The New York Times on Thursday examined reaction to scaled-back changes in the Medicare inpatient hospital reimbursement system that were issued by CMS on Tuesday (Pear, New York Times, 8/3). The final CMS rule includes the closure of loopholes used by specialty hospitals and plans to replace the current charge-based reimbursement system with a cost-based system and to implement a severity-adjusted reimbursement system that will pay hospitals more for the treatment of sicker patients. The proposal will affect reimbursements for several inpatient procedures -- such as those that involve the implantation of cardiac stents, defibrillators and other medical devices. Under the revised proposal, hospital reimbursements on average will increase by 3.5%, or $3.4 billion, and reimbursements will decrease for only about 2% of all facilities. However, cardiac specialty hospital reimbursements will decrease by more than 5% between 2005 and 2007. CMS plans to implement the changes over three years. The original proposal called for reimbursement cuts of up to 35% for some procedures (Kaiser Daily Health Policy Report, 8/2). Stephen Ubl, president of the Advanced Medical Technology Association, which represents device makers, said announcement of the rule removes "a dark cloud" from the industry, which had been concerned that cuts in some reimbursements would be significantly more severe. Ubl added, "The worst is behind us." Lehman Brothers analysts said the rule is "a win for cardiac and orthopedic device companies, specialty hospitals and general acute care hospitals." Prudential Equity Group analysts said the rule is "favorable for device manufacturers" (New York Times, 8/3).

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Medical device manufacturers "heaved a collective sigh of relief" after the final CMS rule was issued, the Minneapolis Star Tribune reports (Minneapolis Star Tribune, 8/1). Device makers' stocks fell in April after CMS made its initial proposal for rule changes. The AP/Boston Globe reports that shares of device makers increased an average of nearly 5% last week "as Wall Street anticipated that an industry lobbying campaign would succeed in at least partially rolling back the cuts" (AP/Boston Globe, 8/3). Some analysts cautioned that "roadblocks" could still exist for the device makers, since CMS might make other demands in the future, Dow Jones Newswires reports. UBS Investment Research analyst Kenneth Weakley said, "One of CMS' focuses has been increased pricing transparency on the hospital side, but now medical devices also seem to be on the agenda" (Dow Jones Newswires, 8/2).