With the fate of comprehensive health care reform in serious doubt at the eleventh hour, many in the device industry may be breathing a sigh of relief that the device tax could be avoided or at least lessened. But if the reform bill dies, the industry will also lose out on the potential 30 million additional health care customers slated to gain insurance under its provisions.

In the debate over the device tax, industry has generally played down the financial upside of coverage expansion, noting that much of its customer base is in the already-covered Medicare population or in emergency treatment categories that hospitals perform with or without insurance.

However, the real impact needs to be measured sector-by-sector.

Diagnostics players, for instance, may see the most significant impact, while cardiovascular devices might see a more modest uptick.

Now that Republican Scott Brown has won the Massachusetts special election to fill the late Ted Kennedy's vacant Senate seat, Democrats have lost their filibuster-proof majority and, very likely, their ability to get the comprehensive reform bills passed late last year by the House and Senate signed into law.

The November-passed House bill would have covered an additional 37 million, or 17% more people, with the biggest bump in coverage in 2013, while the Dec. 24-passed Senate bill projected an additional 31 million, or 14% more people, would gain coverage, starting mostly in 2014.

Now the talk is moving towards a more limited package, covering up to half those amounts.

It is worth asking what the financial upside for industry would be if some coverage expansion is passed, and what will be missed if it is not (leaving aside the obvious negative impacts of the device tax and provider cuts that will likely come with a bill).

"Pent Up Need" For Diagnostic Services

According to Tom Gustafson, a senior policy advisor with Arnold and Porter and former CMS official, providing health insurance to a group of uninsured individuals does tend to have an impact very quickly.

For instance, "There is a kind of bolus effect, that has been evident in the Medicaid program, when more patients walk into the office" directly after they become eligible to receive Medicaid support, he said.

"It's fair to say there will be a pent-up need that they have put off" but will address upon gaining insurance, said Steven Pearson, president of the Institute for Clinical and Economic Review.

An October 2000 study in Journal of the American Medical Association that examined 33 million uninsured U.S. adults concluded that long-term-uninsured adults "report much greater unmet health needs than insured adults," showing deficits in cancer screening, cardiovascular risk reduction and lack of diabetes care, in particular.

As a result, there would likely be a greater need in a newly insured population, for instance, for colonoscopies, recommended for all people over 50 to detect colon cancer; for mammograms, recommended for all women over 50 and those women over 40 with a history of breast cancer; for cholesterol lipid testing in all men over 35 and women over 45 who are at increased risk of heart disease to prevent cardiovascular disease and for blood pressure screening for all adults, among other tests (see sidebar, "¹ U.S. Preventive Services Task Force Screening Recommendations").

All device markets "will see an uptick to some degree, but we tend to think that diagnostics (especially those recommended by the U.S. Preventive Services Task Force) will experience the biggest gains," agree health policy researchers Eric Assaraf and Amy Thornton of Washington Research Group - Concept Capital.

A 6% Uptick In Insured 45-64-Year-Olds Expected

Many agree that the uninsured population that would gain insurance under health reform tends to skew young and are less likely to suffer from chronic diseases that often entail use of implantable medical devices.

But while those 65 and older are covered by Medicare, there would be a notable increase in 45-64-year-olds with insurance under the comprehensive reform bills. Michael Matson, a device analyst with Wells Fargo, estimates there would have been a 6% increase in 45-to-64-year-olds receiving coverage.

"That is a core market for most of these medtech companies," he said.

If 30 million additional people gained health insurance, orthopedic procedure volumes, for instance, would increase by 5%, with an increase of 12% for spine procedures, Matson estimates.

For general medtech supplies that are used in hospitals for all sorts of procedures on both young and old patients, Matson predicted an 8% to 10% increase in use.

Medicaid expansion is one means by which coverage would be expanded in the health reform bills, and a method that could survive as part of a newly negotiated pared-down bill. Medicaid pays lower reimbursement rates than private insurers, so the market impact is not as significant for the proportion of patients that are added to the government payer.

"It may be at a lower margin, but it's still a driver for some of these companies," Matson remarked.

Uninsured Suffer More From Chronic Conditions

The general health of the uninsured tends to be poor, making them especially in need of health interventions, according to health consultants' reports and government statistics (see chart, "² Characteristics of the Nonelderly Uninsured").

For example, the Kaiser Commission on Medicaid and the Uninsured said in a June 2009 report that uninsured people are more likely to rate their own health status as "poor," or only "fair." A December 2009 Families USA report found that uninsured patients are "five times more likely to forgo cancer care" and that 22,000 people between the ages of 25 and 64 die each year solely because they lack health insurance.

One noted subset of the current uninsured population is young adults, typically 19-29 years old, who decide to forgo health insurance.

This group is typically considered to be overall healthier and less in need of regular care, but according to another recent Kaiser Commission report, 12% of uninsured young adults have been diagnosed with diabetes, cancer, emphysema, heart disease, hypertension, stroke, or had an episode of asthma in the past year.

Untreated chronic conditions that the uninsured suffer will likely lead to the need for more surgical treatments, health policy and device analysts suggest.

For the uninsured who haven't been getting preventive care, "they will be more therapy-intensive ... you are going to identify more of a higher degree of illness," according to Michael Weinstein, an analyst with J.P. Morgan.

"The diabetic patients are much more likely to have peripheral vascular disease, so companies that sell devices for peripheral interventions would benefit," Weinstein noted. These devices would include angioplasty balloons and stents, he said.

Also, among diabetics who had not been treated for a long time, you would see more cases of diabetic retinopathy, which is treated with laser therapy, according to Sean Tunis, director of the Center for Medical Technology Policy.

Insulin pumps and intraocular lenses are other technologies that might see a boost to meet the needs of the newly insured.

- Sue Darcey ( ³ s.darcey@elsevier.com )

Device Firms Stand To Lose Market Opportunities If Health Care Reform Dies

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