives but do not save them, few people would settle for only a 1 in 10 chance of success. For a potentially life-saving cancer drug, a patient might grasp at even much slimmer odds. Where defibrillators differ is that they are only a powerful standby — ready to intervene if necessary, but unlikely ever to be called into service.

If defibrillators were simply $50,000 life insurance policies, the relatively low rate of payoff might not matter much. But the long-shot statistics are significant to people who must weigh the risks of infection and malfunction after they have an electronic device anchored inside their hearts and its wires threaded through their arteries.

The slim odds also have large implications for the United States health care bill, adding billions of dollars annually to Medicare spending and to insurance payments. Dr. Larry A. Chinitz, director of the Heart Rhythm Center at New York University’s Langone Medical Center, said, “The answer isn’t just to keep implanting everybody” who fits the current guidelines.

More doctors are now thinking twice. From a peak of 160,000 new patients in 2005, the number has fallen to less than 140,000 last year, according to Lawrence H. Biegelsen, an analyst at Wachovia Capital Markets. He predicts this year’s total will end up even lower.

For the manufacturers, the numbers translate to a decline in defibrillator sales to $3.94 billion in this country last year, down from $4.29 billion in 2005, Mr. Biegelsen said.

Only overseas, where defibrillators have been slower to catch on, has the number of new implants continued to rise, hitting a new sales high of $1.93 billion last year.

Many patients, of course, are grateful for their defibrillators. “It’s saved me at least four times, including two when I passed out completely,” Matthew M. Murray, a 55-year-old former engineer in Riverbank, Calif., said of his implant.

And some experts worry that the pendulum may have swung too far away from defibrillators — putting countless lives at risk among people with the heart abnormalities and ailments most likely to cause cardiac arrest. At least several hundred thousand people in this country have such conditions, and some estimates place the figure at more than a million.

Medtronic, the leading maker of defibrillators, contends that each day 500 deaths are caused by sudden cardiac arrests among people who meet the current medical guidelines for the devices but do not have them.

(The NBC journalist Tim Russert, who died earlier this year, reportedly suffered a heart attack after an artery was blocked. While Mr. Russert had a history of heart disease, his condition was not one for which a defibrillator would have been prescribed.)

Dr. Eric N. Prystowsky, a nationally renowned heart rhythm specialist in Indianapolis, said every doctor in his field was haunted by individual cases, like that of a Purdue University graduate student who was referred to Dr. Prystowsky for a defibrillator. The student had an abnormally thick heart muscle, a known risk for sudden cardiac arrest.

“He kept putting it off,” Dr. Prystowsky said of the decision to get a defibrillator. “Six weeks later, his fiancée called to say he had been found dead in bed.”

Cases like that may be inevitable as long as doctors cannot give patients more certainty about whether a defibrillator will actually help them.

Better clues could be submerged in the medical records of the people who have gotten defibrillators over the decades. Three years ago, Medicare ordered the creation of a nationwide registry, or database, for implanted defibrillators. Overseen by two leading professional groups, the American College of Cardiology and the Heart Rhythm Society, the registry has amassed about 270,000 records from 1,500 hospitals.

But the data mining has only recently begun, and results are not expected before 2010 at the earliest.

There is no guarantee that the information will lead to more effective use of defibrillators. Unlike drugs, many medical devices evolve so quickly that long-term data on their performance can be obsolete by the time it is available.

There are also efforts to find genetic markers and to develop new diagnostic tests that might more precisely identify patients who are predisposed to the type of sudden cardiac arrest a defibrillator could prevent. So far, though, the only federally approved screening test identifies some patients who are unlikely to need a defibrillator in the next year — not those most likely to require one.

The defibrillator decline began after highly publicized reports of a small number of deadly malfunctions. The biggest blow came in June 2005, when the Guidant Corporation — later acquired by Boston Scientific — recalled 29,000 implanted defibrillators because of flaws that might have caused them to short-circuit instead of delivering critical shocks. At the time, at least two deaths had been linked to the failure.

Medtronic, the market leader, and St. Jude Medical, the third major player, subsequently announced product recalls, although neither was prompted by known deaths.

Heading into 2007, as those headlines faded, many analysts predicted a rebound in defibrillator sales. But last fall Medtronic recalled its newest version of the main wire that connects a defibrillator to the heart. A small percentage of the more than 200,000 Fidelis-brand leads that had been implanted were developing fractures suspected of either preventing some defibrillators from delivering shocks when needed or causing them to deliver unnecessary shocks.

Even with properly functioning devices, patients risk unnecessary shocks — jolts recipients often describe as a painful and frightening kick in the chest. “Almost as many get shocked unnecessarily as benefit,” Dr. Paul J. Hauptman, a professor of medicine at St. Louis University, said.

And even problem-free patients need surgery to replace their unit’s batteries when they run low. Most of today’s batteries are expected to last five to seven years. Manufacturers say patients generally get better software and longer battery life with each replacement. But the repeat procedures also raise costs and risks.

Meanwhile, there are signs that improved treatment of cardiac disease with drugs, diet and behavioral changes could be reducing the need for defibrillators. At a meeting of heart rhythm specialists in May in San Francisco, Dr. Douglas P. Zipes, an Indiana University medical professor, cited data suggesting a decline in the percentage of heart patients who suffered the kinds of heart stoppages that defibrillators were intended to address.

Hoping to stay relevant, the makers of defibrillators have been developing higher-priced devices with new features, including software to limit unnecessary shocks. Most are built to communicate wirelessly, allowing doctors to remotely monitor their performance. Many can perform other rhythm-regulating functions, like synchronizing contractions in different chambers of the heart.

“Adding additional therapy will get at more of the market,” said Daniel J. Starks, chief executive of St. Jude Medical, citing plans to add sensors that could warn of impending heart failure. But adding complexity could also make it even more difficult to calculate the costs and benefits of implanting the devices in the first place.

That bothers patients like one 50-year-old business consultant in the San Francisco Bay Area. The man, who declined to be identified for fear of alarming his clients, ignored recommendations from three doctors to get a defibrillator. Online research suggested his risk of sudden cardiac arrest would be 3 percent a year without a defibrillator — and about 1 percent with one.

Doctors thinking about thousands of patients might see that as a significant difference, he said. But for him, he said, it did not seem a fair tradeoff for becoming “part of the medical-industrial complex for the rest of your life.”