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Tough reimbursement scrambles competitive landscape for diabetes devices

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Tough reimbursement scrambles competitive landscape for diabetes devices

Providers of blood glucose meters, test strips and other diabetes care devices are struggling due to stringent U.S. reimbursement, leading to a surge of deal talk as suppliers weigh whether to stay in the business or leave.

At Roche Holding Ltd. diabetes care sales decreased 4% at constant currencies to CHF 2.02 billion in 2016, marking the second straight year of annual declines. Sales fell 27% in North America.

The Swiss company denied a Jan. 31 Bloomberg report that it was considering an exit from the business. Shortly thereafter Roche Diagnostics division head Roland Diggelmann went a step further, telling Reuters that he wants to expand the business and that the company is "looking around" for external technologies to complement its offerings.

Diggelmann told Reuters that the speculation may have been linked to Johnson & Johnson's recently unveiled plan to consider "strategic options" for its unit, which had annual sales of $1.79 billion, down from $2.65 billion in 2011.

At Roche's Feb. 1 earnings presentation in London, Diggelmann said U.S. reimbursement is taking a toll on prices, nothing that the cuts are affecting contracts with private payers as well.

Meanwhile, Bayer AG left the diabetes care business in January 2016, selling its Contour line of blood glucose meters for about €1 billion to Panasonic Healthcare Co. Ltd., which is majority-owned by private equity firm KKR & Co. LP.

Medicare's cost-saving competitive bidding program is responsible for the declining price of diabetes care devices in the U.S., according to Washington Analysis LLC healthcare policy analyst John Leppard. The bidding is similar to a reverse auction, in which suppliers compete to offer the lowest prices, and diabetes testing strips have been among the devices most affected, Leppard said in an interview.

The Centers for Medicare & Medicaid Services, resisting pressure from industry and some congressional representatives who say that competitive bidding restricts access to medical equipment, continues to expand the program, which covers a broad swath of equipment, from canes to infusion pumps to nebulizers, Leppard said.

On Jan. 31, CMS announced that insulin pumps will be added to the 2019 round of bidding, a move that is "a clear negative for insulin pump vendors," Cowen equity analyst Doug Schenkel wrote in a Feb. 1 research note. The pumps are currently reimbursed for about $4,000, he added.

Affected companies include Tandem Diabetes Care Inc., Medtronic PLC and Johnson & Johnson, according to Schenkel.

Rep. Tom Price R-Ga., the nominee to head the U.S. Department of Health and Human Services, is an outspoken critic of the competitive bidding program, Leppard said. "He thinks that it is reducing access to care for seniors, that it was implemented in the wrong way, that it was introduced in the wrong way, and that supply isn't keeping up with demand," Leppard said.

But Schenkel said that he expects insulin pumps to remain on the list of medical equipment that is subject to the program. "Exact pricing details will remain unknown until the bidding process concludes," he wrote.