2700

2004
the medical technology industry
at a glance

the medical technology industry at a glance 2004 the state of innovation 1 industry overview
letter from the president
Dear AdvaMed Members and Friends,
The medical technology industry continues to be one of the most vital and dynamic sectors of the
U.S. economy and a leading force in the revolution that is transforming America’s health care system.
This revolution is improving patient outcomes and speeding recovery time while reducing overall
health care spending.
Fueled by record spending on research and development, the U.S. medical technology industry
continues to be the world leader in producing innovative lifesaving and life-enhancing products. By
all relevant measures of growth – employment trends, production values, exports, global market
share, venture capital financing – the medical technology industry sets a standard that is the envy of
most business sectors.
The medical technology industry’s impressive economic performance is exceeded only by its
contributions to improving the health and well-being of patients worldwide. Breakthrough medical
technologies are able to detect diseases earlier and offer new, more effective treatment options for
leading causes of disability and mortality such as heart disease, cancer and other illnesses.
More effective treatment options generate economic benefits as well. Over the years, medical
technology innovations have led to decreases in the number of disabled Americans, increases in
outpatient and minimally invasive surgical procedures, and shorter hospital stays. As a result,
patients are able to live longer, healthier, more productive lives for far less than it would have cost
just a few years ago.
The future of the medical technology industry looks to be even brighter than the present. Coming
breakthroughs in areas such as device miniaturization and nanotechnology, molecular and gene-based
diagnostics, information technology, and artificial organs and tissue engineering promise to provide
innovative solutions to some of the most persistent and debilitating health care problems. Such
innovation bodes well not only for the economic health of the medical technology industry but for the
overall health of U.S. patients and the health care system as well.
The information presented in this report, prepared by The Lewin Group, illustrates the robust nature
of the U.S. medical technology industry and the positive impact innovations in medical technology
are having on patients’ lives and the nation’s health care system.
Pamela G. Bailey
President,
Advanced Medical Technology Association
letter from the president

SECTION I – THE STATE OF INNOVATION 1
Chapter 1: Industry Overview 3
1.1 U.S. Market Size for the Medical Device and Diagnostics Industry 4
1.2 Distribution of Medical Companies by Size 4
1.3 Distribution of U.S. Firms by North American Industrial Classifications 5
1.4 Mergers and Acquisitions Transaction Volume 6
1.5 Initial Public Offerings of Venture-Backed Medical Device Firms 6
1.6 Venture Capital Financing in the Medical Device Industry 7
Chapter 2: The Global Leader 9
2.1 International Markets for the Medical Device and Diagnostics Industry 10
2.2 Market Sizes, Compound Annual Growth Rates for Selected Regions 10
2.3 Total U.S. Exports of Medical Device and Diagnostics Industry 11
2.4 U.S. Medical Technology Industry Trade Statistics 11
2.5 Estimated Worldwide Market for Selected Cardiovascular Devices 12
Chapter 3: Research & Development 13
3.1 R&D Spending as a Percentage of Sales, U.S. Medical Device Industry 14
3.2 R&D as a Percentage of Sales for U.S. Medical Device Industry and Selected 14
Industrial Sectors (U.S.)
i
table of contents

3.3 Medical Device Industry R&D Spending as a Percentage of Sales by 15
Standard Industrial Classification
3.4 Medical Device Industry R&D Spending as a Percentage of Sales by Company Size 15
3.5 National Institutes of Health Bioengineering Awards 16
3.6 Number of Medical Device Patents 16
3.7 Top Ten Factors Affecting Companies’ Ability to Develop New Medical Technologies 17
Over Past Five Years
3.8 Top Ten Factors Influencing Companies’ Product Development Priorities Over 17
Past Five Years
Section II – THE VALUE OF INNOVATION 19
Chapter 4: Economic Benefits 21
4.1 Production, Medical Device and Diagnostics Industry 22
4.2 Employment Trends of U.S. Medical Device and Diagnostics Industry 22
4.3 Trend in Selected Industry Producer Indexes 23
4.4 Change in Intercontinental Marketing Services (IMS) Composite Medical-Surgical 24
Price Index
Chapter 5: Regulatory Review 25
5.1 PMAs Approved by FDA 26
5.2 Original PMA Receipt Cohort Performance: FDA Review Days, 90th Percentile 26
5.3 510(k) Receipt Cohort Performance: FDA Review Days, 90th Percentile 27
5.4 FDA Office of Device Evaluation Staffing Levels 27
5.5 FDA Center for Devices and Radiological Health Funding 28
5.6 Reported Changes in Average Elapsed Development Time Over Past Five Years 28
5.7 Faster to Market: Europe or U.S.? 29
ii
table of contents

Chapter 6: Coverage & Payment 31
6.1 Reported Impact of Third Party Payer Issues on Innovation 32
6.2 Reported Speed of Coverage and Payment by Third Party Payers 32
6.3 Medicare Approval Process: Drug-Eluting vs. Bare Metal Coronary Stents 33
Chapter 7: Patient Care 35
7.1 Projected vs. Actual Number of Chronically Disabled Americans Age 65+ 36
7.2 Percentage Distribution of Inpatient vs. Outpatient Surgeries 36
7.3 Inpatient Hospital Length of Stay by Age Cohort (U.S.) 37
7.4 Number of Total Hip and Total Knee Replacement Procedures (U.S.) 37
7.5 Total Cataract Procedures (U.S.) 38
7.6 Number of Pacemaker Implant Procedures (U.S.) 38
7.7 Changes in the Treatment of Heart Attacks 39
7.8 Death Rates for Diseases of the Heart (U.S.) 39
7.9 Estimated Number of U.S. Patients with Implantable Cardiover-Defibrillator, 40
Pacemaker, or Either Device
7.10 Use of Mammography by Women Age 40+ Years (U.S.); Death Rates 41
for Malignant Neoplasm of Breast for Females (U.S.)
7.11 Cost vs. Cost-Effectiveness of Drug-Eluting Stents 42
Appendix 43
iii
table of contents

