Medical Device Company Wins Special Exemption

“There’s little doubting the skill of [Clancy’s] lobbying effort.”

Medical Company Wins Special Exemption

By Alex Wayne, CQ Staff [Congressional Quarterly]

CQ TODAY, July 18, 2008 – 5:09 p.m.

The new Medicare law provides a welcome reprieve for the nation’s medical equipment manufacturers: an 18-month delay in a competitive-bidding program.

But at least one firm, Kinetic Concepts Inc. (KCI) of San Antonio, got a bigger present in the legislation: language that gives it an even longer break from competitive bidding and a potential advantage over its chief competitor.

Backers say the company deserves special treatment because its product is simply more effective.

KCI, which makes devices used to treat serious wounds such as bedsores and diabetic ulcers, lobbied Congress to include the special language after it lost the first round in the bidding program this spring to Smith & Nephew of London. The bidding covered 10 large metropolitan areas, including South Florida and Dallas.

Smith & Nephew partnered with some American medical equipment suppliers to win the bid in the field, known as negative pressure wound therapy (NPWT).

The NPWT devices combine a bandage with a vacuum pump to treat serious wounds that will not heal using other treatments.

KCI maintains that its device is superior to others because the bandage is made of a proprietary foam that better promotes healing. Smith & Nephew and other firms use a conventional gauze bandage.

Groundwork for Lobbying Started Early

Language in the new law (PL 110-275) throws out the results of the bidding and postpones bidding for the devices until at least 2011. Additionally, the language requires the Centers for Medicare and Medicaid Services (CMS) to study whether KCI’s device, called V.A.C. Therapy, uses technology so innovative that it should be in a separate product category with its own Medicare billing code.

KCI began laying the groundwork for the bidding results to be overturned by Congress even before the bid decisions were made. In fall 2007, company officials, including Linwood “Woody” Staub, KCI’s president of V.A.C. Therapy, met with their local congressman, Democratic Rep. Charlie Gonzalez of Texas. The congressman was sympathetic.

“KCI has not just testimonials, but I would say evidence that their product is the superior device,” Gonzalez said.

In December, Gonzalez introduced a bill (HR 4778) that would exclude NPWT devices from Medicare’s competitive bidding program until CMS compares the effectiveness of different devices.

A version of Gonzalez’s bill was introduced in the Senate in June by Republican Tom Coburn of Oklahoma, who is a physician. Coburn’s support is notable; he is a fiscal conservative who has otherwise strongly supported the competitive bidding program.

CMS officials say the bidding program could ultimately save $1 billion a year, but it has been broadly unpopular in Congress, in part because of lobbying by firms that lost in the first round of bidding or didn’t have to bid previously.

KCI’s lobbying was most effective at the staff level. In the spring, the company approached the House Ways and Means Committee about including NPWT-specific language in a bill introduced by Reps. Pete Stark, D-Calif., and Dave Camp, R-Mich., that would delay the entire bidding program for at least 18 months.

Committee staff called doctors unaffiliated with KCI to confirm the company’s claim that its foam-based product was superior to those using gauze.

One doctor with whom committee staff spoke is Dr. Karen Kowalske, professor and chair of physical medicine and rehabilitation at the University of Texas Southwestern in Dallas. She has no financial ties to KCI, she said.

“In some situations” — large, deep wounds that otherwise will not close — “it works so dramatically better than any other product that it’s really the only answer,” she said. “I don’t think it’s the answer for every wound.”

KCI’s political action committee has contributed $30,500 during this Congress to political candidates and committees but has made no donations to Gonzalez, Stark, Camp or Coburn, according to CQ MoneyLine. It has contributed $5,000 this year to Sen. Max Baucus, D-Mont., the chairman of the Finance Committee, which has jurisdiction over Medicare. Baucus has opposed the bidding program.

The Stark-Camp bill calling for the competitive bidding delay was added to the larger Medicare bill as a sweetener, to attract more votes. The larger bill, aimed at stopping a cut in physicians’ pay under Medicare, became law last week.

The final Medicare bill does not prevent CMS from bidding on NPWT devices, but the bidding would not begin until 2011 at the earliest.

Smith & Nephew’s global vice president for NPWT products, Robin Carlstein, said the marketplace likely will have changed dramatically by then: Everybody might be using foam as a bandage or something more advanced.

So he questions the purpose of delaying the bidding: “Other than protecting one company’s position, why would you do it?”

A House Democratic aide said there was another explanation.

“All we wanted was a timeout for CMS to determine whether these two technologies are similar enough to be grouped and bid together or apart,” the aide said.

[Note: The Medicare agency’s plan to classify KCI’s product with ineffective competitor products, for competitive-bidding purposes, would have constituted a form of bureaucratic rationing, because, under the rules as devised by the Medicare bureaucracy, beneficiaries’ access to the KCI product, the only product that actually works on certain kinds of life- and limb-threatening wounds, would have been eliminated.—Dean Clancy]

Demand for NPWT Equipment

KCI pioneered the business of building portable devices to treat wounds with suction and until last year was the only source for NPWT equipment. In 2007, KCI rented or sold $1.3 billion worth of its V.A.C. devices.

“Physicians use this product once, and they go: ‘It works. I don’t need to see clinical data . . . I just closed a wound I didn’t think I could close, and I don’t need to amputate,’” Staub said.

Smith & Nephew — a 150-year-old company that claims to be the world leader in wound treatment — entered the market in 2007 after buying a small California company and its NPWT technology. KCI had filed a lawsuit against the smaller company for patent infringement but lost. KCI has appealed the ruling and has sued Smith & Nephew.

Meanwhile, Medicare spending for NPWT equipment was exploding, from about $25 million in 2001 to about $255 million in 2006; a CMS spokesman said rapid growth continued in 2007. As a result, CMS officials included the wound therapy devices in their original plan to require durable medical equipment makers and suppliers to bid for the right to supply Medicare patients.

CMS began soliciting bids under the program last year, and in March of this year announced the winners. The fact that KCI was not among them came as little surprise to the company; its V.A.C. device is generally more expensive than devices using gauze bandages.

“Their leading argument is probably price,” Staub said of KCI’s competitors.

KCI’s leading argument is quality. Clinical studies have shown that KCI’s product is more effective than wound treatments that don’t use suction. Still, the KCI device has never been tested head-to-head against Smith & Nephew’s.

“There is no peer-reviewed clinical evidence to suggest that their product is any better or worse than ours,” said Smith & Nephew’s Carlstein.

Perhaps not. But there’s little doubting the skill of KCI’s lobbying effort.


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