Hospitals and group purchasing organizations want price transparency to get more leverage negotiating for costly medical devices. The companies that make the devices say the prices are better kept under wraps, even though a federal report blames the secrecy, in part, for significant variations in what hospitals pay.
Hospitals, devicemakers clash over price disclosure
Hospitals typically sign confidentiality agreements with device manufacturers that prevent them from sharing price information with third parties, including physicians.
The Government Accountability Office found that at least one hospital paid $9,200 more for a cardiac resynchronization therapy defibrillator than another hospital paid for the same model. In another example, there was a difference of $828 between the highest and lowest price paid for the same drug-eluting stent. The overall lack of price transparency “makes it difficult to know whether hospitals are achieving the best device prices,” the GAO concluded in the report released Feb. 3.
The prices that hospitals pay are determined by a complex set of factors, including how many products a hospital may buy from a single supplier; the total volume that a hospital buys; what share of the products a hospital will commit to in advance; whether a hospital has standardized the products and suppliers it contracts with; and the relationship a hospital and its physicians have with a manufacturer.
“We think the current system works very well and we don't think that price disclosure is a good recipe for the public, for Medicare, or for our industry,” said David Nexon, the Advanced Medical Technology Association's senior executive vice president.
Groups that represent hospitals and group-purchasing organizations have said that price transparency would provide hospitals with the information they need to negotiate better prices and, in the long term, lower costs. AdvaMed disagrees.
“If prices were in fact published and available, you could have the prices overall increase,” Nexon said. “People are less willing to give discounts under those circumstances because if you give a discount to one hospital, it's going to be harder to resist somebody giving it to someone else. You maybe end up not giving the first discount.”
Hospitals, which never know if they received a “good price” for a particular device, want confidentiality agreements removed from their contracts with manufacturers, said Don May, vice president for policy at the American Hospital Association. “The lack of transparency around devices has likely led to some increased costs,” he said. “Transparency is a good thing. High-volume purchasers are going to get discounts in a transparent world just as they do today.”
In addition to the influence wielded by a hospital's purchasing volume and negotiating power, the GAO concluded that physician preference is a “particular factor” in the price a hospital pays for a device even though confidentiality contracts limit the price information that a hospital's negotiating team can share with its physicians. One GPO reported that some hospitals used color-coded stickers to educate physicians about high-, medium- and low-cost options to avoid sharing price information.
“A hospital that is constrained in sharing price data with its physicians loses an opportunity to enlist their assistance in the hospital's efforts to be a prudent purchaser” of implantable medical devices, the GAO said.
Dr. Kevin Bozic, vice chair of the department of orthopedic surgery at the University of California at San Francisco, and an orthopedic surgeon with UCSF Medical Center, agreed with the GAO's assessment. He said his research indicates that the alignment between physicians and hospitals and between physicians and manufacturers—such as gainsharing, service line co-management and bundled payments—are successful in lowering device prices for hospitals.
Medical devices make up between 40% to 60% of a hospital's supply costs, according to data gathered by healthcare consulting firm Beacon Partners and the Premier healthcare alliance. The category has become a target for hospital administrators looking to reduce costs. Beacon Partners' Marla Simmet said standardization can reduce the costs of implants by at least 5% and up to 20%.
With price transparency, though, Bozic said prices would be based on a device's functionality and attributes rather than other factors such as stellar negotiating skills or procedure volume. “In a more efficient market, there's more competition, which drives down prices over time.”
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