Medicare, Medicaid cuts deeper than expected, analysts say

By Lisa Kerner

Erie, Pa., April 13 - The Centers for Medicare and Medicaid Services proposed cuts up to 33% in key diagnostics-related group device segments - reductions that analysts said were bigger than anticipated. The centers released the figures as part of the proposed inpatient prospective payment system for 2007.

Hit especially hard were drug-eluting stents (down 28% on average), with hip and knee replacements remaining flat and the least affected, according to JMP Securities analyst Robert C. Faulkner. ICDs were proposed down 20% to 25% and pacemakers down 12% to 13%.

When it comes to spinal reimbursement, cervical fusions payments may be cut 12% and 360 fusions, 6%. This is unexpected news to Bear Stearns analyst Rick Wise, who did not anticipate ortho to be impacted to the same degree as cardio, according to a report he wrote.

Given the size of the planned cuts, Wise believes there may be significant pushback on the new schedules during the 60-day comment period. The final 2007 changes may be significantly different than the proposed changes, according to the analyst.

There was some good news: total proposed hospital reimbursement is up 3.4%, in line with previous years. JMP believes this percentage is the most important number to come out of the update, as pricing for a specific device has shown little correlation with changes to the diagnostics-related group under which it is reimbursed.

Wise points out that since this is the first attempt at revising the IPPS system since 1983, it may take some time before the kinks are worked out.

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