GAO: Implantable industry may be taking providers, payors for a ride on pricing
The Government Accountability Office (GAO) has found that sellers of implantable medical devices are negotiating widely varying prices from different hospitals for the same devices and keeping their pricing strategies a secret. The lack of transparency may have major ramifications for Medicare, as hospitals with less purchasing power pass their costs along.

The details of the problem are fleshed out in a new GAO report, “Lack of Price Transparency May Hamper Hospitals’ Ability to Be Prudent Purchasers of Implantable Medical Devices.”

Among the GAO’s findings:

  • The lowest and highest price hospitals reported paying for a particular automated implantable cardioverter defibrillator (AICD) model was $6,844. The difference between the highest and lowest price reported for another AICD model was $8,723. The price differences for the remaining two AICD models in the study fell in between $6,844 and $8,723. The median prices across the four AICD models ranged from $16,445 to $19,007.
  • A factor particular to the implantable medical device (IMD) market that affects prices hospitals pay is the influence of physicians on hospitals’ IMD purchasing. Although physicians are not involved in price negotiations, they often express strong preferences for certain manufacturers and models of IMDs. To the extent that physicians in the same hospital have different preferences for IMDs, it may be difficult for the hospital to obtain volume discounts from particular manufacturers.
  • Confidentiality clauses barring hospitals from sharing price information make it difficult to inform physicians about device costs and thereby influence their preferences.
  • Other factors that influence IMD prices include the degree of seller competition and a hospital’s market share.

“The lack of price transparency for the [implantable medical devices] we examined makes it difficult to know whether hospitals are achieving the best device prices,” the GAO report concluded. “This lack of price transparency may have implications for Medicare because excess or unnecessary IMD costs that hospitals incur may be passed on to the Medicare program.”

Reactions were swift from both sides of the buyer-seller aisle.

“The $200 billion medical device industry is able to leverage its army of salespeople to drive unnecessary utilization and further enforce contractual ‘gag clauses’ to keep prices a secret, which gives device-makers a virtually unchecked ability to drive up costs for hospitals and Medicare,” said Curtis Rooney, president of the Healthcare Supply Chain Association, in a statement. “Because hospitals are unable to discuss price with the physicians who typically choose which products to use, hospitals have become third party payors…At a time when all parties to the healthcare system are trying to rein in spending, Congress should take steps now to eliminate contractual gag clauses and increase price transparency in the medical device marketplace.”

Meanwhile, David Nexon, senior executive vice president of the Advanced Medical Technology Association (AdvaMed), said in a statement carried by The Hill that the GAO only looked at a small set of devices and that its conclusions aren't generalizable, making it “inappropriate to draw any public policy conclusions from this report…A full understanding of medical technology pricing ought to take into account the remarkably competitive nature of the industry. For example, a study done by the former chief actuary for Medicare shows that over the past 20 years, medical device 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. More broadly, the highly competitive nature of the device and diagnostic industry ensures that medical technology provides very good value for the health care system.”

The GAO report stated that the Department of Health and Human Services, Veterans Administration and Department of Defense had reviewed a draft of the report and had no general comments.