SECTION I
the state of innovation

Medical technology plays a vital role in
delivering safe, effective, and high-quality health
care. The industry has developed life-saving and
life-enhancing products such as pacemakers,
artificial joints, drug-eluting stents, and
laparoscopic devices for minimally invasive
surgery. Innovations such as microminiature and
remote surgery techniques, DNA-based
diagnostics, tissue-engineered organs, and
advanced information technologies are poised to
further enhance quality of care. Medical
innovation has great potential to synthesize
advances in the sciences, bioengineering,
biomaterials, genomics, computing, and
telecommunications to develop technologies that
will extend our ability to prevent, diagnose, and
treat disease. Further advances will address the
world’s current health care challenges, including
treating and responding to outbreaks of new
infectious diseases, biodefense, and meeting health
needs in underdeveloped or
war-torn areas.
The medical technology industry invests heavily
in research and development, driven by constant
innovation and short product life cycles. The bulk
of R&D spending for medical devices and
diagnostics comes from private sources. In 2002,
the industry spent 11.4 percent of its sales on
R&D, higher than any industry except that for
drugs and medicine. Small companies, including
many start-ups and highly innovative firms, spent
an average of 343 percent of their revenue on
R&D.
Adequate financing is critical to the successful
development and commercialization of medical
technology. Start-up companies are particularly
dependent on capital financing prior to achieving a
viable revenue stream. However, after peaking in
2000, venture capital financing fell sharply in the
medical device industry along with many other
industries, as did the number of initial public
offerings of venture-backed firms.
The U.S. remains the global leader in innovation
in medical technology. The U.S. medical
technology industry is the largest producer of
medical devices and diagnostics, with production
estimated at $77 billion in 2002. Further, the U.S. is
one of the world’s largest exporters of medical
technology, selling to other countries an estimated
$20.3 billion, or about a quarter of total U.S.
production. Although the U.S. share of the growing
world market declined during the 1980s due to
slowed domestic growth, the U.S. share of the world
market is currently about 42 percent.
“America’s health care system has advantages
no other nation can match, but also challenges
we cannot ignore.”
President George W. Bush
2
SECTION I
the state of innovation

$75.0
$73.7
$71.4
$66.7
$62.2
$57.7
$40
$45
$50
$55
$60
$65
$70
$75
$80
1997 1998 1999 2000 2001 2002*
4
Chart 1.2
Distribution of Medical Technology Companies by Size
2001
324373
1,002
3,377
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
< 20 20-99 100-499 500+
Note: Data refer to companies categorized under specific NAIC codes for medical
device industry and exclude large companies classified under other primary
industries that also possess medical device divisions.
Source: U.S. Department of Commerce
NumberofCompanies
Chart 1.1
U.S. Market Size for the Medical Device and Diagnostics Industry
1997 – 2002
*AdvaMed projected number based on 2001 data from U.S. Census Bureau.
$Billions
CAGR=4.5%
CAGR = Compound Annual Growth Rate
Number of Employees per Company

Chart 1.3
Distribution of U.S. Firms by North American Industrial Classifications
2001
Note: Data refer to companies categorized under specific NAIC codes for medical device industry
and exclude large companies classified under other primary industries that also possess medical
device divisions.
Ophthalmic
9%
Lab Apparatus
7%
IVDs
4%
Surgical
Appliances &
Supplies
28%
Dental
16%
Irradiation
3%
Surgical &
Medical
Instruments
25%
Electromedical
8%
5

Chart 1.4
Mergers & Acquisitions Transaction Volume
1997 – 2003
*Deals refers to merger and/or acquisition activity.
Source: Windhover's Strategic Transaction Database
TotalValue($Billions)
Chart 1.5
Initial Public Offerings of Venture-Backed Medical Device Firms
1996 – 2003
Source: Venture One
NumberofDeals
6
$0
$5
$10
$15
$20
$25
$30
$35
1997 1998 1999 2000 2001 2002 2003
0
10
20
30
40
50
60
70
80
90
Total Value Number of Deals*
AverageAmountRaised($Millions)
NumberofIPOs
$0
$20
$40
$60
$80
$100
$120
1996 1997 1998 1999 2000 2001 2002 2003
0
5
10
15
20
25
30
35
Average Amount Raised Number of IPOs

Chart 1.6
Venture Capital Financing in the Medical Device Industry
1992 – 2003
*Financing rounds refers to the number of times professional venture capital firms
provide equity financing to companies, includes first-stage venture funding and any
subsequent funding.
Source: Venture One
AmountInvested($Billions)
NumberofFinancingRounds*
7
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
92 93 94 95 96 97 98 99 00 01 02 03
0
25
50
75
100
125
150
175
200
225
Amount Invested Number of Financing Rounds*

10
the medical technology industry at a glance 2004 the state of innovation 2 the global leader
Chart 2.1
International Markets for the Medical Device and Diagnostics Industry
2000
Source: AdvaMed
$Billions
Chart 2.2
Market Sizes, Compound Annual Growth Rates for Selected Regions
1991 – 1999
Source: AdvaMed
10.6%7.3%14.1%Total
12.5%8.6%16.6%
Rest of
World
8.7%2.6%15.2%Japan
10.4%9.3%11.5%EU
10.8%7.4%14.3%U.S.
1991-19991995-19991991-1995
$72
$35
$25
$13
$0
$10
$20
$30
$40
$50
$60
$70
$80
US EU Japan Rest of World
Total 2000 Global Market = $169 Billion

