Proposed changes to Medicare's hospital reimbursement levels for the upcoming U.S. fiscal year appear generally benign for medical-device companies in the near-term, although the longer-term threat of pressure on product prices hasn't gone away.

Expensive medical products like replacement hips and implantable defibrillators are sold to hospitals, and the prices hospitals pay can be influenced by Medicare coverage for procedures involving devices. That makes the annual proposal on reimbursement rates very important for big device companies such as Medtronic Inc. (MDT), Boston Scientific Corp. (BSX) and Stryker Corp. (SYK).

The proposal for fiscal 2010 released late Friday appears to leave rates linked to key heart and orthopedic devices little changed for the most part, according to analyst estimates that show some rates slipping slightly and others modestly increasing. That could calm investor worries about the sector getting scraped in the near term amid health-care reform efforts.

"On balance, the proposal seems neutral to slightly positive for the big cardio and ortho players," Leerink Swann analyst Rick Wise said in a note to investors.

Language in the release from the Centers for Medicare & Medicaid Services, or CMS, indicates more pressure on U.S. hospitals in upcoming years, however. That could trickle down to negotiations over product pricing.

"We see some future pressure on device pricing as likely," Morgan Stanley analyst David Lewis said.

The response from investors was favorable Monday amid an upswing in the broader market. Medtronic, which makes a host of heart and orthopedic devices, recently traded up 2.5% to $32.95. Replacement joint-maker Stryker was up 3.8% to $39.70, while heart-device company Boston Scientific moved up 3.3% to $8.59.

Among other companies, orthopedics heavyweight Zimmer Holdings Inc. (ZMH) traded up 1.8% to $43.89 and Abbott Laboratories (ABT), which makes many drugs and medical products including heart stents, was up 4.2% to $43.25.

The Medicare reimbursement rates are influential because many patients who get replacement joints and heart devices are over 65 and covered by the government-run health plan. Medicare moves can also set the tone for private insurers.

The proposal issued Friday is for the government's fiscal year that starts Oct. 1. It is open to comments until June 1 and will be solidified into a final rule this summer.

Overall, CMS proposes to keep Medicare's hospital payments just about flat in fiscal 2010, which follows modest payment increases in recent years. This could be challenging for U.S. hospitals that are already experiencing significant financial strain due to a recession that has slowed elective surgery rates, fed more uninsured patients through emergency-room doors and cut off access to capital.

In this case, a modest 2.1% upward adjustment for inflation will be nearly offset by a payment cut CMS said is necessary because hospitals have been using a newer system that ties payments to the severity of patients' conditions to get more money.

In fact, CMS estimated this issue requires an 8.5% adjustment to offset increases caused by this in recent years. It is only hitting hospitals with a 1.9% adjustment this year, but said that means an adjustment of about 6.6% is needed in fiscal 2011 and 2012.

That could make life tougher for device companies.

"With the prospects for a modest cut this year and potential for much of the same in the years to come, we believe hospitals will have to intensify their efforts to control costs," Credit Suisse analyst Kristen Stewart said in an investor note.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com