No fix needed
Price transparency for medical devices a nonsolution for a nonproblem
In an environment as complex as today’s healthcare system, simple-seeming solutions are often merely simplistic. Nothing better illustrates that maxim than calls for “pricing transparency” in the medical technology market. But a closer examination of that market ought to lead instead to this conclusion: If it’s not broke, why fix it?
The fact is the current system of price negotiations between manufacturers, group purchasing organizations and individual hospitals serves hospitals and the healthcare system well—so well that there is not only less inflation in the price of medical devices than virtually anything else in the healthcare sector, but even far less than in the economy as a whole. Price transparency for medical devices is truly a nonsolution to a nonproblem.
It is actually fairly easy to answer the question raised by the recent report from the Government Accountability Office about whether hospitals are achieving the best prices possible. Just look at the data.
Medical devices are reducing medical inflation, not increasing it.
According to a study co-authored by a former Medicare chief actuary, medical device prices increased at an average annual rate of just 1% between 1989 and 2009, compared with a 4.7% annual increase in the medical consumer price index over the same period. Indeed, with very low general inflation over the past several years, medical technology prices have gone up less than half as fast as the CPI. In terms of total health spending, medical device spending accounts for about 6% of national health expenditures, a percentage that has stayed stable for approximately two decades.
It needs to be noted, as well, that implantable devices frequently reduce healthcare costs in the long run. A study has found, for example, that a total knee replacement saves an average $77,000 a patient in lifetime healthcare costs because of a reduced need for custodial care.
The healthcare marketplace doesn’t lend itself to simple solutions.
As the GAO recognized, differences in the prices paid by different hospitals are driven by multiple factors. In what is a highly competitive marketplace—for example, eight different major manufacturers develop and market replacement joint technologies—pricing can depend on the volume of devices a hospital buys from a particular manufacturer, the nature of the service agree-