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Government study reports hospitals overpay for devices

Robin Wulffson MD's picture
medical devices, hospital costs, Medicare, price discrepancies, GAO

WASHINGTON,DC - According to a report by the Government Accountability Office (GAO) released on February 3, some hospitals pay thousands of dollars more than others for costly medical devices such as hip replacements and defibrillators; furthermore, a portion of the higher costs could be passed on to the Medicare program.

Among 31 hospitals surveyed by GAO investigators, one paid $8,723 more than another for an identical model of a device that regulates heart rhythm. The cost for the device, the implantable cardioverter defibrillator, is typically between $16,445 and $19,007. The study also reported that the prices paid for coronary artery, which increased the inside diameter of diseased blood vessels, varied by as much as $828 from their typical cost of $1,700 to $1,800.

According to the GAO report, price variations often result from confidential negotiations between hospitals and device manufacturers. These price differences could impact Medicare spending because the program sets hospital payments based in part on the costs the hospitals incur. In 2009, Medicare spent $19.8 billion on procedures involving implantable devices—an increase from $16.1 billion in 2004. The study was conducted at the request of Senate Finance Committee Chairman Max Baucus; he noted in a statement that the report "raises serious concerns over the prices hospitals and Medicare are forced to pay for implantable medical devices,"

The report does not to estimate the additional costs, if any, such price discrepancies add to the Medicare bill; however, according to Mr. Baucus, the lack of clear pricing information makes it harder to cut the cost of healthcare.

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Medical device manufacturers claim that their products represent only a small portion of the $2.8 trillion in annual health spending; thus, far greater savings could be found elsewhere. A 2011 report sponsored by the Advanced Medical Technology Association, a trade group for device manufacturers, noted that spending on a wide range of devices and nondrug supplies, a category that ranges from pacemakers to hospital beds, ranged between 5-6% of total healthcare expenditures from 1989 to 2009.

Hospital administrators claim that cost control for implantable devices is an ongoing issue because physicians usually select which ones to use and hospital and health insurers must bear the cost. Hospitals are dependent upon physicians to refer patients to their facilities; thus, they must acquiesce to their demands to purchase a particular product regardless of price.
The GAO report recognized that problem; it noted that contracts between device manufacturers and hospitals often prohibit disclosure of prices even to physicians; thus, making it more difficult to encourage harder to encourage them to use less expensive products. According to the report, some hospitals bound by such contracts have resorted to using color-coded stickers to help physicians distinguish between cheaper or more expensive devices on stock shelves.

Currently, an increasing number of physicians are being directly employed by the hospitals. This situation entails the doctors becoming more involved in cost-saving measures. While doctors' preferences for devices can complicate hospital negotiations with device makers, the balance of power is shifting to hospitals. For instance, according to a survey by the American Academy of Orthopedic Surgeons, the number of hospital-employed orthopedists, who are major users of implantable devices, has doubled from 4% to 8% since 2006.

Source: Government Accountability Office

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