The Role of the Medical Device Sector in Transforming American

Healthcare

June 9, 2004

Blair ChildsExecutive Vice President, Strategic Planning & Implementation

AdvaMed Facts• Founded in 1974 as the Health Industry

Manufacturers Association (HIMA)

• Now grown to 1,200 + member companies and subsidiaries (devices, diagnostics, HIS)

• Members manufacture 90% of the medical technologies sold in the US & 50% sold overseas

• $17 million budget, 60 staff with global expertise

• 45 - member Board of Directors

Our Goals

• Rapid approval by FDA

• Adequate payment

• Speedy coverage determinations here and abroad

• Access to international markets

• Communicate the Value of Medical Technology

Today’s Presentation

How Medical Technology is Transforming Healthcare

Why the future for Innovation has never been brighter

Overcoming the Challenge to Innovation

What is Medical Technology?

Devices Diagnostics Health information systems

Not: Drugs Medical procedures

Focus on the Patient But clear economic value as well…

Patient Care

Lasers

Minimally invasive surgery

Artificial joints

Diagnostic Imaging

Cardiovascular

…no exploratory surgery, less costly treatment

…quick recovery

…faster return to work

… shifting care to less expensive settings

…independence Health System Efficiency

Productivity

Lab Tests…Preventing disease

Key Industry Facts

Short product life-cycles (2/3rds of sales from technologies < 2 years old)

Sometimes high up front costs, long-term value

Highly competitive; Prices decline over time Few stand-alone breakthroughs Lengthy time to market, high R&D costs Small companies = big breakthroughs; 90%

of industry have 1-100 employees

A Technology’s EvolutionThe ICD Example

1980s 2000Weight 280 g < 100 gSurgery Thoracic Pect.(1 incision)Stay 14-24 days 2 daysAnesthesia General LocalBattery Life 2-3 years 9 yearsOper. Mortality 9 percent < 1 percentComplications Significant Virtually noneTotal Cost $99 K $44 K

A Technology’s Evolution Spinal Fusion Surgery

FEATURES 1985 TODAY

Incision Open surgery Open surgery and Minimally invasive surgery

available (in cases where appropriate).

Length of Hospital Stay 9 1

OR Time 4.2 hours 1.6 hours

Return to work 27% 75%

Cost of Procedure Devices enabling spinal fusion surgery were not available until the late

1980s.

$43,676

Non-union rate 40% 6%

A Technology’s Evolution Total Joint Replacement

FEATURES 1973 1993 TODAY

Incision Size 8”-10” 6”-10” 4”-6”

Length of Hospital Stay 12.5 days 5.5 days 4 days

OR Time 140 minutes 65 minutes 45 minutes

Recovery time Several weeks in the hospital

10 days 3-4 days

Feature Improvements Cement used for implants, not as durable and led to cracks. 10 year implant life.

Increased use of non-cemented implants that encouraged bone growth into the implant.

Ceramic, metal on metal and improved polyethylene implants improve durability and implant life to 15 years or more.Minimally invasive outpatient procedure.

Cost* NA $11,196.74 $11,494.87

*Cost data based on Medicare charges (include outliers). Total charges calculated assuming a 50% cost to charge ratio and adjusted for inflation. “Today” values are 2002 data.

Transformative Impact of Medical Technology

Faster recovery Faster, more accurate diagnosis Improved provider productivity Improved job productivity Increased societal wealth

• “Earlier diagnosis and treatment”

• “Safer and less invasive” surgeries

Faster Patient Recovery

Faster Recovery

Source: The Lewin Group analysis of American Hospital Association Survey data 1980 - 2001

Inpatient Surgeries

Outpatient Surgeries

0%

20%

40%

60%

80%

100%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Faster, More Accurate Diagnosis: Early Breast Cancer Detection = Lower

