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Device makers' stock has bumpy ride

Medicare reversal eclipsed by news of slower demand

Stocks of heart device makers rode a roller coaster yesterday after the government backed off a proposal to slash Medicare reimbursement by as much as a third for expensive but potentially lifesaving devices such as defibrillators and stents.

The reversal by the Centers for Medicare and Medicaid Services sent device makers' shares up modestly. But the gains were erased after the market closed when Medtronic Inc. said its quarterly revenue would fall short of expectations because of a downturn in the US defibrillator market.

The warning from Fridley, Minn.-based Medtronic was accompanied by a company statement applauding the Medicare decision. Device makers and hospitals successfully fought reimbursement cuts that would have eased taxpayers' burden but hurt hospital budgets and pressured device makers to cut prices.

``It is in some senses dodging a bullet," said Jan Wald, an analyst for A.G. Edwards & Sons. ``With the level of cuts the companies were looking at, it would have been hard for them to retain their pricing levels.

``I couldn't imagine that with a 30 percent reduction in reimbursement for stents and a 20 percent reduction for defibrillators that the hospitals could have absorbed those costs alone."

After markets closed Tuesday, the government released a rule taking effect in October that sharply reduces or eliminates many of the cuts contained in a draft proposal issued in April .

Device makers' stock prices fell in April after the government proposed cutting the amounts Medicare pays hospitals for heart implants that aren't covered by private insurance. The heart device reductions were about twice as steep as many analysts had expected.

Shares of device makers rose an average of nearly 5 percent last week as Wall Street anticipated that an industry lobbying campaign would succeed in at least partially rolling back the cuts, said Piper Jaffray analyst Thom Gunderson.

``It's a win for the industry," he said.

Yesterday, shares of heart-device makers rose around 5 percent in opening trading but retreated later in the session. Shares of Natick-based Boston Scientific Corp. closed up about 2 percent, while Medtronic and St. Paul, Minn.-based St. Jude Medical Inc. each tacked on about 1 percent.

But Medtronic's disclosure indicated the recent defibrillator slowdown may have been deeper than previously thought, Gunderson said.

``We already expected it to be soft, but not this soft," he said.

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