Variation in medical-device prices not responsible for charge disparities, AdvaMed report finds

A leading medical device trade group has issued a report concluding that variation in device pricing is not responsible for the wide disparities in hospitals' retail charges for cardiac and spinal procedures.

The report comes even as some device manufacturers are recognizing they need to bring down prices and are taking steps to reduce costs to hospitals in response to aggressive new purchasing initiatives by hospitals.

The Advanced Medical Technology Association hired a consultant to analyze Medicare charge data this year after a much-discussed article in Time magazine, “Bitter Pill,” raised questions about how much hospital markups on devices account for much higher medical prices and spending in the U.S. compared with other advanced countries.

AdvaMed hired consultant Christopher Hogan, president of the firm Direct Research, to examine whether the variation in the purchase price for medical devices among hospitals was likely to be a significant contributor to the overall variation in hospital charges. Hogan looked at the charges for “device intensive” Medicare DRGs compared with charges for “non-device-intensive” DRGs.

Direct Research examined the variation among hospitals in Medicare charges in 2012 for device-intensive MS-DRGs such as those involving hip and knee replacements, implantation of stents, implantation of pacemakers, and implantation of ICDs and compared the average variation in these admissions to the variation in other admissions.

His report found that the variation among hospitals in charges for device-intensive DRGs was substantially less than the variation for nondevice-intensive DRGs. The average difference between highest and lowest quartiles of hospital charges for the device-intensive admissions was 59 percentage points, while it was 72 percentage points for other admissions.

AdvaMed said the study showed that medical devices are not the cause of wide variations among hospitals in the amounts they charge for similar admissions. “This new study affirms that medical devices are not driving variations in hospital charges,” said Stephen Ubl, president and CEO of AdvaMed.

Despite the study's conclusion, anecdotal evidence shows that devicemakers are beginning to respond to hospital executives' concerns about the high cost of some devices.

For example, the large device company Wright Medical Technology in 2010 formed a subsidiary called Wright Direct that can lower the prices on hip and knee implants by 50% to 70% by working with hospital purchasing executives, and offering a sales model that does not include expensive sales representatives who often directly oversee surgeries in hospitals.

In January 2012, the Government Accountability Office documented wide variations in what hospitals pay for advanced devices used for Medicare patients. One model of implantable defibrillator varied in price by $8,700, depending on the hospital using it.

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