Medical device companies and their investors are still feeling the fallout from the bomb that Medicare dropped on them on Wednesday, when the U.S. health insurance program proposed slashing reimbursements to hospitals that use some of the cardiac industry’s most lucrative heart devices.

Stocks of some of the industry’s major players have since fallen up to 3 percent as investors fret the hospitals will come to these companies pleading for price reductions. And analysts aren’t sure what long-term impact the proposal will have on companies.

What triggered the concern was the proposal to cut reimbursements of implantable heart defibrillators by 22 percent and those for drug-eluting stents by 28 percent. The cuts come as the U.S. government seeks to rein in ballooning health care costs.

Heart defibrillators, which are electrical stop-watch size devices that correct abnormal heart rhythms, constitute a $4-billion market, according to Frost & Sullivan. And drug-eluting stents, which are little metal tubes used to prop open clogged heart arteries after they have been cleared, represent a $5.5-billion market, according to Hoovers.

Although Wall Street analysts had expected changes in Medicare to cut costs, the reality was more than many had bargained for.

“The magnitude of the changes took us by surprise,” said Bernstein Research analyst Bruce Nudell in a research note. A Citigroup analyst even went so far as to call the proposed cuts to defibrillators and the medicated stents more negative than Wall Street’s worst fears.

After the news, defibrillator maker Medtronic’s stock fell 2.2 percent, while shares of rival Guidant, which is finalizing its buyout by Boston Scientific, dropped nearly 1 percent. Shares of Boston Scientific, which makes most of its revenue from drug-eluting stents, lost nearly 3 percent.

Even though Wall Street took out its frustration on the companies’ stocks, investors may want to pop their chill pills as it’s just a “proposal.” The blueprint will most likely look different after Medicare gathers public commentary during a 60-day time period it just opened. No doubt, industry lobbyists will come out in force to push for smaller cuts.

Already the call to rally has been sounded. Industry trade organization Advance Medical Technology Association rushed out a notice to the press voicing its displeasure. The association warned that Medicare’s proposed changes could have a disproportionately negative effect on patients receiving advanced medical treatments.

Cooler Heads

Among the cooler heads was Goldman Sachs analyst Lawrence Keusch.

“Considering this is only a proposed rule and there are significant moving parts prior to the final rule being issued in August, the direct impact on manufactures is not as discernable as the Street may be led to think,” he said in a research note.

Mr. Keusch believes there is a long road ahead before Medicare starts implementing changes. And before that happens, of course, there will likely be compromises.

Medicare’s proposed change may not be as bad for the industry as it looks. The proposal is an attempt to equalize the profit margins across all types of hospital procedures, said Deutsche Bank analyst Tao Levy. As it stands, implanting a defibrillator is now considered more profitable than certain other medical procedures, the analyst said.

“[The new reimbursement rates] will have the impact of making all procedures roughly equal from a profitability standpoint,” Mr. Levy wrote in a research note.

Mr. Levy noted that hospitals will argue that the rates will make defibrillator procedures unprofitable. But he maintains it will help discourage them from “cherry-picking” patients whose procedures would generate higher profits.

So if Medicare’s data is correct, Mr. Levy says hospitals will still be able to be profitable, albeit not as profitable, with the new rates for defibrillator and stent procedures.