Sen. Angus King of Maine proposed banning the common industry practice of preventing hospitals from revealing the price of their implants during a critical speech on the Senate floor.
"This is a simple amendment. It is simply based upon the fundamental idea that markets work, but they only work when consumers--in this case, hospitals--have the information necessary to make good purchasing decisions," he said. The amendment to the tax extenders package would also require companies to report median prices to the Department of Health and Human Services on a regular basis.
The independent senator asked his colleagues to imagine trying to buy a car without prior price information. "We couldn't compare the prices of the cars from one dealer to the other. But we go in and somebody behind a closed door says, OK, the price is $20,200, and we are not allowed to tell anybody the price we are paying for this car, and we have to sign an agreement that we are keeping that price secret. Imagine that system, and imagine for a moment what would happen to the price of cars. I don't think it is gross speculation to assume that the price would go up, because there is no transparency," King said.
He is not the first to point out the lack of price transparency. King cited a 2012 Government Accountability Office report which found the price paid for the same model of an implantable cardioverter defibrillator by different hospitals varied by as much as $8,723.
"A factor particular to the [implantable medical device] market that affects prices hospitals pay is the influence of physicians on hospitals' IMD purchasing," says the study summary, because "they often express strong preferences for certain manufacturers and models of IMDs. To the extent that physicians in the same hospital have different preferences for IMDs, it may be difficult for the hospital to obtain volume discounts from particular manufacturers."
There are signs that the phenomenon is changing due to market forces and limited government action. Orthopedics companies like Johnson & Johnson ($JNJ) increasingly say that hospitals are buying fewer models of the same type of implant to trim costs. And a congressional panel recently called on the Department of Veterans Affairs to procure more implants via bulk purchasing contracts.
Under consideration in the tax extenders package is a repeal of the medical device tax. King came down in favor of the tax, saying that the Affordable Care Act has expanded the market for medical devices.
Industry trade association AdvMed responded to King's remarks.
"AdvaMed supports efforts to build a more efficient health care system and to address cost issues in a way that recognizes the importance of patient access to medical technology. However, mandatory price disclosure for medical devices would interfere with a highly competitive market in which negotiations between informed buyers and sellers results in stable or declining prices," said JC Scott, senior executive vice president of government affairs in an email to FierceMedical Devices.
He continued, "The Congressional Budget Office has concluded that increasing transparency could lead to higher, rather than lower, prices by reducing the incentive to offer discounts if negotiations are made public, especially if it means that those discounts would have to be available for everyone."
- watch his speech or read the transcript