Like drug manufacturers, device makers have been criticized for the cost of their products and the role of those costs in increasing health spending. The industry has responded by releasing an actuarial study examining medical device spending. (AdvaMed Paper) Using Census Bureau data, the researchers say that in 2011, $159.4 billion was spent on medical devices and in vitro diagnostics, or 5.9% of national health spending. During a 23 year period from 1989 to 2011, device costs rose from 5.3% of spending to that 5.9% level, but since 1992 the share of spending accounted for by devices has basically been flat. Since 1992, device spending has increased at an average rate of 6.1% annually, almost exactly in line with the growth in overall health spending. At the same time, the unit prices for medical devices grew more slowly than medical or general CPI, meaning all the growth in spending must have been accounted for by utilization gains. While the authors suggest that this may reflect the competitive nature of the industry, it may also be due to the fact that the bulk of medical device reimbursement comes from government programs which set prices by fiat and tend to raise them very slowly. It likely also is caused by the industry setting high initial prices and seeing margins stay stable or even growth as cost of goods and other expenses come down with volume growth. The issue with device spending, as with drugs, may not be how often they are used or how appropriately, but whether the margins are justified. Based on public company financials, gross margins are often in the 70% to 80% range, meaning the products only cost about 20% to 30% of the price received. The remainder goes to selling, marketing and administrative expenses and profit margins. The size of these expenses and margins is where the focus should be and lower prices would obviously result in less spending. It should be noted that the data used is not derived from actual payer information on reimbursements, which would be the most accurate way to measure real-world spending and spending growth. The researchers failure to use this data, which is hard to extract, also calls into question their conclusion on price growth. The most that can be said for the device category of health spending is that it hasn’t been an outsized contributor to the cost problem, but it hasn’t been a non-factor.
✅ Subscribe via Email
About this Blog
Healthy Skeptic Podcast
Research
MedPAC 2019 Report to Congress
June 18, 2019
Headlines
Tags
Access
ACO
Care Management
Chronic Disease
Comparative Effectiveness
Consumer Directed Health
Consumers
Devices
Disease Management
Drugs
EHRs
Elder Care
End-of-Life Care
FDA
Financings
Genomics
Government
Health Care Costs
Health Care Quality
Health Care Reform
Health Insurance
Health Insurance Exchange
HIT
HomeCare
Hospital
Hospital Readmissions
Legislation
M&A
Malpractice
Meaningful Use
Medicaid
Medical Care
Medicare
Medicare Advantage
Mobile
Pay For Performance
Pharmaceutical
Physicians
Providers
Regulation
Repealing Reform
Telehealth
Telemedicine
Wellness and Prevention
Workplace
Related Posts
Commentary
Reciprocal Trade Barriers
February 13, 2025
Reciprocal Trade Barriers
Trump's imposition of reciprocal tariffs is briliant, exposing the hypocrisy of other countries that have…
Commentary
We Are Truly F**ked
February 12, 2025
We Are Truly F**ked
A bad inflation report, a bad deficit report, a bad ten-year US note auction; Trump…
Commentary
Private Equity Ownership and Health Care Prices
February 12, 2025
Private Equity Ownership and Health Care Prices
Financial investor ownership of health care providers results in higher prices.