Sunday, November 16, 2008

Medical Technology Issues

The Journal “Health Affairs” on November 10th at the National Press Club brought together panelists to explore some of the challenges the medical technology market faces especially for diagnostic imaging technologies. The briefing addressed whether unnecessary scans have resulted from the physicians’ desire to make good on their investments in office-based scanning equipment, the need for the mandatory disclosure of prices, and should Congress legislate greater transparency for medical devices.

Susan Dentzer, Editor-Chief, Health Affairs, and moderator for the event, poses an idea in the current “Health Affairs” thematic issue as to whether medical technology and spending is going to be the next market bubble. She points out that we shouldn’t carry the analogy too far but maybe there are similarities between the boom brought about by subprime mortgage lending and the very different boom in medical technology.

Between 1995 and 2004, the number of CT and MRI units more than doubled. Using Medicare claims data, Stanford University’s Laurence C. Baker, PhD, Professor of Health Services Research, and colleagues from Stanford and Harvard University found that the number of MRI procedures per 1,000 Medicare beneficiaries increased from 0.3 in 1985 to 50 in 1995. By 2003, that number reached 173. CT procedures more than doubled from 1995 to 2005 from 235 per 1,000 beneficiaries to 547.

Dr. Baker thinks that we need to look at how many of these scans were value added and the medical community needs to really look at technology in terms of costs and benefits. He pointed out that quicker and more precise diagnoses are clearly more beneficial if more effective treatments are used more quickly, and this in turn, leads to improved outcomes.

Dr. Baker and his colleagues in their article in the current “Health Affairs” issue, agree that if the base of cost-effectiveness information could be expanded, this data would help assess the value for expanding imaging. This is important particularly when data is studied on the availability of imaging along with how this availability affects the way imaging is used.

The consequences of secret prices and transparency issues were discussed by several on the panel. Jeffry Lerner, President, and CEO, ECRI Institute in his “Health Affairs” article told the audience that today’s manufacturers enforce price confidentiality clauses in contracts with hospitals for purchases of physician preference items such as implantable medical devices. Also, secrecy clauses prevent hospitals from revealing prices to third parties that would help them in the negotiation process and to surgeons who specify which device brands and models hospitals purchase.

Lerner thinks that transparency even if the information is incomplete could assist hospitals to make better informed judgments about the cost and effectiveness of PPIs and would help to negotiate lower prices for them. In addition, it could also increase pressure to align the incentives of hospitals and physicians.

Lerner mentioned legislation introduced last year referred to as the “Transparency in Medical Device Pricing Act of 2007”. The Act introduced by Senators Grassley and Specter would bring transparency to medical device pricing so that there will be sufficient information available for the market forces to work.

Hal J. Singer, President and Managing Partner, Empiris LLC, refutes the idea of mandatory price disclosures and pointed out that it is important to know whether the alleged benefits are likely to succeed the costs. Singer and his colleagues are the first to provide an economic framework for analyzing the likely benefits and the costs of mandatory price disclosures.

According to the Singer, recent analyses have shown that mandatory price disclosures in other segments of the medical industry can adversely affect consumers and in some cases mandatory disclosure rules have generated unexpected consequences in several other industries.

Price disclosure also depends on the structure of the medical device industry and it is not likely that mandatory price disclosure would be beneficial to consumers. For one thing the costs are likely to be large, substitution of related products is severely limited in the medical device industry, GPO contracts tend to be rebid every three to five years, and many types of implantable medical devices are specialized. Also, firms do not already know each other’s prices as GPO transaction prices are not publicized and therefore, contract pricing is a closely guarded secret.

Singer in considering the 2007 Transparency legislation is concerned that the external flow of price information contemplated in the proposed legislation would make price information available to rival medical device manufacturers.

Panelist David Nexon, Senior Executive Vice President, AdvaMed, pointed out that confidential contracts are not unique to the medical device industry. His association advocates for greater transparency so that consumers can know value and costs. He also pointed out that it has been shown that medical technology is not driving hospital costs.

For more information, go to or call Chris Fleming 301-347-3944 or Caroline Broder at 301-652-1558.