Treatment CostsEarly Detection = Survival Early Detection = Lower Costs

Improving Provider Productivity

Inputs for Cataract Surgery

-0.50

0.51

1.52

2.53

3.54

4.5

1969 1972 1979 1985 1994 1998

Uni

ts =

1 n

ight

in h

ospi

tal

Hospital NightsOROutpatientSurgeon

Shapiro, Shapiro, Wilcox. March 1999

Increasing Workplace Productivity

Putting A Focus on Value

Value Group Collaboration: AdvaMed American College of

Cardiology American Hospital

Association Federation of American

Hospitals Healthcare Leadership

Council National Pharmaceutical

Council PhRMA

Overall Value of Innovation, Findings:

Since 1980, per capita expenses are up $2,254, but: Overall death rate is down 16% Life expectancy from birth is up by 3.2 years Disability rates are down 25% for people over 65* 56% fewer days are spent in the hospital

Health gains of $2.40 to $3.00 per dollar invested

*Value of this improvement not quantified.

206millionmore

days inhospital

470,000moremore

deathsdeaths

Value of Innovation

Where would we be in 2000 without innovations since 1980?

$2254 per capita

in savings

2.3millionmore

disabledpersons

470,000more

deaths

Heart Attack:Improvement in Outcomes

Mortality cut nearly in half

Death within 30 days cut from 1 in 4 to 1 in 8

$1.10 back in value for every $1 spent in Medicare

345.2

186.9

1980 2000

Death Rate Due to Heart Attack(Age-adjusted, per 100,000)

Source: www.cdc.gov/nchs

Stroke:Improvement in Outcomes

Mortality cut by 37 percent

Stroke-related disability after 3 months reduced

$1.55 back in value for every $1 spent in Medicare

96.2

60.8

1980 2000

Death Rate Due to Stroke(Age-adjusted, per 100,000)

Source: www.cdc.gov/nchs

Breast Cancer:Improvement in Outcomes

Mortality cut by 21 percent

Five-year overall survival rates increased from 76.9% to 86.6%

Risk of developing metastatic disease declined from 40% to 15%

$4.80 back in value for every $1 spent in Medicare

32.3

25.4

1980 2000

Death Rate Due to Breast Cancer(Age-adjusted, per 100,000)

Why A Bright Future?

Increasing demand Building blocks of Innovation are

in place Significant policy progress

Under 5.0%

5.0% to 12.4%

12.5% to 20%

Above 20%

Increasing DemandPercent of Population Age 60+: 2000

Source: U.S. Census Bureau, 1999

Under 5.0%

5.0% to 12.4%

12.5% to 20%

Above 20%

Increasing Demand,Percent of Population Age 60+: 2025

Source: U.S. Census Bureau, 1999

<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+

US Discretionary Income

$10,000

$8,000

$6,000

$4,000

$2,000

$0

Per Capita By Age Group

Source: The Conference Board, 1999

Building Blocks of InnovationBuilding Blocks of Innovation

Rapid Patient Access

Robust R&D

Transparent, Consistent Product Approval

Efficient Post-Approval Regulation

Predictable, Pro-InnovationReimbursement

Competitive Market

&

Competitive Companies

11

FDA Product Approval Accelerating

Medical Devices User Fee and Modernization Act of 2002 Stemmed the staffing and resource decline in

CDRH Clear performance goals Office of Combination Products Regulation of reuse of single use devices Third party inspections

Major Reimbursement Reforms Hold Real Promise

Medicare Modernization Act, 14 provisions impacting Medical Technology, valued at over $1 billion New technology DRGs and add-on payments National Coverage deadlines Clinical trial coverage for breakthrough technologies Maintenance of the local coverage system Chronic care improvement demo Council for technology and Innovation Reforms to Accelerate Health Information Technology

What Stands in the Way of Continued Progress?

Cost pressures Limited health care budgets Increasing focus on evidence

standards, coverage restrictions, payment levels

Inadequate recognition of the value of innovation

Thank YouThank You

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