During its Jan. 26 earnings call, St. Jude Medical downplayed recent concerns about potential overuse of implantable cardioverter defibrillators as mostly much ado about nothing.

The company is the first cardiac rhythm management firm to report financial results following a month of increasing public attention on the matter. Industry watchers are mixed on how big a wrench the scrutiny, including an investigation by the Department of Justice, will throw into a sector already facing limited growth prospects.

Early in January, a study was published in the Journal of the American Medical Association concluding that about 23% of primary prevention ICD implants did not follow clinical guidelines. (See " Also see "ICD Scrutiny: Study Quantifies Significant Off-Guideline Implant Activity" - Medtech Insight, 10 January, 2011. " "The Gray Sheet" Jan. 10, 2011.) That news was followed by a mid-month disclosure by the Heart Rhythm Society that it is advising the Justice Department in its investigation of ICD use.

"A lot of people have been living with these investigations and certainly have been well aware of them," St. Jude CEO Dan Starks pointed out.

In a statement sent to members, the electrophysiology professional society said it has agreed to assist investigators in an "advisory role to lend expertise concerning proper guidelines for clinical decision making." HRS also said it is "reviewing information that does not include either identifiable patient or facility-level data."

This was not the first public mention of the investigation, which goes back to at least March 2010, when at least one hospital group and the three ICD manufacturers disclosed requests from Justice for information about ICD Medicare claims and reimbursement advice provided by the companies. Investigators are believed to be looking into cases where Medicare may have paid for procedures that should not have been covered under current policies.

Some analysts suggest that the HRS disclosure may have reemphasized to cardiologists the legal pressures surrounding off-guideline implants, and combined with the JAMA data, may cause doctors to more carefully select patients for an ICD.

"We continue to believe consensus under-appreciates the potential fallout" from the JAMA article and federal investigation, David Lewis, a device analyst with Morgan Stanley, writes in a Jan. 27 research note

Wells Fargo analyst Larry Biegelsen, for one, thinks there will be an approximately 10% near-term drop in U.S. ICD implants as a result of the added scrutiny and that St. Jude will be hardest hit because it has the largest percentage of total sales coming from ICDs.

Others are unconvinced the issue will make such a big impact.

"There is no way to quantify at this point the fallout in the ICD market from the JAMA article and the noise of the last few weeks," noted Michael Weinstein, of J.P. Morgan, in a Jan. 27 note.

St. Jude, for its part, stresses that no new information has come out this year that has forced it to change its outlook on the ICD space.

Dan Starks, CEO of the company, pointed out during the Jan. 26 call that the JAMA results were actually presented during the Heart Rhythm Society's May 2010 annual meeting, a fact confirmed by "The Gray Sheet" in a search of HRS meeting abstracts.

"The publication itself offered nothing new either to industry or to the clinical community," Starks said. "This is information we took into account with our guidance and market modeling dating back to the middle of last year."

Analyst Biegelsen sees parallels between the ICD investigation and the Justice Department investigation of off-label use and reimbursement of kyphoplasty spine procedures.

Similarly, he argued that while the HRS disclosure might have "freshened up" the issues a little bit for people not in the field, it was not material news to many clinicians who work in facilities that have already been audited by federal investigators or have colleagues who have been audited.

"A lot of people have been living with these investigations and certainly have been well aware of them," he said.

The only truly new piece of information is the participation by HRS in the investigation, which Starks labels as a "very favorable indicator."

"If there was something that was a smoking gun or a scandal that has been uncovered after ten months of investigation, there would not be a reason to go to HRS to ask for help sorting through the data," he said.

Still, Biegelsen sees parallels between the ICD investigation and the Justice Department's investigation of off-label reimbursement of kyphoplasty spine procedures, which targeted Medtronic subsidiary Kyphon's activities and hospital billing practices. (See " Also see "Medtronic Spine Settles Medicare Fraud Claim, Accepts $75 Million Fine" - Medtech Insight, 26 May, 2008. " – "The Gray Sheet" May 26, 2008.)

"Although Kyphon has suffered from a number of issues such as poor integration into [Medtronic] and negative clinical data, we believe the DOJ investigation contributed to the significant decline in Kyphon sales," he wrote in a Jan. 24 report.

St. Jude reported ICD sales of $458 million in the fourth quarter of 2010, up 16% from the prior-year period. U.S sales were $273 million, up 15%.

By David Filmore

St. Jude Downplays ICD Scrutiny Impact, But Jury Is Still Out, Analysts Say

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