Hospitals are throwing a wet blanket on the coming launch of one of the most highly anticipated medical innovations of the new century: drug-eluting stents.
As the Food and Drug Administration stands poised to greenlight the device as early as this week, a public relations disaster is brewing for the hospital industry, which faces the prospect of significant erosion of volumes in cardiovascular surgeries, typically one of a hospital's most lucrative service lines.
"It is a huge PR problem because hospitals are stuck in the middle," said Jeffery Morneault, vice president of cardiovascular services at six-hospital Health Alliance of Greater Cincinnati. "We have patients as customers already demanding or inquiring about drug-eluting stents. We have physicians saying, 'We want this technology available.' Managed-care companies may or may not want to pay, and we have governmental payers that are going to pay-but only so much."
Between lost revenue and increased costs associated with the much-heralded innovation, Health Alliance stands to absorb a $5 million annual net loss among its three hospitals that provide cardiovascular services, Morneault said. The three hospitals average 1,500 coronary artery bypass surgeries annually, a number that has been shrinking in recent years, and 3,800 angioplasties, a number that is growing. Morneault forecasts that the introduction of drug-eluting stents will erode 10% of Health Alliance's highly profitable bypass surgery business each year at the same time that the cost of purchasing 5,000 stents annually will climb by more than $10 million. And Health Alliance sits in an enviable position compared with other hospitals: two of its hospitals-429-bed University Hospital and 441-bed Christ Hospital-are among the 100 top heart hospitals in the nation (See related story, p. 26).
For everyone concerned except hospitals, the future prospects of the still unapproved devices could not look more flush. As Wall Street eagerly calls the race for the first drug-eluting stent that will come to market, patients already are pumped up about the prospects.
The likely rapid-fire adoption of drug-eluting stents by cardiologists promises great outcomes for heart patients, many of whom, including a whole new pool of diabetic patients, otherwise would have to undergo more costly coronary artery bypass surgeries. But what is good for heart patients is bad for hospital balance sheets, which typically rely heavily on bypass surgeries to help boost sagging profit margins. Indeed, the introduction of drug-eluting stents arrives as an increasing number of not-for-profit hospitals are investing in joint venture deals to build new heart hospitals throughout the country (Sept. 30, p. 26).
In terms of long-term cost savings, drug-eluting stents even look good for payers, and the excitement has spread to the nation's largest payer. In July, the Centers for Medicare and Medicaid Services took an unprecedented step, leaping ahead of the FDA to announce that it would reimburse hospitals for the devices, which offer a promising antidote to the most troublesome side effect associated with coronary angioplasty (Aug. 5, p. 9).
Stents are the small, latticed metal scaffolds that in the past decade have become a standard of balloon angioplasty, a technique to open narrowed arteries feeding blood to the heart. The stent permanently stays in place to prop open the blood vessel, but the intrusion can cause the formation of scar tissue, known as restenosis. Drugs designed to elute from the stent over 45 days can block the formation of scar tissue cells during the crucial first few weeks after the procedure, said Brian Firth, M.D., vice president of medical affairs and health economics at Cordis Corp., a Miami Lakes, Fla., medical products manufacturer. In the latest clinical trial of Cordis' drug-eluting stent, which is coated with an antirejection drug called sirolimus, restenosis was reduced by 75%; 4.1% of the patients given the drug-eluting stents required another procedure to reopen the vessel, compared with nearly 17% of those who were given only a bare-metal stent.
A new stent market
Even before the FDA has approved the devices and manufacturers have priced them, the CMS said beginning April 1, 2003, Medicare will pay about 17% more for drug-eluting stents than it pays for the bare-metal stents that are currently used in about 90% of all coronary angioplasty procedures. There were 829,500 such procedures in the U.S. in 2000, and in 2005 that number is expected to grow to 1.1 million, according to HealthGroup West, a Las Vegas healthcare consulting firm specializing in cardiovascular services. Analysts have estimated that within two years of their introduction, drug-eluting stents will gobble up as much as 88% of the stent market. This year with drug-eluting stents still standing on the sidelines, sales of coronary stents will generate $1.8 billion in revenue, according to Frost & Sullivan, a San Jose, Calif.-based research and consulting company.
The big but costly promise of this technological advancement drove the highly unusual move on the CMS' part.
"We won't be commonly entertaining the idea of creating DRGs in the absence of FDA approval, but the reason we did it is we believed that these are on the verge of approval and that when they are approved they are likely to become a standard of care that hospitals will switch to despite their cost," said a CMS spokeswoman. She added that all promises are off if the FDA does not approve the devices.
But that appears unlikely. An FDA advisory panel is scheduled to meet on Oct. 22 to consider the front-runner, the Cypher stent manufactured by Cordis, a Johnson & Johnson company. The panel is fully expected to recommend its approval, clearing the way for a year-end launch, according to David Lothson, an analyst with UBS Warburg Equity Research. Waiting in the wings with their own drug-eluting versions are Guidant Corp. and Boston Scientific, although a legal imbroglio between the two companies over Guidant's partnership with Cook Group to market the device threatens to delay or derail Guidant's plans.
In a sense, the CMS and manufacturers are barreling down the highway with their eyes closed as a number of unseen forces conspire against hospitals. Without FDA approval, manufacturers cannot say what the drug-eluting stents will cost. Common wisdom suggests that the price for the drug-eluting version will come in about three times the price of bare-metal stents, which can cost as much as $1,100 each, said Daniel Sweeney, vice president of contract and program services at Novation, an Irving, Texas-based group purchasing organization.