11
Chart 2.4
U.S. Medical Technology Industry Trade Statistics
2002 – 2003
Source: U.S. International Trade Commission
Chart 2.3
Total U.S. Exports of Medical Device and Diagnostics Industry
1989 – 2003
$0
$5
$10
$15
$20
$25
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
$Billions
-1.40-1.40Asia (excl. Japan)
1.201.30Japan
-1.40- 1.04Mexico
1.301.60Canada
0.560.74UK
-0.47-0.22Germany
0.530.65France
0.732.00EU total
0.503.30U.S. Trade Surplus
22.0018.30U.S. Imports
$22.50$20.30U.S. Exports
2003
($ in Billions)
2002
($ in Billions)

12
Chart 2.5
Estimated Worldwide Market for Selected Cardiovascular Devices
2001
Source: PJB Medical Publications, Inc.
114Ventricular Assist Devices
115Brachytherapy Systems
130Atherectomy Catheters
155Ablation Catheters
200Endovascular Stent-Grafts
231Diagnostic Electrophysiology Catheters
255Vascular Sealing Devices
433Other
590Peripheral Stents
832Heart Valves
1,900Implantable Cardioverter Defibrillators
2,000Angioplasty Devices
2,300Coronary Stents
$ 2,874Pacemakers and Accessories
$ 12,199Total
70Embolic Protection Systems
Revenue
(in Millions)Category

chapter 3
research & development

14
the medical technology industry at a glance 2004 the state of innovation 3 research & development
Chart 3.1
R&D Spending as a Percentage of Sales, U.S. Medical Device Industry
1990 - 2002
5.4% 5.5%
6.0%
6.8%
7.2%
8.4%
9.6%
11.1%
12.9%
10.1%
10.9%
12.3%
11.4%
0%
2%
4%
6%
8%
10%
12%
14%
90 91 92 93 94 95 96 97 98 99 00 01 02
Source: S&P's Compustat. Data from publicly traded companies
Chart 3.2
R&D as a Percentage of Sales for U.S. Medical Device Industry and
Selected Industrial Sectors, United States, 2002
3.5%
0.5%
0.8%
1.1%
3.1%
3.9%
4.1%
5.6%
7.5%
11.4%
12.9%
All Companies
Paper/Forest
Metals/Mining
Leisure
Aerospace/Defense
Electrical/Electronics
Auto
Telecom
Office Equipment
Medical Devices
Drugs & Medicine

15
Chart 3.3
Medical Device Industry R&D Spending as a Percentage of Sales by
Standard Industrial Classification, 1990, 1998, and 2002
33%
10%
5%
3%
8%
11%
23%
14%
6%
3%
9%
13%
11%
4%
3%
2%
7%
8%
0% 5% 10% 15% 20% 25% 30% 35%
1990
1998
2002
Chart 3.4
Medical Device Industry R&D Spending as a Percentage of Sales byCompany
Size, 1990 and 2002
6% 4%
343%
39%
24%
14%
5% 9%7%6%15%
47%
0%
50%
100%
150%
200%
250%
300%
350%
400%
< $5 M* $5-20 M $20-100 M $100-500 M $500 M-1 B > $1 B
1990
2002
*Excludes companies with no revenue.
PercentageofSales
Revenue
Electromedical &
Electrotherapeutic
Apparatus
X-Ray & Related
Irradiation
Apparatus
Dental Equipment &
Sales
Orthopedics,
Surgical Appliances &
Supplies
Surgical & Medical
Instruments
Diagnostics &
Reagents

16
Chart 3.5
National Institutes of Health Bioengineering Awards
1997 – 2002
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1997 1998 1999 2000 2001* 2002*
0%
1%
2%
3%
4%
5%
6%
7%
Funding Percent
Source: National Institutes of Health
Funding($Millions)
PercentofTotalNIHFunding
Chart 3.6
Number of Medical Device Patents
1989 – 2003
4,178
4,500
4,737
5,554
6,010
7,943
8,196
9,091
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1989 1991 1993 1995 1997 1999 2001 2003
Note: Estimates based on PTO-recommended methodology.
Source: U.S. Patent and Trademark Office
* Estimated Data

17
Chart 3.7
Top Ten Factors Affecting Companies’ Ability to
Develop New Medical Technologies Over Past Five Years, 2003
Source: AdvaMed Survey of Member Companies, 2003
Chart 3.8
Top Ten Factors Influencing Companies’ Product
Development Priorities Over Past Five Years, 2003
46.3%
53.1%
54.3%
54.3%
56.8%
63.9%
66.7%
71.6%
74.1%
84.0%FDA Regulatory Requirements
Cost of Clinical Research
Medicare Coverage &
Reimbursement Requirements
R&D Costs Related to Expansion/
Contraction into New Markets
U.S. Private Payer Coverage &
International Regulatory Requirements
Litigation Risks & Costs
R&D Costs Related to Acceptance in
Existing Markets
Sales, General & Administrative
Related to Expansion/Contraction into
New Markets
Availability/Cost of Capital Funding
43.8%
46.9%
51.6%
52.3%
55.4%
58.5%
60.0%
62.5%
78.5%
81.5%FDA Regulatory Requirements
Issues Related to Intellectual
Property Protection
Customer Demand for Cost-saving
or Cost-effective Technology
Price-sensitivity of Customers
Medicare Coverage & Reimbursement
Requirements
Private Payer Coverage &
Overseas Market Opportunities
Changes in Revenues
Payer Demand for Evidence of Clinical
Effectiveness and/or Cost Effectiveness
Availability/Cost of Capital Funding

