Hospitals, long despondent over the possibility that, financially, they will get the short end of the drug-eluting stent, were cheered earlier this month when the Food and Drug Administration gave its blessing to Boston Scientific Corp.'s version of the groundbreaking technology.
Boston Scientific priced its Taxus drug-eluting stent at $2,950-$245 cheaper than the list price of Johnson & Johnson's Cypher stent, which has enjoyed exclusivity in the U.S. market since its approval in April 2003. But more encouraging than the lower list price was the mere entrance of Cypher's first-but surely not last-competitor and Boston Scientific's promise that it had ample inventory to satisfy the voracious appetites of cardiovascular programs.
"I feel this new product will only improve our pricing position," said Terence O' Brien, executive vice president and chief operating officer of 626-bed Lenox Hill Hospital in New York, where cardiologists led the national clinical trials for both the Cypher and the Taxus stents. "I do think (drug-eluting stents are) a sea change."
With their potential to treat a whole new population of sickly patients who were not previously suitable candidates for angioplasty procedures, drug-eluting stents have long been expected to erode volumes in lucrative bypass surgery procedures (Oct. 21, 2002, p. 4). At the same time, the drug-eluting wire mesh scaffolds, which are designed to prevent the formation of scar tissue after a clogged artery is propped open, are expected to completely displace the older generation of bare-metal stents, which cost only about $1,000 each.
The eagerly anticipated launch of J&J's Cypher last year was plagued by supply problems that left many hospitals feeling as if they were paying too much for something they couldn't get enough of. Though no one was expecting an immediate drop in price with only one other player on the field, many anticipated the new competition would spur even speedier adoption, thanks to the ample supply. Boston Scientific boasted that it already had 226,000 stents ready to distribute and that it would grab 70% of the U.S. market within 70 days, ringing up $1.6 billion in sales this year and $2.3 billion in 2005.
Ken Millecker, director of cardiology cath-eterization lab products for Broadlane, a group purchasing organization, said prior to the Taxus launch, he was hearing complaints of incomplete orders, incorrect sizes and preferential treatment for larger hospitals and systems. "With the pricing the way it is, it's making it difficult to be a break-even procedure," Millecker said. "No one is happy. Everybody is hopeful that the Boston Scientific Taxus situation will turn things around."
Cordis Corp., the J&J company that manufactures the Cypher, was clearly readying itself for a market-share battle. The supply situation is "significantly healthier" than it was during the problematic launch, said Martin Schildhouse, a Cordis spokesman. In addition, about a month ago, the company inaugurated a "multivessel assistance program" that offers an undisclosed discount when more than two stents are used for an angioplasty procedure. Cordis also has just completed enrollment in a head-to-head trial pitting the Cypher against the Taxus, and it entered into an agreement with Guidant Corp. to co-market the stent, beefing up its sales force. Cordis has no plans to lower its list price, as the list price is not what hospitals actually pay, Schildhouse said.
Meanwhile, to assuage hospital fears that drug-eluting stents would negatively alter hospital and catheterization laboratory economics, Boston Scientific produced an economic model that attempted to show that profit margins for angioplasties employing the new technology would not be nearly as dire as predicted.
Based on an economic model using an average of 1.2 drug-eluting stents per procedure, Boston Scientific determined that the hospital's profit margin is only about $30 less for a drug-eluting stent than for a bare-metal stent-$1,278 vs. $1,308 per procedure, said Thomas Meskan, director of cardiac reimbursement and outcomes planning for Boston Scientific.
That model doesn't carry much weight at Lenox Hill, where the first U.S. angioplasty was performed 25 years ago. Although utilization of drug-eluting stents started at 50% after Cypher's launch, O'Brien said about 95% of all angioplasties performed there have used drug-eluting stents since the fourth quarter of 2003. Cardiologists there use an average of about 1.8 stents per procedure, performing a total of about 4,000 procedures annually. The hospital has probably already experienced its drop in bypass surgeries, considering the large volume of angioplasties it has always done, he added.
Unlike other hospitals, Lenox Hill has not had a supply problem since August or September 2003, and the hospital has been able to negotiate contracts directly with J&J and managed-care companies "to a degree that these cases continue to be profitable," O'Brien said. He declined to disclose the details of those contracts.
As for the Taxus stent, O'Brien said Lenox Hill would similarly negotiate a contract with Boston Scientific-perhaps as early as this week. As to which company eventually wins Lenox Hill's business, O'Brien said, "If we can get the prices down where we want, then it will be based solely on physician preference."
About 80% of the 2,500 angioplasties performed annually at Morristown (N.J.) Memorial Hospital use drug-eluting stents and cardiologists implant an average of about 1.5 stents per procedure, said Joel Fagerstrom, the hospital's chief operating officer. Like Lenox Hill, the hospital plans to negotiate a price for the Taxus with Boston Scientific directly rather than relying on its GPO, Novation. "We can just get better pricing," he said.
Fagerstrom said that at least initially he is certain the cardiologists will want to try out the Taxus. After that, as long as clinicians at the hospital determine the two products are equivalent, "Then price will be the determining factor," he said.
O'Brien said he thinks $1,500 is "a reasonable target price" for the drug-eluting stent once the market has matured with at least four competitors in play. But he does not want to have to wait four or five years to reach that target price as hospitals did when bare-metal stents were introduced in the mid-1990s. "We have to use past history to guide us to where we need to get," O'Brien said.