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.