Meanwhile, the CMS' median reimbursement for the entire procedure with a drug-eluting stent-$11,033, compared with $9,486 using the bare-metal stent-does not factor in the likelihood that more than one stent will be used per procedure, Morneault said. The Health Alliance of Greater Cincinnati anticipates that its cardiologists, who now average 1.6 stents per procedure, will bump it up to 1.8 stents "because of the clinical data showing such an improvement in restenosis," he said. "Cardiologists won't be as adverse to putting them in small lesions or vessels."
Another force at play is how the intrusion of drug-eluting stents will play out for bypass surgery, one of the most profitable procedures hospitals do, Firth said. In a white paper on the subject, Broadlane, a San Francisco-based materials management service company, reported that by 2005, drug-eluting stents could reduce bypass surgeries by almost 50% as pools of patients who now run great risk of restenosis are shifted to cardiac catheterization laboratories for treatment. HealthGroup West reports that 364,000 heart bypass surgeries were performed in the U.S. in 2000. On the low side, the CMS reimburses hospitals roughly $16,219 for a basic bypass procedure and $22,084 for a diagnostic cardiac catheterization and bypass surgery combined.
Accordingly, angioplasty procedures are expected to grow overall despite the fewer repeat interventions that would be needed as a result of restenosis-a complication that now costs payers in the U.S. as much as $1.5 billion per year, Firth said.
Thanks to heavy lobbying to get the DRGs firmly in place, hospitals are in a much better position this time around than they were when bare-metal stents were introduced in 1994, Firth said. At that time, three years had elapsed before hospitals earned an incremental reimbursement for using stents in angioplasty procedures. But noting that Medicare represents a little less than half of all payers, Firth said hospitals with new technology clauses built into their contracts with private payers "are in great shape." On the other hand, those with no such carve-outs, who get reimbursed on a per diem basis, "are in a very bad position to absorb any new technology."
Planning for the worst
Hospitals are hoping for the best and trying to plan for the worst. In the first year of the launch, 228-bed St. Anthony Medical Center, Crown Point, Ind., is anticipating a 44% drop in net income in cardiology-a $300,000 loss-that will jump to 72%, or $500,000 in the second year, said Lawrence Leaman, the hospital's chief operating officer.
"We're lighting a lot of candles in the chapel. There's really not a lot you can do, but we're looking a lot at costs," Leaman said. Karin Kolisz, the hospital's service line leader, added, "What we are doing is planning-that is really all we can do: Project our losses, streamline processes and work with physicians."
Innovators and early adopters of new technologies are struggling to take it in stride.
"We think drug-eluting stents are a fabulous technology and offer patients better treatment options," said Alan Lieber, vice president of cardiac and vascular services at 652-bed Lenox Hill Hospital, New York. Lenox Hill has been on the forefront of cardiovascular innovations since 1978, when it was the site of the nation's first angioplasty, Lieber said, and its cardiologists were the lead investigators in the recent nationwide study of the Cordis stent. Cardiology accounts for $140 million in revenue out of a total $500 million in yearly revenue, and it's among the hospital's most profitable service lines, he said.
That said, Lenox Hill still stands to lose an undetermined amount of revenue. But heart surgeons already have lost many of the simpler bypass surgeries to the hospital's aggressive and leading-edge cardiologists, so the financial risks will be more on the cost side of the equation, Lieber said.
"It was a very groundbreaking precedent for the CMS to approve reimbursement for the technology before the FDA approved it, but depending on the pricing we are able to negotiate, it may not be enough," Lieber said. "I see this as in the long term very beneficial, but in the short term there are significant financial challenges that will depend on the pricing level and also our ability to negotiate with managed-care payers."
Similarly, MedCath Corp., a publicly traded Charlotte, N.C., provider of cardiovascular services and an owner of eight specialty heart hospitals, believes it already has taken the brunt of the expected shift in patients from heart surgery to angioplasty, said David Crane, its president and chief executive officer. The company has advised investors that the launch of drug-eluting stents on the commercial market likely would affect the company negatively by as much as $2.5 million. That's a negligible amount for a company that is targeting to bring in $550 million in revenue for the year ending Sept. 30, 2003, Crane said. The commercial launch of drug-eluting stents won't change the company's plan to build five more heart hospitals by the end of 2003, Crane said.
"Since we started MedCath 13 years ago with the mission of changing the quality of care, we've seen lots of technological innovation," Crane said. "If something improves the quality of care, we'll be an adopter of that."
Is it worth the price?
The 1,003-bed Cleveland Clinic Foundation is not so bullish. Already well familiar with drug-eluting stents through its participation in clinical trials, cardiologists will probably up the number of stents they use to 2.5 per patient from the 1.7 stents used now, said Stephen Ellis, M.D., director of the hospital's catheterization laboratory. From December to April 2003, when the reimbursement is due to go into effect, the Cleveland Clinic stands to lose $6 million, he said.
"This is a (money-) losing proposition for hospitals, and what to do about that is a big issue," Ellis said. "I think it's going to be tell some patients they can have coated stents and others they can't." But even if patients could be stratified according to risk of restenosis, patients probably wouldn't accept it, he added. Legal departments wouldn't be thrilled about making such choices either, he said.
The bottom-line question for doctors and hospitals will be whether the approximate $3,000 price tag on drug-eluting stents is really worth the reduction in restenosis rates, Morneault said. Hospitals will have to think hard about finding other ways to maximize reimbursement, such as bringing back patients for radiation therapy to reduce the risk of restenosis as is often done now. Some hospitals even might consider bringing patients back for multiple procedures to implant multiple drug-eluting stents, he said.
"That's the question we're all going to have to ask ourselves and develop the criteria to have the most impact," Morneault said. "It's a huge step by Medicare-I do agree with that-but unfortunately what Medicare has done is put hospitals in a very difficult position, because the information is out to the public."