Wednesday, August 03, 2005

The New York Times Examines Why Implantable Cardiac Defibrillators Are So Expensive

The New York Times ran an analytic article that raised some important points about the pricing of medical devices, and, by extension, the costs of health care. The report focused on the recent controversy about Guidant's multiple recalls of implantable devices, and allegations that the company withheld data about faulty devices from physicians and patients (see our most recent post here).
Here are some key points:

Last year, an estimated 135,000 devices were implanted in patients in the United States alone, a near tripling of the number in 2000. Meanwhile, the three major device manufacturers, Guidant, Medtronic, and St. Jude Medical, have reported a financial bonanza as domestic sales rose during the same period to $3.5 billion....
Defibrillator prices are like those found on a new car, ranging from $20,000 to $35,000 each.
==> The devices are expensive, they cost the health care system a lot of money, but the manufacturers make big profits
Physicians ... and health policy experts say that manufacturers have used a variety of strategies to increase profits by keeping device prices high. For example, rather than offering a low-cost unit that does the basic job of stopping a bad heart rhythm, defibrillator makers are engaged in a sort of medical arms race in which producers turn over models by adding new features.
'These companies don't compete on price, they compete on features,' Dr. Hlatkey (Professor of health research and policy at Stanford)
Doctors and patients also have no reason not to go for a top of the line model, said experts like Dr. Hlatkey. Many physicians acknowledge that they do not consider product prices when deciding on which model defibrillator is best for their patient. And patients have little reason to care about cost because insurers like Medicare cover the cost of an inpatient procedure, which includes the device, regardless of cost.
In just two years, defibrillator-related costs to both Medicare and private insurers are expected to reach $10 billion....
The price of a defibrillator, like other medical devices, follows its own unique economics, experts say. For example, while the prices of other high technology devices like computers and digital cameras have plunged, the price of a standard defibrillator has remained steady or declined slowly....
Many cardiologists ... say they have long lobbied major producers, without success, to make a less-costly defibrillator that performs the device's basic functions of saving a life.
Daniel Schaber, a vice president at Medtronic, said it was unfair to compare defibrillators with consumer products like computers because the market for heart devices was tiny relative to computer sales. And both he and Dr. Eric Fain, an executive at St. Jude Medical, said that the technologies might be costly but were in response to what doctors wanted. 'We have said to our advisers, what would you be willing to back to in terms of functionality?' said Dr. Fain, referring to doctors who serve as St. Jude consultants. And those consultants, he said, have routinely rejected changes that would result in loss of certain features.
Separately, a hospital consulting firm, Aspen Healthcare Metrics of Englewood, Colo., said last year in court papers as part of a lawsuit that the device makers kept doctors loyal to its brand by giving them 'clinical research grants, consulting arrangements, and other gratuities.'
==> The device manufacturers seem to base their argument that physicians only want devices with bells and whistles on the comments of physician "consultants" whom the manufacturers pay for their advice, and hence might be inclined to tell the companies what they want to hear.
The big question again is why Medicare and commercial managed care companies do not challenge the pricing of these devices? The rationale for commercial managed care, of course, was to save money. And clearly Medicare has been aggressive in cutting costs, especially when it comes to paying fees for physicians' cognitive services, and for basic hospital care for acute disease.
It's significant, I think, that the Guidant story has become so big that the New York Times is starting to do both investigative reporting and analytical pieces on it. Let's keep an eye out for what turns up next.

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