Are pumps next on the hit list?

Are pumps next on the hit list?

As we noted earlier today the impact of competitive bidding spreads beyond the glucose monitoring world. Although our friends in the nation’s capital have not yet revealed which device or which drug categories are next on the hit list, there is a growing consensus that insulin pumps are next to experience the pain of competitive bidding.

Now before we go further let’s clarify a few things. Even if pumps are the next target we do not view the Medicare market for insulin pumps to be material. Not that Medtronic (NYSE: MDT), Animas, a unit of Johnson and Johnson (NYSE: JNJ), Insulet (NASDAQ: PODD) or Tandem (NASDAQ: TNDM) would be happy rather there just aren’t that many Medicare patients using an insulin pump.

No what concerns every one of these companies is how private payors would react.  Would they use Medicare reimbursement as a model and look to extract even greater concessions? Insulin pump pricing is already under pressure and just as competitive bidding did not cause the BGM market to fall into the abyss, it certainly won’t help any. Yes, we know there are differences between insulin pumps but as we state with regularity all pumps do basically the same thing the same way. In other words, they are a commodity.

We can only imagine what competitive bidding would do to those unfortunate Medicare patients who happen to use an insulin pump. Unlike a glucose monitor which anyone with grade school education can operate without difficulty, insulin pump patients require a high level of training and support. As one seasoned insulin pump executive told Diabetic Investor years ago, it doesn’t cost upwards of $6,000 to make an insulin pump. Pumps cost that much as it costs that much to train and support an insulin pump patient.

Just as there were plenty of companies willing to offer cut rate bids for the strip business, so too will there be a host of off-shore insulin pumps companies who would do the exact same thing should pumps be next to experience competitive bidding. Which basically means say goodbye to any reasonable level of patient support. Listen insulin pump support isn’t that great now so we can only imagine the nightmare it would become under competitive bidding.

Given the growth in both diabetes and number of patients becoming Medicare eligible we don’t see the government stopping with medical devices. This being an election year the subject of allowing the government the ability to negotiate what Medicare pays for drugs has come up more than once. The way we see it is no longer a question of if this will happen but when it will happen and which drug categories get hit the hardest.

Unfortunately, diabetes drugs are the poster child for negotiated prices.  Right now there are 5 long-acting insulin’s one of which is a biosimilar, there are 3 SGLT2’s, multiple DPP4’s and 3 once-weekly GLP-1’s. And like glucose monitors and insulin pumps all these drugs do basically the same thing the same way. Yes, we know there are some differences but Medicare can make a very strong case that the patient would not be adversely impacted if they used Humalog rather than Novolog. The same can said in almost every diabetes drug category.

The harsh reality is sooner or later companies will be forced to make some very tough decisions. Do they play hardball come in with low bids, accept lower margins in the hope of greater volume? Or do they exit the Medicare market? Talk about being between a rock and hard place.

Frankly Diabetic Investor has no idea how this will all play out as this not the first time we’ve heard the call for allowing Medicare to negotiate drug prices. Yet something tells us that this time it won’t be just talk as they the leading candidates for President have all endorsed such a move, a move which the public also endorses. Yet what neither these politicians or the unsuspecting public realize is that lower drug and devices does not come without risk. What these politicians and unsuspecting public seem to believe is that nothing much will change expect the price they pay. That they will be able to use the same devices and dugs they use today.

As we have seen with glucose monitors this is just not the case. The reality is much different as Medicare patients do not have the same options as everyone else. We see no reason to believe that it would be any different when Medicare adds insulin pumps and drugs to their hit list.