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Govt. seeks to shed light on medical device pricing, finds black hole instead

February 3, 2012 4:47 pm by | 1 Comments

black hole, opaque, pricing

In physics, a black hole is a region in space from which nothing — not even light — can escape.

And that is exactly what the Government Accountability Office, the nonpartisan entity reporting to Congress, encountered when it tried to find out how hospitals could make better purchase decisions when it came to implantable medical devices (IMDs).

Lawmakers concerned that a lack of price transparency is a detriment to competition in the device market and can drive up prices for hospitals and ultimately lead to higher Medicare spending, asked the GAO to find out, “what available information shows about the prices hospitals pay for IMDs and any factors particular to the IMD market that influence those prices.”

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The consequent GAO report’s title — Lack of Price Transparency May Hamper Hospitals’ Ability to Be Prudent Purchasers of Implantable Medical Devices  — says it all.

The GAO queried 60 hospitals about their purchase history of IMDs and data compiled from 31 hospitals show that the price that different hospitals paid for the exact same model of implantable device swung wildly. In fact, the price differential between the lowest price and the highest price paid by hospitals for the same model of an automated implantable cardioverter defibrillator was an astounding $6,844.

For another one, the difference was even higher at $8,723. The median prices across  four ICD models ranged from $16,445 to $19,007.

Such data is all the more important given that  between 2004 through 2009, hospital expenses for IMD procedures increased from $16.1 billion to $19.8 billion, “an increase of 4.3 percent per year — a rate equal to that of Medicare spending for all other hospital procedures.”

A complicating factor for hospitals is the physician influence on such decisions, even though they are not involved in actual price negotiations, the GAO noted. Physicians have their own preference for one implantable cardiac or orthopedic device over another, and that led many hospitals to buy similar devices but from different manufactures. So some hospitals found it harder to get volume discounts, the report found.

Hospitals sign confidentiality agreements and are therefore  barred from informing physicians about the price differences between models and manufacturers. Representatives from medical device industry group AdvaMed told the GAO that confidentiality agreements are not unique to the medical device industry. However, a representative from the American Hospital Association said that “confidentiality clauses that restrict hospitals from informing physicians about IMD  prices inhibit hospitals from fully integrating care and making informed, cost-conscious decisions.”

GAO seems to agree with the hospital’s view of medical device pricing stating.

These data suggest that some hospitals have substantially less bargaining power with the small group of companies that manufacture particular IMDs and consequently face challenges in obtaining more favorable prices. The lack of price transparency and the substantial variation in amounts hospitals pay for some IMDs raise questions about whether hospitals are achieving the best prices possible.

So who bears the brunt of this price opacity? GAO has the answer – “ Any excess or unnecessary costs that hospitals incur through IMD pricing may be passed onto the Medicare program.”

In other words, it’s us the taxpayers.

Photo Credit: Flickr user NASA Goddard Photo and Video

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Arundhati Parmar

By Arundhati Parmar

Arundhati Parmar is the Medical Devices Reporter at MedCity News. She has covered medical technology since 2008 and specialized in business journalism since 2001. Parmar has three degrees from three continents - a Bachelor of Arts in English from Jadavpur University, Kolkata, India; a Masters in English Literature from the University of Sydney, Australia and a Masters in Journalism from Northwestern University in Chicago. She has sworn never to enter a classroom again.
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1 comments
Bob Wilcox
Bob Wilcox

The cost of providing devices to treat disease is part of a more comprehensive challenge. We taxpayers, or users, have no ability to perform careful price comparison on any aspect of the system - including comparative costs of physicians, hospitals, or therapies. The GAO would do taxpayers a service by researching the 60% of costs in hospitals attributed to labor. The GAO could report on the 30% of total disease treatment costs going to insurance related paperwork. The GAO could analyze and report on all costs in disease treatment systems so that entrepreneurs could identify the best opportunities to invent cost saving solutions. Your headline intends to connect profit-making with mystery, though I commend the underlying premise that we will benefit from access to information. Profit-making generally works to provide benefit, and information generally helps profit-making disruption of inefficiencies.