SECTION II
the value of innovation

20
the medical technology industry at a glance 2004 the value of innovation 4 economic benefits
the value of innovation
Medical technology continues to transform
health care in ways that could not have been
conceived even ten years ago. Through advances
in technology, physicians can detect diseases
earlier, provide less invasive treatment options,
reduce recovery times, and enable patients to
resume active, productive lives more quickly.
• Medical technology has made great contributions
to the screening and early detection of malignant
breast tumors. When caught early, survival rates
are higher and costs of treatment are lower.
• A study published in the New England Journal
of Medicine found that for patients who had a
previous heart attack and reduced pumping
capacity, there was a 31 percent reduction in the
risk of death for those who received a defibrillator
versus those who received conventional therapy.1
• Laparoscopic cholecystectomy (minimally
invasive gallbladder removal surgery) decreased
inpatient length of stay from about 7.5 days for
conventional open surgery to about 2.6 days and
has reduced recovery times.2
Despite these great advances, significant
challenges remain for the medical technology
industry. Though average review times for 510(k)
applications for “substantially equivalent” devices
have fallen to less than 100 days, review times for
PMA applications for truly novel devices,
including many breakthrough technologies, can be
high – more than 250 days, at the 90th percentile.
With the passage of the Medical Device User Fee
and Modernization Act (MDUFMA), the
implementation of user fees should provide the FDA
with the resources it needs to make the latest
breakthrough technologies avail-able more quickly to
those who need them.
The Medicare coverage and payment process for
new technology continues to be a concern. In a
recent AdvaMed survey, 44 percent of respondents
indicated that the length of time it takes to secure
coverage had significantly hindered their ability to
bring an innovative new technology to patients, while
nearly half of respondents identified inadequate
payment levels as the single greatest reimbursement-
related hurdle. Medicare has made certain strides in
conducting a more open and accountable process for
making new technology coverage decisions,
including the speed with which it moved to cover the
breakthrough drug-eluting stents in 2003. Even so,
many beneficial technologies remain uncovered, and
the time-consuming and somewhat uncertain
requirements of the Medicare process pose a
formidable, additional challenge to innovation and
patient access to technological advances.
“The benefits from lower infant mortality and
better treatment of heart attacks have been
sufficiently great that they alone are about equal
to the entire cost increase for medical care over
time. Thus, recognizing that there are other
benefits to medical care, we conclude that
medical spending as a whole is clearly worth the
cost.”
David M. Cutler, Ph.D., Professor of Economics,
Harvard University
Mark McClellan, M.D., Ph.D., CMS
Administrator
1Moss AJ, et al. Prophylactic implantation of a defibrillator inpatients
with myocardial infarction and reduced ejection fraction. New
England Journal of Medicine 2002;346(12):877-83.
2Cohen MM, et al. Has laparoscopic cholecystectomy changedpatterns
of practice and patient outcomes in Ontario? Canadian Medical
Association Journal 1996;154:491-500.
SECTION II

chapter 4
economic benefits
chapter 4
economic benefits

22
100,000
150,000
200,000
250,000
300,000
350,000
400,000
88 89 90 91 92 93 94 95 96 97 98 99 00 01
Chart 4.1
Production, Medical Device and Diagnostics Industry
1997 – 2002
*AdvaMed projected number based on 2001 value of product shipments from U.S.
Census Bureau.
Chart 4.2
Employment Trends of U.S. Medical Device and Diagnostics Industry*
1988 – 2001
*Data include SIC codes 2835, 3841, 3842, 3843, 3844 & 3845 and NAIC codes
325413, 334510, 334517, 339112, 339113, 339114, and 339115.
Source: U.S. Department of Labor, Bureau of Labor Statistics
$65.2
$68.8
$73.5
$77.7
$80.0
$77.0
$50
$60
$70
$80
$90
$100
1997 1998 1999 2000 2001 2002*
$BillionsNumberofEmployees

23
Chart 4.3
Trend in Selected Industry Producer Price Indexes
2001 – 2002
Producer Price Index (PPI) is a family of indexes that measures the average change over
time in selling prices received by domestic producers of goods and services. PPIs
measure price change with respect to the base period, 1982, which is set to 100.
Source: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index
website, Public Data Query
131.1
130.8
127.9
196.2
226.3
0 50 100 150 200 250
PPI-Commodities
Surgical & Medical
Instruments4
Surgical & Medical
Hospitals3
In vitro & In vivo
Diagnostics2
Drugs1
1SIC 283 - Medicinal chemicals and botanical products, pharmaceutical preparations, in
vitro and in vivo diagnostics and biological products.
2SIC 2835 - In vitro diagnostic substances, reagents, standards and controls, blood bank,
hematology, coagulation products, microbiology, serology, histology, virology, cytology
products, other in vitro diagnostics, including culture media, in vivo diagnostic
substances including contrast media and radioactive reagents.
3SIC 8062 - Medicare patients, Medicaid patients and all other patients (various diseases
and disorders). Does not include psychiatric or specialty hospitals.
4SIC 3841 - Surgical and medical instruments and apparatus, diagnostic apparatus,
syringes and needles and hospital furniture.

