Feeling the Pressure

Ever feel as if you have a target on your back? Medical device companies—orthopedic firms in particular—recently have been coming under increased government scrutiny, from Department of Justice and Securities and Exchange Commission inquiries about physician relationships with orthopedic implant makers (see News Front on Page 12) to calls for more transparent pricing.

The Transparency in Medical Device Pricing Act of 2007 (S. 2221), introduced in the US Senate by Sens. Charles Grassley (R-IA) and Arlen Specter (R-PA) late last year, would require government reporting of product pricing by manufacturers of implantable medical devices such as joint and spinal disk replacements. To be reimbursed by Medicare, device companies would have to file quarterly reports on median sales prices. Reporting would be required by April 2009, and manufacturers that fail to report or that submit false information would be subject to penalties of between $10,000 and $100,000 per violation. In the case of false information, the fine would include each day for which the information was available.

In response, recent industry-backed reports on device pricing (both sponsored by AdvaMed) seemed to indicate that such legislation would be an unnecessary burden on device makers. One study—titled “Is Greater Price Transparency Needed in the Device Industry?”—was commissioned to gauge the possible effects of S. 2221 and found that mandatory disclosure of prices for certain medical technologies likely would result in increased prices and “provide no tangible benefits to patients.”

Researchers reviewed previous attempts by government to impose price disclosure rules in a number of other industries, using evidence from case studies and other sources to identify four conditions that, if satisfied, imply mandatory price disclosure would provide large benefits to consumers and other purchasers. “We found that mandatory price disclosure, as proposed in S.2221, is unlikely to benefit patients or hospitals and worse, will likely increase costs,” said Robert W. Hahn, study co-author and executive director of the American Enterprise Institute’s Center for Regulatory and Market Studies in Washington, DC.

Yet another report took on the issue by examining the slow rate of growth in overall prices in the medical technology sector. The study’s authors found that medical technology is “a relatively small and constant share of total national health expenditures (NHE).” In 2004, the latest year studied, spending on medical devices and in vitro diagnostics totaled $112 billion, or 6% of total NHE, and has stayed relatively constant at that modest proportion for the last 15 years. During that same period, overall medical device prices grew far more slowly than either the Consumer Price Index (CPI) for medical services or the CPI overall. The report also found that during the 15-year period studied, medical device prices have increased at an average annual rate of only 1.2%, compared to 5% for the medical CPI and 2.8% for the CPI overall. “This relatively slow rate of price increase suggests that the industry is highly competitive,” study authors said.

For now, the debate will continue (providing excellent fodder for discussion in a presidential election year), with one side claiming healthcare technology is a major driver of health cost increases, while the other maintains that the return on spending far exceeds short-term costs. Here’s to keeping the target off your back.  

Christopher Delporte
Group Editor