The 1st Device Taxes have been paid in 2013 and Spine may reap some benefits

OB signedFirst Device Taxes Paid. Spine likely to benefit (Orthopedics This Week)

The government’s take on the first bi-monthly payment of the medical device tax came in at about $97 million. That’s the report from AdvaMed on Tuesday, January 29, 2013. Will orthopedic device makers make up the cost in higher sales?

Wells Fargo’s analyst Larry Biegelsen recently took a crack at answering that question and concluded that spine could be a likely winner.

Twice-monthly deposits of the 2.3% tax on device makers’ revenue are designed to help pay for changes in the federal health care overhaul. Proponents of the tax claim device makers will recoup their money by selling more devices to 30 million new patients with insurance to pay for their new hips, knees, spinal implants and myriad other devices implanted in humans. Opponents say since most their device sales go to those over 65 who are already covered by Medicare, they won’t see any meaningful bump in sales.

Only time will tell who is right.

More Insured = Higher Utilization

Larry Biegelsen and his team looked at the impact on orthopedic sales with the newly insured by analyzing two studies and looking at federal data.

The first study was out of Oregon where the state held a lottery in 2008 for uninsured low income residents to get into the state’s Medicaid program and then compared spending between those that got in and those that didn’t.

After one year, those selected had substantial and statistically significant higher healthcare utilization, lower out of pocket medical expenditures and medical debt. Biegelsen reported the study found that insurance was associated with a 20% increase in hospital days, a 40% increase in total list charges, and a 45% increase in the number of hospital procedures. However, the study found a statistically significant increase in hospital utilization for heart disease but not for the other conditions evaluated.

The second study reported in the Annals of Internal Medicine in October 2009 compared 4,567 seniors aged 65-74 in Medicare to their pre-Medicare spending levels to look for increases. The study showed that adjusted annual total Medicare spending was 21% higher for previously uninsured adults than previously insured adults ($5,796 vs. $4,773;P=0.044) and that hospital stays were 30% higher.

The study also showed that previously uninsured adults had a 42% and a 92% higher adjusted annual hospitalization rate than previously insured adults for complications related to cardiovascular disease or diabetes (9.1% vs. 6.4%; P=0.002) and for joint replacements (2.5% vs. 1.3%; P=0.006), respectively.

Biegelsen wrote that the general perception among investors is that medical device procedures are performed on Medicare covered seniors and will have a minor impact on device utilization. However, after analyzing data from the Healthcare Cost and Utilization Project (HCUP) of the Agency for Healthcare Research and Quality (AHRQ), Biegelsen’s team found that although the majority of medical device procedures among the categories looked at are done in elderly patients, a substantial portion are done in nonelderly. The range for nonelderly was 25% (pacemakers/ICDs) to 72% (spinal fusion).

After reviewing Medicaid data, Biegelsen concluded that it is possible that over time the procedure rate among the uninsured may eventually catch up to the rate among Medicaid patients. This suggests that there is significant room for growth in procedures among the uninsured.

Spine Benefits

Biegelsen wrote that Wells Fargo’s analysis suggests that the benefit from the newly insured will not outweigh the cost of the 2.3% excise tax in most major device categories with the exception of possibly spinal fusion where the cumulative benefit is 2.5% in 2022. The cumulative benefit for hips and knees was 1.3%.

Let the counting begin.

 

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