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Varian Medical Systems Used Fiscal Cliff Deal To Hurt Competitor

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VARIAN MEDICAL SYSTEMS FISCAL CLIFF
Sen. Harry Reid asked for a provision in the fiscal cliff deal benefiting campaign contributor Varian Medical Systems Inc. (Photo by Mark Wilson/Getty Images) | Getty Images

WASHINGTON -- The era of crisis budgeting in Washington has opened new opportunities for corporations and special interests.

The latest example of a last-minute favor came in the "fiscal cliff" bill signed into law on Jan. 3 to avert across-the-board tax increases and to delay spending cuts known as the sequester. The bill, crafted on deadline, was stuffed with special provisions helping specific companies and industries. Many of these provisions were included to help offset the sequester delay and to extend the "doc fix," a delay of physicians' Medicare payment cuts that Congress has been extending on an ad hoc basis since 2002.

One that stands out is a reduction in the Medicare reimbursement rate for a radiosurgery device manufactured by the Swedish company Elekta AB. The cut is noteworthy because it was advocated by Palo Alto, Calif.-based Varian Medical Systems Inc., Elekta's main competitor. The rate cut, according to the first report by The Wall Street Journal, was included in the fiscal cliff deal at the behest of Senate Majority Leader Harry Reid (D-Nev.) and written into the bill by the Senate Finance Committee chairman, Sen. Max Baucus (D-Mont.).

Reid's office said the Varian provision came from a list of potential cuts to government programs to offset budget crises that has been circulating since at least 2011. Every leadership office in both chambers of Congress and both parties had signed off on this list, according to Reid spokesman Adam Jentleson.

The provision was only included because Senate Republicans would not strike a deal without offsetting the sequester delay with spending cuts. While Reid was originally opposed to any offsetting reductions, Jentleson said, he ended up supporting this particular Medicare cut because Varian has a presence in Nevada and "it restores equity in a payment system" while, according to the Congressional Budget Office, saving $300 million.

The Varian provision has all the hallmarks of the special deals that lawmakers have been criticized for including at the request of connected lobbyists and campaign donors -- an option not open to those interests who can't afford to have their voices heard in Congress. Lawmakers have already been condemned for the fiscal cliff deal's extras after The New York Times reported on another special provision that favors the biotechnology drugmaker Amgen Inc. and may cost taxpayers about $500 million over two years.

But the Varian provision also opens a window into a much less-discussed phenomenon, namely that sometimes special interests looking to curry favor with backroom deals wind up -- even if by accident -- saving the taxpayer money. The measure chopped the reimbursement for treatment with Elekta's Gamma Knife in half, from $7,000 to $3,500. This reduced Gamma Knife reimbursement to the level set for the linear accelerator machines, or linacs, made by Varian, Elekta and other companies, which is why the CBO projected it would save hundreds of millions of dollars.

Of course, any time spending is cut, those on the receiving end argue they're being shortchanged. Indeed, the reimbursement reduction may affect patients with brain tumors and other maladies best treated with the Gamma Knife, according to neurosurgeons and radiation oncologists. Some Gamma Knife treatments cannot be done with linacs, the experts said. The new rate may hit the bottom lines of Elekta, hospitals, cancer treatment centers and private health plans that base reimbursement rates on Medicare rates.

"I know there is a cost issue and we need to look at where the waste is, but I can assure you the waste is not coming from the Gamma Knife," said Dr. Dheerendra Pradad, a neurosurgeon and radiation oncologist who uses both the Gamma Knife and Varian's linac at the Roswell Park Cancer Institute in Buffalo, N.Y. "To target that is a very self-serving, short-sighted approach. What it really does is it raises a real concern about how our nation needs to look at what special interest groups are capable of."

Both Gamma Knife and linear accelerators direct beams of radiation into sensitive brain tissue without invasive surgery, often at lower cost and with fewer complications. Gamma Knife uses cobalt-60 for its beam of gamma radiation. Linacs use high-voltage X-rays.

Varian had lobbied for the Gamma Knife reimbursement change since the Centers for Medicare and Medicaid Services (CMS) increased the Gamma Knife reimbursement to $7,000 in a 2006 ruling. Varian saw that boost as a special deal crafted behind closed doors to benefit Elekta and wanted an equal rate for its linac.