24
Chart 4.4
Change in Intercontinental Marketing Services (IMS) Composite Medical-
Surgical Price Index
2002 – 2003
Note: Percent change in Overall Pharmaceutical Index is 3Q02 – 3Q03; all others Nov ‘02 – Nov ‘03
Source: Hospital Materials Management
CPI (Medical Care Commodities) = 1.9%
8.1%
4.5%
2.8%
1.6% 1.5%
0.4% 0.2% 0.2% 0.1%
-0.2%
-2.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
Sutureneedles,
ENTinstruments
CathetersPharmaceuticals
Surgicalandmedical
instruments
X-rayequipmentBloodtransfusion
&IVequipment
Diagnostic
apparatus
Orthopedic
instrumentsClinicallaboratory
instruments
Bloodpressure
apparatus
Electromedical
equipment

26
the medical technology industry at a glance 2004 the value of innovation 5 regulatory review
404
341 335
374
200
250
300
350
400
450
1999 2000 2001* 2002*
Chart 5.1
PMAs Approved by FDA
1996 – 2001
28
45
26
52
45 45
0
10
20
30
40
50
60
1996 1997 1998 1999 2000 2001
Source: FDA, ODE Annual Reports
Chart 5.2
Original PMA Receipt Cohort Performance: FDA Review Days
(Filing to Final Action), 90th Percentile, 1999 – 2002
NumberofDaysNumberApproved
*2001 – 12 still under review *2002 – 16 still under review

27
160
153
162 162
148
150
152
154
156
158
160
162
164
1999 2000 2001 2002
Chart 5.4
FDA Office of Device Evaluation Staffing Levels
1996 – 2002
368
356
340
330
359
353 354
300
350
400
1996 1997 1998 1999 2000 2001 2002
NumberofStaff
Chart 5.3
510(k) Receipt Cohort Performance: FDA Review Days
(Receipt to Final Action), 90th Percentile, 1999 – 2002
NumberofDays

28
Chart 5.5
FDA Center for Devices and Radiological Health Funding
1990 – 2001
$159
$169
$145 $144 $145
$157
$164
$157
$164
$145$143
$123
$100
$125
$150
$175
$200
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: AdvaMed
$Millions
Chart 5.6
Reported Changes in Average Elapsed Development Time*
Over Past Five Years, 2003
*Development time refers to the time span from identifiable project start, e.g.,
beginning of design control phase, to FDA acceptance of an application for market
approval/clearance.
56%
73%
5%
33%
18%
81%
11% 9% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
510(k)s with
Clinical Trials
PMAs PMAs with
Supplements
Decreased
Unchanged
Increased

29
Chart 5.7
Faster to Market: Europe or U.S.?
2003
U.S.
5%
Europe
76%
No
Difference
19%

32
the medical technology industry at a glance 2004 the value of innovation 6 coverage & payment
Chart 6.1
Reported Impact of Third Party Payer Issues on Innovation
2003
Note: “Other third party payment” issues named include coding issues, demonstrating clinical
efficacy, demonstrating safety, demonstrating clinical effectiveness, adding data on costs, clinical
outcomes, and specific patient populations.
25% 28% 29%
41%
28%
28%
44%
30%
47% 44%
27% 29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Significantly
Some
Not
Tech
assessment
requirements
Slowness in
securing
coverage
Adequate
Medicare
payment
Adding data
on clinical
outcomes
Chart 6.2
Reported Speed of Coverage and Payment by Third Party Payers
2003
35%
41%
9% 10% 11%
24%
22%
9% 10%
26%
28%
34%
45%
26%
6%
6%
28%
23%
26%
9%
3%
19%
13%
37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Medicare Medicaid Private PPO Private HMO Private Fee
for Service
Fastest
Slowest

33
the medical technology industry at a glance 2004 the value of innovation 6 coverage & payment
Chart 6.3
Medicare Approval Process:
Drug-Eluting vs. Bare Metal Coronary Stents
In order to ensure patient access to this technology as rapidly as possible, the Centers for Medicare &
Medicaid Services (CMS) took the unprecedented step of assigning two new diagnosis-related groups
(DRGs) for drug-eluting stents before the CYPHER™ stent gained FDA approval. Medicare then began
covering and paying for this technology upon FDA approval. In contrast, when J&J introduced the first
bare metal coronary stent into the U.S. in 1994, it was not until more than three years after FDA approval
that Medicare reassigned this technology to a higher-paying DRG. This 3-year time lag is typical for many
new technologies.
1986
Hospital
Payment
3 years
Bare Metal Coronary Stents
J&J Licenses
Stent
Technology
1990 1993 1994 1995 1997
J&J Requests
ICD-9 Code for
Coronary Stents
2 Randomized
Controlled Trials
(STRESS &
BENESTENT)
Presented to FDA
FDA Approval
of PALMAZ-
SCHATZ®
Coronary
Stent
ICD-9
Code for
Coronary
Stents
Medicare
Reassigns
Coronary
Stents to
DRG 116
Hospital
Payment
Immediate
Drug-Eluting Coronary Stents
Apr 1
2003
Sep
2000
Oct
2002
Apr 24
2003
Reviewed
SIRIUS
Study
Plans with
CMS
Sep
2001
Nov
2001
Medicare Assigns
Drug-eluting
Coronary Stents to
new DRGs 526 & 527
FDA Approval
of CYPHER™
Coronary
Stent
Medicare
Assigns
Unique
ICD-9 Code
Formal Request
for ICD-9 code
Provided
Preliminary
SIRIUS Clinical &
Cost Data
Apr
2002
Presented
9-mo.
SIRIUS
Data
Jun
2002
Presented
RAVEL
Clinical
Data
Source: Timelines adapted from Cordis.

