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.

Read More

Further Evidence that Self Referral is a Bad Idea

Today’s Managing Health Care Costs Indicator is 86%

An enterprising radiology resident reviewed a series of 500 imaging studies (lower back MRIs) ordered by orthopedists; half had a financial interest in the scanner, and so made more money when a scan was ordered. The other half had no financial interest in the scanner, and their income was independent of MRI scan volume.

	Self Referral	No Self Referral
Average Age	50	57
% Negative Scans	42.45	22.8%

The results are exactly what you’d expect. The physicians with a financial interest in the MRI scanner ordered scans on younger patients. The scans they ordered were 86% more likely to be negative -- suggesting overutilization. 

This is a small study- done by a single researcher – and he was likely not blinded to which group the orthopedists belonged to.  Still, this is consistent with all the other evidence available. Doctors make different clinical decisions based on their financial interests. 

Physician financial interest in enterprises they refer to continues to be an ethical and financing dilemma.  I don’t believe that many physicians who own imaging consciously believe they are ordering extra tests.  However, there is plenty of evidence that they are.  Here are just a few links to past chapters of this sordid tale:

Nuclear cardiology ordered more by those who own scanners

Urologists who own IMRT radiation therapy have higher costs

Orthopedists who own a share of a surgical center do more surgery

Some potential solutions

Incidentally, you might worry for the intrepid radiology resident who did this study. Will he be shunned by colleagues for exposing their dirty laundry?

By no means.  Radiologists have been aggressive at pointing to inappropriate self-referral incentives for specialties that compete with them for some time! Harvard Link 

Read More

Overused MRIs

Today’s Managing Health Care Costs Indicator is 90%

Orthopedist James Andrews thought there was an epidemic of improbable injuries among his patients –and the common denominator was that magnetic resonance imaging (MRI) appeared to be discovering  apparent injuries that just would never matter.   So he scanned the shoulders of 31 major league baseball pitchers who were all pain-free and apparently healthy, and he found that 90% of them had abnormal cartilage, and 87% of them had an abnormal rotator cuff.  Most of us don't use our shoulders like pitchers do - so the 'false positive' rate of MRIs in mortals is probably lower.  But if major league pitchers can pitch with these apparent MRI abnormalities, I can probably do my daily activities without a surgical intervention even if I have a sore shoulder.

Gina Kolata reported this story in today’s New York Times; I’ve looked through PubMed and can’t find reference to the published article.

Other orthopedists quoted said that they virtually never saw a “normal” shoulder or knee MRI – and one patient narrowly averted knee surgery because an orthopedist felt that the diagnosis from the first MRI was too serious based on the patient’s symptoms.  So that orthopedist did a second MRI.

The US has lower utilization of almost every type of service compared to  other developed countries (fewer hospitalizations, office visits, and prescriptions per thousand).   However, high tech imaging is a place where we have both high prices and high utilization. (The only country with higher MRI and CT scan utilization than the US is Japan, where MRIs cost under $100).

We clearly need to start showing more restraint – and not ordering imaging tests where we could answer the question with a clinical exam. We also need to refrain from ordering tests where the pretest probability is so low that the posttest probability that a positive finding was true would still be low.  (See this post for an explanation of this concept)

Unnecessary MRIs are not harmless – and they can often lead to additional invasive therapy (and incremental cost).

Read More

Orthopedist vs. Anesthesia and a Pair of Articles Putting the ACA in Historical Perspective

Extranormal produces great 'homemade' videos.  Some of the pronunciation of medical terms is rough (asystole = the heart has stopped for my nonmedical readers. Temperature of 29= 84 degrees F, and normal pH is 7.4)

By the way, a nicely paired set of articles by perceptive NY Times journalists today and tomorrow.

Today, David Leonhardt reminds us that this quote

“We are against forcing all citizens, regardless of need, into a compulsory government program,” said one prominent critic of the new health care law. It is socialized medicine, he argued. If it stands, he said, “one of these days, you and I are going to spend our sunset years telling our children, and our children’s children, what it once was like in America when men were free.”


is from Ronald Reagan talking about Medicare in the 1960s.   He goes on to discuss the tension between Americans who believe in individual responsibility (the laissez fair conservatives) and those who believe in a minimum standard of living (progressives.)  Both traditions have played a role in America's success; the tension remains


Tomorrow, Matt Bai reminds us that Social Security started collecting premiums in 1935 but didn't pay out pensions until 1941 - and was under siege for decades until it became a critical part of our social fabric (and until most families were getting some benefit from the program).  He suggests that the final analysis of the Affordable Care Act can't be written for a generation. 

Read More

Self Referral: Another Installment

(Click image to enlarge)

This month’s Archives of Surgery (Harvard Link)   has an impressive article showing that orthopedists who own their own ambulatory surgery centers are substantially more likely to recommend surgery compared to physicians who don’t have an ownership interest in the surgery center.

The author, Jean Mitchell, went through state filings and insurance company records and made phone calls to ascertain physician ownership of surgery centers. She then analyzed claims data from a large private insurer (representing about 40% of the Idaho market) and determined what percentage of patients with specific presenting complaints had a surgical procedure.  She reports on the differences in behavior between owners and nonowners.

Surgery rates were 33-100% higher for shoulder rotator cuff surgery, and 27-78% higher for arthroscopic surgery. The differences among surgeons increased dramatically around 2005, as more surgery centers were opened. (The exception is carpal tunnel surgery, where the orthopedists who owned centers did far more surgery, but the difference predated the surgery centers opening).

The increase in utilization when physicians financially gain from self-referral has been well documented for years.  See this post for a review of the literature as of a few years ago.  

In 1995, Idaho had 37 hospitals and 4 specialty hospitals owned by physicians.  By 2005, there were 42 ambulatory surgery centers, 39 of which are owned entirely by referring physicians.

There is no easy answer.  Regulations have not proven to be especially effective.  Physicians opened up “limited use” or single specialty hospitals because federal legislation prohibited referral physician ownership of general use ambulatory facilities. High margins are one of the problems – if surgery was not over-reimbursed, it’s not likely that capital would be available to set up such centers. We don’t see a self-referral problem for low margin procedures.  The AMA and physician specialty societies could take a stand against this self-dealing, but this self-referral increases the income of many leading specialists. It’s hard to take income away from physicians.

Speaking of conflict-of-interest, this study was funded by the American Hospital Association.  Hospitals have been the big losers as physicians have built competing ambulatory surgery centers, which drain the higher margin procedures from the hospital.  The Archives of Surgery fully discloses this potential conflict.  Not all the physicians who own surgical facilities disclose this potential conflict to their patients.

ADDENDUM: USA Today notes that health care reform will force physician-owners to disclose their ownership interest when they refer patients to their own imaging equipment, and offer nearby options.

Read More