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The Affordable Care Act and Medical Devices: What you need to know as an Orthopaedic Surgeon

By Manish K. Sethi, MD; Alex A. Jahangir, MD; and William T. Obremskey, MD

What orthopaedic surgeons need to know HR 3200 (ultimately passed as HR 3590, public law 111-148)—the Patient Protection and Affordable Care Act of 2010—has been widely discussed in the context of the dramatic changes it will make in the insurance coverage of millions of Americans. Widely hailed as the biggest restructuring of healthcare delivery since the Johnson administration, it will dramatically reshape the structure of American health care with its emphasis on universal coverage and value-based care.

Layered deep within the bill itself, however, is an important issue that is infrequently discussed. HR 3590 dramatically changes the relationship between the U.S. government and the medical device industry.

A basic understanding of these policy shifts is critical for the practicing orthopaedic surgeon because they will, in turn, affect physician-industry relationships. This article briefly discusses five key issues regarding HR 3200 and medical devices.

National Medical Device Registry (NMDR)
Initially as proposed in HR 3200, a national medical device registry would have been established by the Department of Health and Human Services (HHS). Within the registry, devices would be listed by type, model and serial number, or some other unique identifier.

The registry was intended to assist HHS in evaluating the safety and effectiveness of all implantable medical devices, including all orthopaedic implants. It would link data provided by manufacturers to the U.S. Food and Drug Administration with outcomes data drawn from many sources, including Medicare claims data and electronic medical records. The registry data and analyses would be stripped of patient information and ultimately made available to the public and the Centers for Medicare & Medicaid Services (CMS).

The NMDR also authorized HHS to require device makers to submit “such other information as is necessary to facilitate post-market assessments of device safety and effectiveness and notification of device risks.”

While the registry was not ultimately included in the final version of the bill, its proposed creation is an indicator of the potential future government role of tracking medical devices.

Comparative effectiveness and medical devices
Previous articles in AAOS Now have discussed the patient-centered outcomes research institute created under HR3590. This institute will focus on and make available comparative effectiveness research.

Although HR 3590 limits the institute’s scope and ability to influence CMS, comparative effectiveness findings may ultimately drive Medicare coverage, reimbursement, and incentive programs.

Increased medical device taxation
To help fund healthcare reform, HR 3590 increases the tax on most medical devices, including orthopaedic implants. Beginning Jan. 1, 2013, all device manufacturers will be required to pay a 2.3 percent excise tax on medical device sales (Table 1).

Many in Congress point out that these increased tax revenues will generate more than $20 billion in one decade, which would be used to offset the costs of providing health insurance to millions of Americans. Although the medical device industry maintains one of the highest profit margins in the private sector, many companies argue that the tax will not only increase the cost of many implants but also have a negative effect on employment.

Physician compensation by device makers
Healthcare reform also encompasses increased scrutiny of the financial relationships between physicians and industry. The U.S. government has demonstrated that it will closely monitor such interactions. Under HR3590, companies are required to begin recording any physician payments—including stock options, research grants, consulting fees, and travel to medical conferences—worth more than $10 in 2012 and to report them on March 31, 2013. The details will be posted in a searchable, online database starting Sept. 30, 2013.

Government enforcement
HR 3590 also expands the definitions of “abuse” and “fraud” to increase government oversight of the healthcare industry. These provisions will have a significant impact on the government audit, investigation, and litigation resources of the American healthcare industry, including medical device companies. Both the Anti-Kickback Statute and the False Claims Act have been amended, resulting in stricter regulations.

Summary
The Patient Protection and Affordable Healthcare Act not only redefines the relationship between the U.S. government and the medical device industry, it also seeks to redefine physician–industry relationships and increases government enforcement of the healthcare industry overall. It is critically important for practicing orthopaedic surgeons to understand these dramatic shifts in policy.

Did you know…?

  • From 2003 through 2009, Medicare paid more than $100 billion for 6.9 million procedures related to medical devices.
  • The 2.3 percent excise tax on medical device companies levied under HR 3200 is expected to lead to the collection of $20 billion over a decade.
  • Beginning in 2012, medical device companies must record any physician payments worth more than $10 and report them on March 31, 2013.

Manish K. Sethi, MD, and Alex A. Jahangir, MD, are AAOS Washington Health Policy Fellows; William T. Obremskey, MD was an advisor on this project.

References
Mundy A. Lawmaker targets use of costly medical devices. Wall Street Journal, Dec. 9, 2010.

House health reform bill calls for sweeping national device registry. Medical Devices Today, July 20, 2009.

Bierman ME, Buenafe M: Healthcare Reform Law Imposes New Tax and Other Requirements for Device Manufacturers. Morgan Lewis Alert, April 13, 2010.

LeBlanc S: Medical device makers: Health care law will cost jobs. Manufacturing.Net, June 7, 2010.

Buckle D: Big margins for medical device makers face scrutiny by consumers. Gerson Lerhman Group, May 25, 2006.

Weintraub A: New health law will require industry to disclose payments to physicians. Kaiser Health News, April 26, 2010.

AAOS Now
February 2011 Issue
http://www.aaos.org/news/aaosnow/feb11/advocacy2.asp