36
the medical technology industry at a glance 2004 the value of innovation 7 patient care
9.5
7.5
8.3
7.17.17.0
6.4
5
6
7
8
9
10
1982 1989 1994 1999
Chart 7.1
Projected vs. Actual Number of Chronically Disabled Americans Age
65+, 1982 – 1999
Source: Manton KG, Gu X. Changes in the prevalence of chronic disability in the
United States black and nonblack population above age 65 from 1982 to 1999.
Proc Natl Acad Sci USA 2001;98(11):6354-9.
Chart 7.2
Percentage Distribution of Inpatient vs. Outpatient Surgeries
1980 – 2001
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
Source: Trends Affecting Hospitals and Health Systems, TrendWatc h Chartbook 2003,
Prepared by The Lewin Group, Inc. for American Hospital Association, July 2003
Millions
If disability rate had
not changed since
1982
Actual Number (Based on
declines in chronic disability
rate occurring since 1982)
Pop. Age 65+
26.9 million
Pop. Age 65+
30.8 million
Pop. Age 65+
33.1 million
Pop. Age 65+
35.3 million
Inpatient
Surgeries
Outpatient
Surgeries

37
0
50
100
150
200
250
300
350
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Total Hip Replacements Total Knee Replacements
Chart 7.3
Inpatient Hospital Length of Stay by Age Cohort (U.S.)
1970 – 2001
Source: CDC, NCHS, National Hospital Discharge Survey 2001
Chart 7.4
Number of Total Hip and Total Knee Replacement Procedures (U.S.)
1990 – 2001
Source: CDC, NCHS, National Hospital Discharge Survey, 1990-2001
3
5
7
9
11
13
15
1970 1975 1980 1985 1990 1995 2000 2001
All Ages 45-64 years
Under 15 years 65 years and over
15-44 years
LengthofStay(Days)NumberofProcedures
(inthousands)

38
Chart 7.5
Total Cataract Procedures (U.S.)
1999 – 2001
*PMMA = polymethylmethacrylate
Source: Health Products Research, Inc.
0
500
1,000
1,500
2,000
2,500
3,000
1999 2000 2001
Silicone IOLs Other Foldable IOLs PMMA IOLs*
TotalCataractProcedures
(inthousands)
Chart 7.6
Number of Pacemaker Implant Procedures* (U.S.)
1997 – 2001
Source: The Lewin Group analysis of the Health Care Utilization Project (HCUP),
Nationwide Inpatient Sample (NIS), 1997 – 2001.
NumberofProcedures
*Pacemaker implant ICD-9-CM codes:
37.80 - Insertion of permanent pacemaker, initial or replacement, type of device not
specified;
37.81 - Initial insertion of single-chamber device, not specified as rate responsive;
37.82 - Initial insertion of single-chamber device, rate responsive; and
37.83 - Initial insertion of dual-chamber device.
0
25,000
100,000
125,000
150,000
175,000
200,000
225,000
1997 1998 1999 2000 2001
Total Implants
37.83
37.82
37.81
37.80

39
Chart 7.7
Changes in the Treatment of Heart Attacks
1984 – 1998
Source: Cutler and McClellan, Health Affairs, Sept/Oct 2001
0%
10%
20%
30%
40%
50%
60%
1984 1986 1988 1990 1992 1994 1996 1998
Catheterization Angioplasty w/o stent
Angioplasty w/stent Bypass Surgery
PercentofCases
Chart 7.8
Death Rates for Diseases of the Heart (U.S.)
1950 – 2001
0
100
200
300
400
500
600
700
1950 1960 1970 1980 1990 1995 2000 2001
Source: CDC, National Center for Health Statistics
Deathsper100,000residentpopulation

40
0
100
200
300
400
500
600
700
800
900
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Either Device Pacemaker ICD
Chart 7.9
Estimated Number of U.S. Patients with Implantable Cardioverter-Defibrillator,
Pacemaker, or Either Device
1990 – 2000
Note: Pacemaker estimates calculated by applying age- and sex-related
prevalence rates for permanent pacemakers in the U.S. from the 1988
National Health Interview Survey (Medical Device Supplement) to annual age
and sex population estimates from U.S. Census Bureau.
ICD estimates calculated using estimated ICD prevalence in 1990 and the
number of new implants in the U.S. per year (based on the rate of new
implants and annual population estimates). Implant data for 1998-2000
were unavailable and implant rates for these years were estimate d assuming
continued increased ICD implantation rates similar to those during the 1990s
(16%-33% increase per year).
Source: Maisel WH, et al. Recalls and safety alerts involving pacemakers and
implantable cardioverter-defibrillator generators. JAMA 2001;286(7):793-9.
NumberofPatients(inthousands)

41
Chart 7.10
Use of Mammography by Women Age 40+ Years (U.S.)
1987 – 2000
52%
55%
60% 61%
67%
70% 70%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1987 1990 1991 1993 1994 1998 1999 2000
Source: CDC, National Center for Health Statistics, Health, United States, 2003
Percentageofwomenhavinga
mammogramwithinthepast2years
Death Rates for Malignant Neoplasm of Breast for Females (U.S.)
1980 – 2000
31.9
33.3
30.8
28.6
28.1
27 27.1
20
22
24
26
28
30
32
34
1980 1990 1995 1997 1998 1999 2000
Deathsper100,000residentpopulation
The U.S. Preventive Services Task Force (USPSTF) recommends screening mammography, with or without
clinical breast examination, every one-to-two years for women aged 40 and older. Although many factors have
influenced mortality rates over the last 20 years, such as improvements in cancer treatments, the USPSTF
concluded that mammography screening significantly reduces mortality from breast cancer.

