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Medical Devices and Hospitals

By February 7, 2012Commentary

Drug manufacturers have taken some heat over the years, probably well-deserved, for making expensive products with high profit margins that they pushed on as many patients as possible with huge marketing and sales programs.  As generic drugs have proliferated, pharmaceuticals have in general become less of a factor in health inflation and increases in spending, although specialty drugs threaten that trend.  Medical devices have begun to get attention as another category of spending with high prices and large margins.  A Government Accountability Office report looks at what hospitals pay for implantable medical devices–often the most expensive part of the category–and factors driving those prices.   (GAO Report)

The largest areas of specialization for these implantable medical devices are cardiac and orthopedics, accounting for almost all of the $19.8 billion spent on implantable procedures in 2009 by Medicare.  GAO’s survey was hindered by extensive use of confidentiality agreements which inhibit hospitals from disclosing device costs, but it did find that across the hospitals it surveyed, for a particular implantable cardioverter defibrillator, the price difference between highest and lowest price paid was $6,844 and for another model it was $8,723.  This on devices whose median price was $16,445 to $19,007.  Looks like potentially at least hundreds of millions of dollars might be saved if everyone paid the lowest price.

As is well known in the industry, physicians can exert enormous pressure on hospitals to purchase certain models of devices, regardless of the cost and this can also inhibit the ability to buy in volume at lower prices.  And of course, those physicians get all kinds of goodies and payments from the device manufacturers, which is now coming to light and which undoubtedly, and hopefully soon, will be restricted.  Innovation is good, true free-market behavior is good, even in health care, or maybe especially in health care, but as usual, medical device buying by hospitals doesn’t reflect free-market dynamics.  Any regulation should be aimed at returning the market to those dynamics.

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