Medical Device Industry Breathes Sigh of Relief

Medtronic (MDT), Boston Scientific (BSX) and St. Jude Medical (STJ) heaved a sigh of relief yesterday after Medicare said it would cut payments to hospitals for top-selling medical devices by far less than originally proposed.

In April, the Centers for Medicare and Medicaid Services [CMS] indicated it would pare reimbursement next year for implantable cardioverter defibrillators (ICDs) and drug-coated heart stents by 20 to 30%. The sweeping changes to complex treatments and medical technology products is seen as the biggest since '83 in the payment system. But after the market closed Tuesday, CMS said no medical device category would be cut more than 5.4 percent next year. Changes go into effect Oct. 1. According to Piper Jaffray analyst, Thomas Gunderson, "This is clearly better than what we expected from the perspective of Minneapolis-based cardiovascular device companies' perspective."

Medicare pays hospitals more than $125 billion a year. The planned changes might affect as much as $1.7 billion of that, the American Hospital Association said in June.