42
Chart 7.11
Cost vs. Cost-Effectiveness of Drug-Eluting Stents
Source: Adapted from presentation by David J. Cohen, MD, Harvard Clinical Research Institute, “Cost-
Effectiveness of Sirolimus-Eluting Stents for Treatment of Complex Coronary Stenoses: The SIRIUS
Trial”
Drug-Eluting vs. Conventional Stents:
Initial Hospital Costs
$7,264
$4,398
$2,701
$2,704
$1,379
$1,362
$0
$5,000
$10,000
$15,000
Drug-Eluting Stent Conventional Stent
Procedures Room/Ancillary MD Fees
12-Month Events:
Repeat Revascularization
13.3%
6.9%
4.9%
28.4%
20.0%
22.9%
0%
10%
20%
30%
40%
50%
TLR TVR Any
Percentofpatients
Drug-Eluting Stent Conventional Stent
A recent economic analysis
suggests that the use of drug-
eluting stents is cost-effective
given the reduction in long-term
costs associated with their use.
Previous studies have shown that
drug-eluting stents reduce both
angiographic and clinical
restenosis compared with
conventional bare metal stents.
This study found that drug-
eluting stents reduce the need
for repeat treatments and
rehospitalizations and their
associated costs. While initial in-
hospital costs were about $2800
higher with the drug-eluting
stent than with the conventional
stent, the one-year follow-up
medical costs for the drug-
eluting stent sample were about
$2500 lower per patient than
$11,345
$8,464
$5,468
$8,040
$0
$5,000
$10,000
$15,000
$20,000
Drug-Eluting Stent Conventional
Stent
Initial Hospitalization Follow-up
$16,813 $16,504
Drug-Eluting vs. Conventional
Stents: 1-Year Medical Care
Costs
those in the conventional stent sample. Thus, the actual cost difference between drug-
eluting stents and traditional stents after one year is about $300. The emergence of
longer stents and improved implantation techniques could improve the cost-
effectiveness of drug-eluting stents in the future.
Note: TLR= target lesion revascularization rate;
TVR = target vessel revascularization rate
$11,345
$8,464
Cost Difference
+$2,880 Cost Difference
+$309

Appendix
supplementary data tables

45
the medical technology industry at a glance 2004
Appendix A-1: Industry Overview
Table 1.1 Mergers and Acquisitions Transaction Volume 47
(Corresponds to Chart 1.4)
Table 1.2 Initial Public Offerings of Venture-Backed Medical Device Firms 47
Table 1.3 Venture Capital Financing in the Medical Device Industry 48
Appendix A-2: The Global Leader
Table 2.1 Total U.S. Exports of Medical Device and Diagnostics Industry 49
Appendix A-3: Research & Development
Table 3.1 National Institutes of Health Bioengineering Awards 50
Appendix A-4: Economic Benefits
Table 4.1 Employment Trends of U.S. Medical Device and Diagnostics Industry 51
Note: Data displayed in the appendix tables are included only for charts not showing data in corresponding
chapters.
list of tables

46
Appendix A-7: Patient Care
Table 7.1 Percentage Distribution of Inpatient vs. Outpatient Surgeries 52
Table 7.2 Inpatient Hospital Length of Stay by Age Cohort 53
Table 7.3 Number of Total Hip and Total Knee Replacement Procedures (U.S.) 53
Table 7.4 Total Cataract Procedures (U.S.) 54
Table 7.5 Number of Pacemaker Implant Procedures (U.S.) 54
Table 7.6 Changes in the Treatment of Heart Attacks 55
Table 7.7 Death Rates for Diseases of the Heart (U.S.) 55
list of tables

47
Year
Average
Amount Raised
(in Millions)
Number of
IPOs
1996 $35.47 33
1997 $31.22 15
1998 $27.60 1
1999 $43.50 2
2000 $58.09 10
2001
2002
2003
$98.19
$100.75
$0.00
4
3
0
Table 1.1
Mergers & Acquisitions Transaction Volume
1997 – 2003
Source: Windhover's Strategic Transaction Database
Year
Total Value
(in Billions) Number of Deals
1997 $24.0 62
1998 $32.6 82
1999 $6.7 71
2000 $13.3 77
2001 $8.8 61
2002 $5.3 56
2003 $9.2 71
appendix A-1 industry overview
Table 1.2
Initial Public Offerings of Venture-Backed Medical Device Firms
1996 – 2003
Source: Venture One

48
Table 1.3
Venture Capital Financing in the Medical Device Industry
1992 – 2003
Source: Venture One
appendix A-1 industry overview
Year
Amount
Invested
(in Millions)
Number of
Financing
Rounds
1992 $454.70 124
1993 $432.39 114
1994 $444.09 107
1995 $610.41 129
1996 $592.80 157
1997 $854.85 177
1998 $972.07 170
1999 $1,459.68 213
2000 $2,154.23 222
2001 $1,855.12 194
2002 $1,625.04 163
2003 $1,614.75 168

49
Table 2.1
Total U.S. Exports of Medical Device and Diagnostics Industry
1989 – 2003
Year
Total Exports
(In Billions)
1989 $5.7
1990 $6.9
1991 $8.2
1992 $9.2
1993 $9.8
1994 $10.7
1995 $12.1
1996 $13.6
1997 $13.7
1998 $14.9
1999 $16.5
2000 $17.4
2001 $19.4
2002 $20.3
2003 $22.5
appendix A-2 the global leader

50
Table 3.1
National Institutes of Health Bioengineering Awards
1997 – 2002
appendix A-3 research & development
*Estimated Data
Source: National Institutes of Health
Year
Funding
($ Millions)
Percent of Total
NIH Funding
1997 $412.6 4.6%
1998 $501.1 5.1%
1999 $697.5 6.2%
2000 $771.2 5.9%
2001* $692.4 4.6%
2002* $825.9 4.9%

