Contributor: Karen Gierszewski

The first time I came across an article on hacking into digital medical devices, I dismissed it pretty quickly. After all, what could be the possible motivation for hacking an insulin pump or a pacemaker? But then I came across another one. And then another one. Maybe this topic does deserve some attention?

Some people definitely think so. The Medical Product Manufacturing News (MPMN) held two interviews with experts in the field to discuss the topic and their views were troubling, to say the least. In the first interview, Kurt Stammberger, an information systems security professional, explained that while the traditional datacom companies have had years to perfect security systems, this area would be very new for companies such as Medtronic or Abbott—in fact, these companies would likely not have computer security experts on staff because there would have been no need for them in the past. In the second interview, Kevin Fu, a software expert, explains how medical device manufacturers tend to think that they’re immune to issues on the Internet such as malware or computer viruses. He argues, however, that this thinking is outdated.

While it still seems difficult to imagine that someone would be motivated to hack a medical device, the fact that alterations to these devices could cause serious complications—or even death—is troublesome. Additionally, hacking in the health care industry in general is being increasingly brought to the forefront as patient data becomes more and more digitalized. For example, this article stated that 96% of health care organization respondents in a survey reported that patient or related information had been compromised in the last two years.

As our world becomes increasingly digital, we’ll all have to pay the price for convenience—and the health care and medical device world will not be exempt.

Contributors: Karen Gierszewski and Sara Scharf

The threat of pay cuts for doctors treating Medicare patients still looms. A proposed 27.4% pay cut by CMS could significantly affect doctors’ practice revenues, especially considering that nearly one in four patients that family physicians currently see are Medicare beneficiaries. While the implication for medical device manufacturers will not be as obvious as for the reimbursement prepayment audits, discussed yesterday, it could potentially hinder the adoption of electronic medical records (EMRs) among physician practices due to lower incomes in general. This survey found that approximately 30% of respondents would delay the purchase of an EMR system if the payments went through.

The implication for the medical device industry would not, however, be as drastic as for Medicare patients and the physicians themselves; the same survey indicated that more than 50% of respondents would reduce the number of appointments for new Medicare patients, more than 30% would stop accepting new Medicare patients, and approximately 9% would cease treating Medicare patients altogether.

Based on U. S. Census Bureau figures, this could leave nearly 4 million people unable to access basic care and likely to turn up in the emergency room when their situation becomes dire—ultimately possibly costing the health care system more money than the cuts would save. It remains unclear, however, whether these cuts will be passed because similar proposals have been on the table in some shape or form for years and have generally been deferred because of strong backlash.

Contributors: Karen Gierszewski and Sara Scharf

Physicians have been reacting to the news that the CMS is rolling out a new pre-reimbursement review system across 11 states. This system would involve challenging doctors for proof that a procedure is necessary before granting reimbursement, which is a significant change from the status quo—where payments are granted and then investigations into any potential fraud are conducted at a later date.

Although exact details into these prepayment audits are still lacking, it seems that they will mostly target cardiovascular and orthopedic procedures, such as pacemaker/defibrillator implantations, percutaneous coronary interventions, spinal fusions, and large-joint replacements. The increasing scrutiny of these procedures could potentially affect device sales because doctors may not feel that they can adequately justify using a device or may find the process too inconvenient if other alternatives are available. The exact implications will become clearer as more details on the process become available and as the trial run in the first 11 states is rolled out.

Contributors: Karen Gierszewski and Sara Scharf

With the economic turmoil affecting the European countries, it seems natural that the medtech industry would suffer the consequences. But how exactly are each of the big five European countries feeling the effects of economic instability? Are recent health care reforms substantially changing anything?

Let’s start with the obvious:  Spain and Italy are not looking so good. Both countries operate on a regionalized system, resulting in significantly better health care in some areas of the country compared to others. In Italy in particular, political turmoil and soaring debt levels have resulted in cuts to an already underfunded health care system, which in turn impacts which (and how many) procedures are performed. Additionally, both countries face a situation where medtech companies are owed hundreds of millions to billions of dollars by health care facilities that are slow to pay up. Historically, this has contributed to the average selling prices of medical devices being generally higher than in the other European countries—further exacerbated by the regionalized systems—although prices are also typically declining the fastest because of unstable financial conditions and resulting budget cuts for facilities. For more elective procedures (that are accordingly paid out-of-pocket), such as facial injectable treatments, these countries will experience a notable dip in growth in 2012 before recovering to the growth rates noted in the other European markets.

