November 11th, 2008
Economist Uwe Reinhardt once likened the payment system for U.S. health care to a fictional employer-sponsored “clothes benefit program.” Companies would reimburse workers for 80 percent of the “reasonable cost” of attire that was “necessary and appropriate” for the job. The catch: although employees could choose whatever they wanted from the racks of any department store, they’d have to wear a blindfold while selecting their attire. That way they’d have no idea what they were picking, no notion of whether the clothes were “necessary and appropriate,” and not a clue as to what prices they and their employers would pay.
Reinhardt’s analogy is useful in understanding much else in U.S. health care that is characterized by an absence of quality information and price transparency. The medical device industry, as the Health Affairs November-December thematic issue on medical technology makes clear, is a case in point. In the volume, released yesterday, Mark Pauly and Lawton Burns describe device manufacturers’ nondisclosure policies, whereby purchasers are forbidden from sharing transaction prices with other purchasers and evenwith the physicians who place the devices into patients. Manufacturers are thus able to maintain a high degree of market control through price discrimination—charging Peter one price, Pauline another, and forbidding one to tell the other that she got a far better deal.
Medical device pricing practices is only one of the topics in the new Health Affairs issue. Other topics include:
— What are the costs and benefits of the boom in medical imaging?
— How should large health care payers like Medicare determine which new technologies to adopt and what levels of reimbursement to set?
— How much evidence of effectiveness should be required before new genomic tests or other interventions are allowed onto the marketplace?
It’s hard to fathom how anybody beyond device makers could benefit from this anticompetitive price secrecy. Thus, Republican Senators Charles Grassley of Iowa and Arlen Specter of Pennsylvania introduced a bill in 2007—not yet passed by the Senate or introduced in the House—that would compel manufacturers to report average and median sales prices for implantable devices. In a Perspective, Jeffrey Lerner and coauthors praise the Grassley-Specter bill, saying that “transparency, even of incomplete information, would assist hospitals to make better-informed judgements about the costs and benefits of [medical devices] and to negotaite lower prices for them.”
But not everyone agrees that price secrecy is necessarily a problem. In another Perspective, Robert Hahn and colleagues explore the conditions underwhich mandatory
price disclosure is likely to generate societal benefits in excess of costs. In the case of implantable devices, they believe that these conditions would not be met, arguing that the structure of the market would likely lead to price coordination and collusion in the industry that would result in significant costs to society but only marginal benefits. They thus conclude that disclosure for these devices is unlikely to pass a benefit-cost test for society as a whole.
Price secrecy is but one of the factors standing in the way of a well-functioning device market. As Jamie Robinson writes, paying fair prices for devices would require
“overcoming data gaps, conflicts of interest, perverse payment incentives, opaque quality outcomes, and fragmented service lines.”Would that be all?
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