Pricing for Implantable Medical Devices

Today’s Managing Health Care Cost Indicator is $19.8 billion

Click image to enlarge. Source 

The Wall Street Journal reported Friday on a Government Accountability Office (GAO) report on hospital pricing of implantable medical devices.  These are mostly cardiac (stents for angioplasty, pacemakers and implantable defibrillators) and orthopedic (hip and knee replacements and spinal fusion devices)  There are some huge disparities in cost from facility to facility – even two facilities that purchase using the same group  purchasing organization.  The GAO suggests that a lack of transparency leads to higher prices. The GAO’s concern is only Medicare, but this report has large implications for commercial payers as well. 

Increase in cost per unit is a special issue in orthopedic implantable devices. This is especially concerning because every major manufacturer has had to enter into a consent decree for inappropriate marketing.  Also, the cost of spinal fusion devices doubled between 2004 and 2009, even though there is little evidence that spinal fusions help most patients who get these operations.   The incestuous relationship between orthopedists and implantable device makers continues to lead to higher costs and lower health care value.  An entire issue of Spine last year was devoted to a repudiation of research supporting use of a bone growth product.

Implantable medical devices have exceptionally high margins, and in the fee for service setting it’s in everyone’s interest to use more expensive devices, and use them more often.  More use means higher profits for the manufacturer, and every intermediary.  Group purchasing organizations make margin on the devices, and have a history of accepting inappropriate payments. Hospitals generally bill these devices at “cost plus, ” while rebates make it hard to determine the actual cost.  Orthopedists often are inventors – and they can make royalties as well as professional fees for implantation of these devices.  A high volume Louiseville orthopedist was paid $7million in royalty fees by Medtronic, as reported in the Wall Street Journal   

Bundled payment (either by procedure or by overall capitation) could make hospitals and their affiliated physicians more prudent purchasers.   Continued aggressive enforcement of anti-kickback rules will also help, as would more investment in comparative effectiveness research.