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Lowering the Cost of Medical Devices

Health reform’s tax on medical devices has survived — at least for the time being — an intense lobbying campaign to repeal it.  But as Topher Spiro writes in yesterday’s New York Times, the high prices of some medical devices raise a number of other important policy issues.

The Times reported a couple of months ago about a Colorado man whose insurance company wouldn’t cover his hip replacement because it was considered a pre-existing condition.  The artificial hip itself costs about $350 to produce, we learned, but American hospitals typically pay $8,000.  With such huge mark-ups, the largest device manufacturers are highly profitable.

Spiro, vice president for health policy at the Center for American Progress, writes that “The industry’s enormous profits are a result of anticompetitive practices that themselves drive up medical-device costs unnecessarily.”  He continues:

The medical-device industry faces virtually no price competition.  Because of confidentiality agreements that manufacturers require hospitals to sign, the prices of the devices are cloaked in secrecy.  This lack of transparency impedes hospitals from sharing price information and thus knowing whether they are getting a good deal.

Even worse, manufacturers often maintain personal relationships (sometimes involving financial payments like consulting fees) with physicians who choose the medical devices that their hospitals purchase, creating a conflict of interest.

Spiro makes a number of recommendations for reining in medical device costs, including research that compares the effectiveness of competing devices, so that physicians and hospitals can make informed choices.  His column is well worth reading.