51
Table 4.1
Employment Trends of U.S. Medical Device and Diagnostics Industry
1988 – 2001
Source: U.S. Department of Labor,
Bureau of Labor Statistics
appendix A-4 economic benefits
Year
Number of
Employees
1988 242,802
1989 247,333
1990 253,630
1991 268,457
1992 277,335
1993 282,430
1994 279,569
1995 277,979
1996 283,369
1997 295,360
1998 305,700
1999 297,000
2000 351,722
2001 349,571

52
Table 7.1
Percentage Distribution of Inpatient vs. Outpatient Surgeries
1980 – 2001
appendix A-7 patient care
Inpatient Outpatient
Year
Number of
Surgeries
(in Thousands)
Percentage
of Surgeries
Number of
Surgeries
(in Thousands)
Percentage
of Surgeries
1980 15,714 83.7% 3,054 16.3%
1981 15,675 81.5% 3,562 18.5%
1982 15,533 79.3% 4,061 20.7%
1983 15,130 76.2% 4,715 23.8%
1984 14,379 72.2% 5,530 27.8%
1985 13,162 65.4% 6,951 34.6%
1986 12,222 59.7% 8,247 40.3%
1987 11,691 56.2% 9,126 43.8%
1988 11,384 53.2% 10,028 46.8%
1989 10,989 51.5% 10,351 48.5%
1990 10,845 49.5% 11,070 50.5%
1991 10,693 47.7% 11,712 52.3%
1992 10,552 46.2% 12,308 53.8%
1993 10,182 44.6% 12,624 55.4%
1994 9,834 42.8% 13,155 57.2%
1995 9,701 41.9% 13,462 58.1%
1996 9,546 40.5% 14,024 59.5%
1997 9,509 39.3% 14,678 60.7%
1998 9,734 38.4% 15,594 61.6%
1999 9,540 37.6% 15,845 62.4%
2000 9,729 37.3% 16,383 62.7%
2001 9,780 37.0% 16,685 63.0%
Source: American Hospital Association, Trends Affecting Hospitals and Health Systems, 2003

53
Table 7.2
Inpatient Hospital Length of Stay by Age Cohort
1970 – 2001
Length of Stay (in Days) by Age Cohort
Year All Ages < 15 Yrs 15-44 Yrs 45-64 Yrs > 65 Yrs
1970 7.8 4.7 5.7 9.3 12.6
1975 7.7 4.6 5.7 9.0 11.6
1980 7.3 4.4 5.2 8.2 10.7
1985 6.5 4.6 4.8 7.0 8.7
1990 6.4 4.8 4.6 6.8 8.7
1995 5.4 4.5 3.9 5.5 6.8
2000 4.9 4.5 3.7 5.0 6.0
2001 4.9 4.5 3.7 5.0 5.8
Source: CDC, NCHS, National Hospital Discharge Survey 2001
Table 7.3
Number of Total Hip and Total Knee Replacement Procedures (U.S.)
1990 – 2001
Number of Procedures
Year
Total Hip
Replacements
(in Thousands)
Total Knee
Replacements
(in Thousands)
1990 119 129
1991 117 160
1992 127 167
1993 125 179
1994 124 209
1995 134 216
1996 138 245
1997 144 259
1998 160 266
1999 168 267
2000 152 299
2001 165 326
Source: CDC, NCHS, National Hospital Discharge Survey, 1990-2001

54
Year
Silicone IOLs
(in Thousands)
Other Foldable
IOLs
(in Thousands)
PMMA IOLs
(in Thousands)
1999 1085 1085 355
2000 1226 1174 208
2001 1057 1400 185
Table 7.4
Total Cataract Procedures (U.S.)
1999 – 2001
Source: Health Products Research, Inc.
Table 7.5
Number of Pacemaker Implant Procedures
1997 – 2001
Number of Procedures*
Year 37.80 37.81 37.82 37.83
Total
Implants
1997 4,113 19,636 23,012 113,568 160,329
1998 3,011 16,335 22,893 116,100 158,339
1999 3,318 15,460 22,295 126,936 168,009
2000 2,551 15,125 22,027 137,325 177,028
2001 2,272 15,892 22,706 159,952 200,822
Source: The Lewin Group analysis of the Health Care Utilization Project (HCUP), Nationwide Inpatient Sample
(NIS), 1997 – 2001.
*Pacemaker implant ICD-9-CM codes:
37.80 - Insertion of permanent pacemaker, initial or replacement, type of device not
specified;
37.81 - Initial insertion of single-chamber device, not specified as rate responsive;
37.82 - Initial insertion of single-chamber device, rate responsive; and
37.83 - Initial insertion of dual-chamber device.

55
the medical technology industry at a glance 2004 appendix A-7 patient care
Table 7.6
Changes in the Treatment of Heart Attacks
1984 – 1998
Percent of Cases
Year Catheterization
Bypass
Surgery
Angioplasty
w/o stent
Angioplasty
w/stent
1984 11% 5% 2%
1986 20% 7% 3%
1988 28% 9% 7%
1990 35% 11% 10%
1992 43% 14% 14%
1994 48% 16% 18% 0%
1996 52% 16% 12% 5%
1998 53% 15% 6% 15%
Source: Cutler and McClellan, Health Affairs, Sept/Oct 2001
Table 7.7
Death Rates for Diseases of the Heart, U.S.,
1950 – 2001
Year
Deaths per
100,000
resident
population
1950 586.8
1960 559.0
1970 492.7
1980 412.1
1990 321.8
1995 293.4
2000 257.6
2001 247.8
Source: CDC, NCHS

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