Secrecy on medical-device prices hurts buyers, GAO says

  • Article by: JAMES WALSH , Star Tribune
  • Updated: February 11, 2012 - 2:40 PM

A government survey found wide variance in what hospitals pay for implantable devices.

Hospitals are paying widely varying prices for the same implantable medical devices, according to a new study that suggests that secretive sales agreements prevent many buyers from getting the best deals.

The report from the U.S. General Accounting Office -- which turned up a difference of more than $8,000 for one cardiac device alone -- found that confidentiality clauses in sales contracts keep even the physicians who decide which devices to use in the dark about prices.

The study, which was requested by U.S. Sen. Max Baucus, a Montana Democrat who chairs the Senate Finance Committee, could add fuel to a push to lift the price veil.

"The real problem is that, on the local level, there are these gag clauses that prohibit the sharing of pricing information," said Curtis Rooney, president of the Healthcare Supply Chain Association (HSCA). "I do think [the GAO report] lays the groundwork for more questions to be asked."

Don May, vice president of policy for the American Hospital Association, said the study "highlighted some of the real concerns about devices."

Device pricing is an issue of critical importance locally. Minnesota is a primary medical technology hub, home to industry giants Medtronic and St. Jude Medical and hundreds of other smaller companies employing thousands of people.

Officials with top local device companies declined to comment on the GAO's findings, referring calls to the Advanced Medical Technology Association (AdvaMed), a medical device trade association.

David Nexon, a senior executive vice president for AdvaMed, said the industry is extremely competitive and that pricing involves many factors. Overall, however, he said that medical technology prices "have risen far more slowly than price increases for other medical goods and services and substantially less than even general price increases in the economy as a whole."

Nexon did not specifically address confidentiality clauses. But he said prices reflect "the number of competitors in the marketplace, a particular hospital's volume of business in a particular procedure and the volume of other products sold to that hospital by a manufacturer."

As the GAO report noted, hospitals typically negotiate device prices with manufacturers directly or through group purchasing organizations (GPOs). But device manufacturers often require hospitals to sign confidentiality clauses that forbid them from revealing to third parties the price they paid. Those third parties often include physicians, whose device preferences influence hospital purchasing decisions.

"It really is this relationship between the manufacturer and the physician," Rooney said. "The physician orders the product but can't know what the price is. The hospital becomes the third-party payer."

The GAO sought information for its study from more than five dozen medical centers and others involved in the health care system. It received detailed information on cardiac device prices from 31 hospitals, one GPO and one Department of Defense medical center. Only 14 hospitals and two Department of Defense facilities gave detailed information on orthopedic devices.

Those responses showed huge price differences. For example, the difference between what the lowest- and highest-price hospitals paid for a particular model of automated implantable cardioverter defibrillator (AICD) was $6,844. For another, the price difference was $8,723. Median prices for four AICD models ranged from $16,445 to $19,007.

The cost to the government alone could be substantial. Considering that Medicare spent nearly $20 billion on implantable medical device hospital procedures in 2009, a rate equal to what Medicare spent for all other hospital procedures, "excess or unnecessary IMD costs that hospitals incur may be passed on to the Medicare program," the GAO report said.

'Armed for battle'

There are hospitals that go in with their eyes open.

Minneapolis-based Allina Health won't accept gag clauses in its contracts, according to Cheryl Harelstad, vice president for supply chain management. Years ago, she said, such clauses weren't really questioned.

"A lot of health care providers are working hard, saying, 'Wait a minute. This doesn't put us in a very good position,'" she said.

Allina belongs to a GPO, Novation, that strikes agreements with suppliers and establishes multiple price tiers for devices, Harelstad said. GPO members pay a fee for that information and sharing it is critical, she said. Allina, which has some buying clout because of its size, will then go to manufacturers to adjust prices further.

"We go in armed for battle," Harelstad said of the importance of pricing information.

"To be fair," she said, "our suppliers work well with us on this."

Rooney said confidentially clauses in device contracts are not new. "This has been going on quite a while -- at least a decade," he said. Legislation requiring more price transparency was introduced in Congress in 2007, but was not enacted.

Now, as more Americans age and health care costs become an even bigger issue, Rooney said the issue of device costs is heating up again.

"This begins the conversation that needs to occur in Congress," he said. "In the era of cost containment, people should know they are getting the value they deserve in terms of health care costs. People are getting older and grayer, and more of these devices will be implanted."

James Walsh • 612-673-7428

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