France has also been attracting attention because of recent taxes that add to the steps that manufacturers have to go through to receive device reimbursement, which is generally accepted as critical to adoption. These new taxes are relatively minor; however, manufacturers are worried that the impact of multiple minor inconveniences, including increased scrutiny of devices at the preapproval stage, will become an increasingly expensive burden.

The UK is an interesting market because it already embodies many of the processes that the US is attempting to emulate. Namely, the UK National Institute for Health and Clinical Excellence (NICE) has been focused on innovations that emphasize long-term cost savings and overall efficiency for years now, and NICE also has programs in place to examine comparative effectiveness. It is especially interesting to note that UK manufacturers generally accept further improvements to this process as favorable, while in the US changes in this direction have created an uproar—we’ve heard over and over again how many societies, manufacturers, and physicians fear that increased emphasis on comparative effectiveness and cost efficiencies over entire episodes of care will ‘stifle innovation.’

Finally, Germany—the European powerhouse. As expected, both economically and medtech-wise, Germany has fared relatively well. Although some cuts to funding have been inevitable, generally, the medtech industry in Germany is experiencing growth between 5 and 10%. There has been an influx, however, in the amount patients are required to pay out-of-pocket for procedures, which will affect elective procedure volumes to some extent until financial situations and unemployment levels stabilize.

Although health care reforms and economic situations vary in each of the countries, one thing is for certain: budget-consciousness across Europe will continue to affect medtech companies, particularly in the form of pricing pressures and squeezed profit margins.

A good resource for more info on European health care reform can be found here.

Contributor: Karen Gierszewski

In 2011, a number of major mergers and acquisitions considerably changed the landscape of the global medtech market. The most interesting deal of the year was made by pharmaceutical giant Johnson & Johnson, which has indicated its intent to acquire Synthes—this deal is so interesting, in fact, that it is still under antitrust review by the European Commission. This is not at all surprising—if Synthes is merged with Johnson & Johnson subsidiary DePuy, the combined company would hold a substantial position in many key orthopedic segments. One of the prime examples is the US trauma device market, where Synthes held approximately 40% of the market compared to DePuy’s more meager 7%. By allowing DePuy access to Synthes’ substantial product portfolio, Johnson & Johnson gains access to nearly half of all revenues generated in this large and lucrative market. Additionally, in general, Synthes’ orthopedic device portfolio complements DePuy’s well; while DePuy holds considerable position in the reconstructive joint implant markets, Synthes performs well in markets such as trauma devices, craniomaxillofacial devices, and power tools. The final decision on this acquisition is expected in April 2012.

The other major medtech companies also got in on the action. Stryker acquired Orthovita (an orthopedic biomaterials company), Concentric Medical (a neurovascular device company), and Memometal Technologies (a small-joint reconstructive implant company). Medtronic also went on an acquisition binge, grabbing Ardian (an ablation catheter company), Salient Surgical Technologies (a surgical hemostat company), and PEAK Surgical (an endoscopic device company). Boston Scientific snapped up Atritech (an atrial fibrillation treatment device company), S. I. Therapies (a cardiac catheter company), ReVascular Therapeutics (a peripheral vascular device company), and Intelect Medical (a neurostimulation device company). In the endoscopy space, Endo Pharmaceuticals acquired American Medical Systems, while Hologic claimed Microsulis Medical and Interlace Medical. Covidien recently made it on the list as well by announcing its intention to buy BARRX, another endoscopic device company.

The dental market also saw substantial shifts with a landmark move by DENTSPLY to acquire Astra Tech, the medical device division of pharmaceutical giant AstraZeneca. This move will substantially strengthen the company’s position in the global dental implant market by approximately doubling its revenues in a space where both DENTSPLY and Astra Tech can count themselves among the top five competitors; this will create a substantial threat to the top three dental implant competitors Straumann, Nobel Biocare, and BIOMET 3i. This move does, however, also provide DENTSPLY with Astra Tech’s existing urological device portfolio, which represents a major diversification for the company. It will be interesting to see if this division is eventually spun off.

Another interesting trend was the acquisition of several US companies by Japanese competitors such as Terumo Medical, Sekisui Chemical, Olympus, and Sony. Several private equity firms also acquired medtech companies and larger medical device companies swooped in to rescue smaller firms with promising technologies but little capital.

Will this acquisition frenzy continue in 2012? There may be some companies to watch; rumour has it that both Johnson & Johnson and Stryker have their eye on orthopedic company Smith & Nephew. AtriCure is a smaller company that has shown potential in treating atrial fibrillation and therefore might represent a target for cardiovascular device companies. There are, however, relatively few large medtech companies left as potential acquisition targets. Time will tell!