03/08/2012 05:43 pm ET | Updated May 08, 2012

Outrage Over Payments for Medical Devices

The U.S. Government Accountability Office (GAO) and Senate Finance Committee Chairman, Max Baucus (D-Montana), recently highlighted some particularly egregious variations in how much hospitals are paying for Implantable Medical Devices (IMDs). The implications for achieving cost savings in Medicare are huge if there is follow through here.

The GAO collected data from 31 hospitals and found that some hospitals were paying as much as $8,723 more than other hospitals per medical device purchased (in this example, automated implantable cardioverter defibrillators). That a hospital would be willing to pay nearly $9,000 more for a product than another is unbelievable. Seriously: you shouldn't believe it. No hospital would willingly do this, if they knew what the going rate for these devices was.

The central issue here is transparency. Hospitals have little or no information available to them about what the going rate is for medical devices like implantable defibrillators. Certainly nobody requires hospitals to report what they are paying, and furthermore, medical device manufacturers frequently employ confidentiality clauses in their agreements with hospitals that explicitly ban them from sharing information about what is paid for medical devices. Hospital administrators may not even be legally allowed to share this information with the physicians that order medical devices for use in their hospital. That is, physicians that do want to incorporate costs into their consultations to improve patient decision-making by providing as much relevant information as possible are left with a very few options.

Increasing medical device price transparency could be used to achieve enormous cost savings in Medicare, and Baucus has suggested that Medicare should simply have hospitals report such information.

That's right, Medicare currently pays billions of dollars in reimbursements to hospitals for procedures involving these medical devices, and doesn't collect information on the type or price of any individual medical device. We simply leave hospitals to blindly negotiate prices with device manufacturers on an individual basis. It is safe to say that Medicare would have considerably more leverage than any single private purchaser of medical devices if it were to engage in its own negotiations with manufacturers, and frankly, its absurd not to do so with American citizens' money on the line.