"This rights a six-year policy wrong," said Patrick Dorton, a spokesman for Varian. "The legislation equalized the reimbursement rates for machines that essentially have the same clinical outcome. It is absolutely what Congress should be doing. It is absolutely the right policy approach."

To win the drop in the reimbursement rate for its competitor's product, Varian boosted its 2012 lobbying firepower to 31 lobbyists, most of whom had previous government experience, and spent $570,000, the most in its history. Varian added Capitol Counsel, a firm with two lobbyists -- Shannon Finley and David Jones -- with ties to Senate Finance Chairman Baucus. Varian already had connections to Reid through Cornerstone Government Affairs lobbyist Paul Denino, a former Reid deputy chief of staff.

Varian is not a big campaign donor, but the leading recipient of contributions by top Varian executives and the company's political action committee over the past four years was Reid, whose various campaign committees received $21,200. Varian's lobbyists chipped in an additional $42,700 to Reid's political efforts over the same period. A substantial portion of the company's operations are in Nevada, represented by Reid, and Utah, represented by the top Republican on the Finance Committee, Sen. Orrin Hatch. Elekta, as a non-U.S. company, can't participate in U.S. elections.

Varian pushed for its rival's reimbursement cut on the grounds that the 2006 rule increasing the Gamma Knife reimbursement was unfair and had been done in secret.

Arlen Specter, then a longtime senator from Pennsylvania, received Gamma Knife treatment in 1996 to remove a brain tumor and helped push CMS to change the reimbursement for the treatment, said Rebecca Emerick, of the International RadioSurgery Association, an independent organization providing education and referrals to patients needing radiosurgery. Emerick, who was involved in discussions with CMS about changing the rates in 2006 and earlier, said Specter wasn't seeking a special provision.

In 1996, the Gamma Knife and linac machines were lumped together under the same CMS code, Emerick said. She said staffers from her office and from Specter's asked CMS to separate the devices within that code to collect data that might show whether certain treatments should receive different reimbursement rates. CMS finally agreed to this in 2001 and began collecting data on each individual device for the first time. By 2004, the offices of Specter and Emerick asked CMS to refine reimbursement rates after considering the data comparing the treatments.

Specter, who switched from Republican to Democrat in 2009 and lost reelection in 2010, died in 2012.

"This is the first time that [CMS] had three years of data that they can look at," Emerick said. "And they did look at it, and that's how they upped the Gamma Knife code and separated it from the linac code."

Reimbursement for the Gamma Knife was increased because it usually requires only one treatment, while the linacs often require multiple treatments, according to Emerick, neurosurgeons and CMS data. Also, Gamma Knife machines are more expensive to obtain and maintain due to the storage of radioactive cobalt and regulation by both the Nuclear Regulatory Commission and the Department of Homeland Security. Linacs don't use nuclear material and are regulated by the Food and Drug Administration.

Emerick said Varian's effort to hurt its competitor seems wrong. "If you're going to hire these really good lobbyists, which they did, and station them in Washington, then why wouldn't you ask to get your [reimbursement rate] taken to a higher level?" she asked. "You wouldn't go out to be punitive to another one and, especially in this case, because if they did it stinks of anti-competitiveness, of antitrust."

Dr. Michael L. Steinberg, chairman of the American Society of Radiation Treatment Oncology, said his group is "very concerned by the arbitrary payment cuts proposed for multi-source cobalt-60 radiosurgery, which relies on highly-skilled professionals and resource-intensive materials and equipment to deliver a critical cancer treatment."

Some doctors said the reimbursement change may lead to fewer patients receiving treatments with the Gamma Knife.

"At the end of the day, the suffering person is the patient," said Pradad, the neurosurgeon from Buffalo. "What worries me is that there are a number of pockets in this country where this technology does not exist and which would be considering getting it, but in the face of such adversity, sometimes, it could be all that it takes to kill the idea."

One Gamma Knife center in Spokane, Wash., is already considering the fiscal implications of the reimbursement change and may close.

"Patients will have sub-par treatment because someone snuck this on the backside of this bill," Bo Cook, managing partner at Gamma Knife of Spokane, told the local KREM news station.

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Backroom deals are bad medicine and no way to set payment policy