When makers of heart defibrillators wanted Medicare to vastly expand the types of patients eligible to receive the devices, which can cost upward of $25,000, agency officials were skeptical. It was not clear how many of those patients would actually need a defibrillator, a device that can deliver a life-saving shock to restore a faltering heart to normal rhythm.
So government and industry struck a deal back in 2004. Medicare agreed to expand the device’s use, nearly doubling the number of patients who qualified for one. The companies, in return, agreed to pay for a study to see which patients really benefited.
Five years later, Medicare underwrites more than half of the $4 billion the nation now spends annually on defibrillators, but the agency is no closer to knowing how many lives that big investment is saving. That is because the device companies did not finance the study beyond their initial $4 million commitment, and Medicare did not pick up the slack. As a result, researchers still cannot gather data that would identify the types of patients who would most benefit from a defibrillator.
And so, doctors keep implanting costly defibrillators in patients who may not benefit from them. And doctors and patients have no way of knowing whether one producer’s model performs better than a competitor’s.
The picture is no clearer for the many other types of medical devices that taxpayers, through government-run programs like Medicare, underwrite. Every year, for instance, doctors give patients tens of thousands of artificial hips and knees, without having the data to indicate how long they will last or which ones work best, and Medicare picks up the bills.
As Congress seeks to revamp the nation’s health care system, medical devices might seem an inviting target to better control Medicare spending. Outlays on implanted devices stand at about $76 billion annually in this country and are rising at a rate faster than the cost of drugs, according to a recent study by the McKinsey Global Institute, a consulting group. With an aging population in America, Medicare is picking up more of those costs.
But legislation pending in the House and Senate may not help, some experts say, because the proposals do not require device makers to compete on the same ground as other manufacturers — product performance and price.
Medical devices pose unique challenges for lawmakers. Medicare does not set or negotiate prices for the implants. Instead, it pays a flat rate to a hospital for procedures to give a patient a defibrillator or a hip, leaving it up to the hospital to negotiate the price of the device with the maker — a negotiation in which hospitals may have little leverage.
Unlike other hospital products, implants are so-called physician preference items, meaning that doctors — not the hospitals — often choose which manufacturer’s implant to use. It is a decision that can be skewed by a doctor’s relationship to a company and can also undercut a hospital’s ability to negotiate the best price, experts say.
Medicare’s laissez-faire approach has big implications for taxpayers because every year, spending on device-related procedures soars ever higher.
“This is a dysfunctional market if you take the perspective of the consumer or public programs like Medicare,” said Jeffrey C. Lerner, the president and chief executive of the ECRI Institute, a nonprofit organization in Plymouth Meeting, Pa., that evaluates medical devices for clients that include hospitals.
No one questions that implants like defibrillators and artificial hips extend and improve lives. But profit margins on medical devices are also among the highest for any medical products — over 20 percent, in the case of a defibrillator or an artificial hip, according to analysts.
In an effort to slow federal spending, the bill passed by the Senate Finance Committee would require the device industry to pay the government $4 billion a year for five years, with the portions allocated among individual companies based on their market shares. But device makers, including the ones that initially financed the defibrillator study — Medtronic, Boston Scientific and St. Jude Medical — have fiercely resisted the provision, calling it an unfair “tax” that will stifle innovation and cause job losses.
The companies have the support of some elected officials from the device makers’ home states, including Al Franken, the freshman Democratic senator of Minnesota, where Medtronic, the nation’s biggest device producer, and St. Jude Medical and some other device companies are based.
Although a political compromise over the issue is expected, the type of revenue claw-back contained in the Finance Committee bill would do little to address the underlying scientific and economic challenges that devices pose, several experts said.
The big problems, in such experts’ view, is that there is little data available to compare the benefits of competing makers’ products or to determine how much buyers, like hospitals, should be paying for them, said Eugene Schneller, a business professor at Arizona State University in Tempe.
For example, even doctors acknowledge that they typically have little reason to be concerned about a device’s costs when it comes to deciding which one to use. One doctor compared it to giving a car buyer a blank check and letting him choose between a Maserati or Honda.
“You are going to walk out of a dealership with a really nice car, if you don’t have to pay,” said William Maisel, a cardiologist at Beth Israel Deaconess Medical Center in Boston.
However, unlike a car buyer, who can see a vast array of comparative information about competing products, a cardiologist or an orthopedic surgeon has little if any comparative data when choosing a device.
Also, many doctors are unlikely to shop around, because they tend to stick with a single producer — either because they have been trained on a particular maker’s devices or because they have financial ties to the company.
Meanwhile, hospitals are often hampered in their ability to negotiate prices with device makers because the selling price of a defibrillator or hip joint is not easy to determine. In selling products, device companies have required hospitals to sign contracts that contain confidentiality clauses under which facilities agree not to disclose what they paid for the product.
As a result, a big hospital that is a large-volume buyer of heart devices or hips may pay higher prices than a smaller one that buys fewer units, said Dr. Lerner of ECRI.
In 2007, Senator Charles E. Grassley, Republican of Iowa, helped introduce legislation that would have required device makers to regularly disclose the average selling price for their products. Current health care reform proposals do not contain such a provision, said a spokeswoman for the Advanced Medical Technology Association, the device industry’s trade group.
In some other countries, medical device databases have been established to provide both doctors and patients with more data about how competing products differ. In such a database, or a registry, information about a product and the surgical technique used by a doctor is recorded at the time of an implant. And then by tracking whether and when the patients return for a replacement procedure, or experience other problems, registries can show which producers’ models are failing faster than others.
The information can help doctors and insurers avoid less reliable devices, while also avoiding the high additional medical costs of remedial treatments and replacement procedures.
But while the United States is the world’s largest user of orthopedic devices, efforts to set up registries have largely failed. The result is that orthopedic patients here are twice as likely to require an earlier-than-expected replacement procedure for a hip or a knee than in countries, like Australia, that have registries.
Doctors in such countries often are less eager to embrace newer, more costly models than doctors in the United States because evidence shows that new models are more prone to failure during their initial years of use.
Eliminating unnecessary replacement procedures could potentially save Medicare hundreds of millions annually. But Medicare has not pushed the use of registries, and the industry has also not embraced it. To date, hip and knee producers have contributed $500,000 to underwrite an effort by the American Academy of Orthopaedic Surgeons, a professional group, to create a national artificial hip and knee registry. But that is a relative pittance — about what many individual companies pay to a few doctors each year to retain them as consultants.
Some experts like Dr. Maisel, the cardiologist in Boston, said it was naïve to expect the industry to underwrite registries, because it was not in a company’s interest to see its products compared against those made by competitors.
The federal government could also play a more aggressive role in making sure it is getting better value for its money, he added. A case in point — requiring that makers of heart devices use batteries that last longer than five years, the period of time when patients must now undergo an additional, potentially dangerous operation to have a costly device replaced.
Dr. Maisel said, “Why would you build a better light bulb that lasts longer if it is going to reduce your profits?”