Wall Street investors rebounded from the jolt delivered by the Centers for Medicare & Medicaid Services last week, regaining most of the value lost after the agency announced stiffer rules for its coverage of some medical procedures.
The new pre-reimbursement review program will ask doctors to provide up-front justification for certain medical equipment and types of claims. Set to launch in 11 states next month, it will flip the reimbursement system from the agency’s existing “pay-and-chase” method of looking for improper payments after they’ve already been made.
CMS will focus on 15 medical procedures, including pacemaker and defibrillator surgeries, spinal fusions and joint replacements, for potential errors and fraud.
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That news had a hand in sending med-tech stock down Dec. 2, even as the major indices capped off a week of growth. That trend reversed itself Monday and yesterday, as most of the major med-tech players recouped some value since the markets closed Friday:
| COMPANY | Change since 12/2 |
| Abbott (NYSE:ABT): | 0.7% |
| Baxter (NYSE:BAX): | 0.4% |
| C.R. Bard (NYSE:BCR): | 0.2% |
| Boston Scientific (NYSE:BSX): | 1.6% |
| Covidien (NYSE:COV): | -1.4% |
| Edwards Lifesciences (NYSE:EW): | 0.3% |
| Intuitive Surgical (NSDQ:ISRG): | 1.4% |
| Johnson & Johnson (NYSE:JNJ): | 0.0% |
| Medtronic (NYSE:MDT): | 3.8% |
| NuVasive (NSDQ:NUVA): | 10.4% |
| Smith & Nephew (NYSE:SNN): | 1.4% |
| St. Jude Medical (NYSE:STJ): | 3.1% |
| Stryker Corp. (NYSE:SYK): | 1.9% |
| Wright Medical Group (NSDQ:WMGI): | 4.4% |
| Zimmer Holdings (NYSE:ZMH): | 1.6% |
The CMS plan would involve some health care providers in California, Florida, Illinois, Michigan, New York, North Carolina and Texas. They’ll have to obtain prior authorization for certain medical devices if they plan to submit for Medicare reimbursement.
Boston Scientific a “fast follower?”
Boston Scientific’s development pipeline for key products aimed at key markets is falling behind its major competitors, signaling a shift from being a medical device pioneer to a “fast follower” for the company, according to a Morningstar analyst.
BSX is lagging behind rivals Medtronic, Edwards Lifesciences, and St. Jude Medical when it comes to transcatheter heart valves, MRI-safe cardiac rhythm management products and neuromodulation devices, wrote Debbie Wang.
“While we expect the firm can exist comfortably as a fast follower, this is qualitatively different from its previous role as a pioneer. We think this will translate into less power to command premiums for new technology,” Wang wrote. Read more
Do med-tech stocks pass the Buffett Test?
Share price is one thing when it comes to evaluating investment choices. But billionaire investor Warren Buffett has made a science of “value investing,” relying on return on invested capital as a bellwether measure on backing a stock.
Simply put, ROIC is a way to evaluate how efficiently a company spends its cash. ROIC numbers above 12% (the top end of the cost of capital for most businesses) are the trigger for Buffett’s test.
Here’s a look at how the companies above fare when it comes to the Buffett Test (using financial data from their most recently concluded fiscal years):
| COMPANY | ROIC |
| Abbott (NYSE:ABT): | 14.3% |
| Baxter (NYSE:BAX): | 13.7% |
| C.R. Bard (NYSE:BCR): | 20.2% |
| Boston Scientific (NYSE:BSX): | -9.9% |
| Covidien (NYSE:COV): | 13.4% |
| Edwards Lifesciences (NYSE:EW): | 16.7% |
| Intuitive Surgical (NSDQ:ISRG): | 18.7% |
| Johnson & Johnson (NYSE:JNJ): | 20.3% |
| Medtronic (NYSE:MDT): | 12.9% |
| NuVasive (NSDQ:NUVA): | 11.5% |
| Smith & Nephew (NYSE:SNN): | 18.0% |
| St. Jude Medical (NYSE:STJ): | 13.3% |
| Stryker Corp. (NYSE:SYK): | 15.6% |
| Wright Medical Group (NSDQ:WMGI): | 2.7% |
| Zimmer Holdings (NYSE:ZMH): | 8.6% |
Olympus board to resign en masse, company pledges to file suit against miscreants
Olympus Corp. (TYO:7733) pledged to pursue legal remedies against any current or former employees implicated in its scheme to hid billions in investment losses, even as the Japanese endoscopy giant’s embattled board signaled that its members will resign en masse.
Olympus has admitted to using mergers and acquisitions to conceal billions of dollars of investment losses. In one case the company shelled out $687 million in fees to dummy consulting firms.
Now the company it threatening legal action against 70 current or former board members and executives who might have had a hand in the scandal, according to the Wall Street Journal. The brouhaha has slashed more than 50% from the value of Olympus shares since mid-October.
Meanwhile, the board of directors is preparing to meet a challenge from ousted CEO Michael Woodford, who blew the whistle on the scandal and was sacked just two weeks after occupying the corner office in Tokyo. All of the board members could quit but nominate their successors, the New York Times reported. That sets them up to oppose Woodford, who resigned from the board to form a coalition to take control of Olympus.
An independent probe released this week recommended that the “rotten to the core” yes-men responsible for the scheme be sacked.
Analysts’ ups & downs
- Baxter (NYSE:BAX): Morgan Stanley cuts price target to $60, loweres estimates, sets “buy” rating.
- Boston Scientific (NYSE:BSX): Daily Markets maintains “neutral” rating.
- Fresenius (NYSE:FMS): Morgan Stanley upgrades to “overweight” from “equal weight.”
- Hologic (NSDQ:HOLX): Cantor Fitzgerald initiates coverage with “hold” rating; Needham & Co. reinstates coverage at “buy” rating.
- Hospira (NYSE:HSP): Citigroup lowers estimates through 2012, maintains $30 price target and “neutral” rating.
- Medtronic (NYSE:MDT): Standpoint Research downgrades from “buy” to “hold.”
- Sirona Dental Systems (NSDQ:SIRO): Goldman Sachs removes from conviction list, sets “buy” rating.
- Smith & Nephew (FTSE:SN): Morgan Stanley upgrades to “overweight” from “equal weight,” sets £6.26 price target.
