Something is afoot in the medical device-pricing arena that has prompted this month’s “Soapbox” by Ismael Cordero, CBET, and a study by economists Robert W. Hahn, executive director, Reg-Markets Center, senior fellow, American Enterprise Institute; and Hal J. Singer, president, Criterion Economics.
The topic in question is a bill introduced late last year—the Transparency in Medical Device Pricing Act of 2007, S.2221—by Senators Chuck Grassley and Arlen Specter. At the crux of the bill is an effort to introduce transparency into the prices that medical device suppliers charge hospitals participating in federal health care programs, with an end goal of ensuring that hospitals can provide efficient and economical care and preclude the taxpayers from being overcharged for implantable medical devices paid for through these government-funded programs.
In economics, transparency refers to a market where many people have extensive knowledge about which products and services are available and at which price. For us as humans, openness and accountability reside on the same plane as transparency.
It all comes down to communicating openly, which is a good business practice.
At a press conference on February 19 in Washington, DC, the above economists released their study (www.criterioneconomics.com/docs/Hahn~.pdf). “We found that mandatory price disclosure, as proposed in S.2221, is unlikely to benefit patients or hospitals and worse, will likely increase costs,” Hahn said.
According to the authors, in order for price disclosure to have a favorable effect, large search costs must see a considerable reduction, and the pricing information disclosed needs to be current.
Specifically, the report found that: the medical device industry is concentrated among a few firms; there are few, if any, economical substitutes for many medical devices; competitors repeatedly interact in the marketplace; some medical devices are standardized whereas other devices are differentiated; and firms do not already know their rivals’ prices.
As a result, the report concluded that: significant search costs would remain for hospitals and patients, since the data would be at least 3 months old disclosure would not provide current price information, and the structure of the health care industry would not ensure that hospitals pass cost savings on to consumers.
At various times, 24×7′s readers have written about their frustration in trying to obtain prices on medical devices they are interested in purchasing (“Soapbox,” March 2007, for example), and this may well be the first step to alleviating that obstacle.
There will always be two sides to every story—where do you stand? Do you agree with Cordero that this first step should be carried through to include all medical devices, or will this transparency bill drive prices higher? E-mail me and let me know your views, opinions, and suggestions.