Medical Device Daily Washington Editor

WASHINGTON — Legislative initiatives come and go, and a bill proposed by Sen. Chuck Grassley (R-Iowa) that would require device makers to report the prices paid for their products seems likely to do precisely that: come and go.

Part of the problem with the bill, the “Transparency in Medical Device Pricing Act of 2007” (S. 2221), is that it has no companion bill in the House of Representatives, and another problem is that though Grassley introduced the bill last November, it has only one co-sponsor, Arlen Specter (R-Pennsylvania), suggesting a lack of general support

Given the tepid interest demonstrated in the Senate and the lack of a parallel effort in the House, the probability of getting S. 221 through Congress this year seems low. And since this is an election year — unlikely to see passage of much game-changing legislation — the prospects for S. 2221 seem dim indeed.

S. 2221 would force makers of implantable devices to disclose the average and median prices they obtained for their inventories as a condition of doing business with Medicare, Medicaid and the Children’s Health Insurance Plans. Such data would have to be published within 30 days of the end of each quarter.

Failure to disclose that data to CMS would result in fines of between $10,000 and $100,000 per occurrence, and falsified price reports would incur fines in those amounts for each day the falsified information was in circulation.

Another probable nail in S. 2221’s coffin was provided by a recent analysis performed by two healthcare economists at the behest of the Advanced Medical Technology Association (Washington). The report suggests that not only would the bill, as written, likely do nothing to suppress the cost of affected devices, it may well increase their costs.

Bob Hahn, executive director of the Reg-Markets Center (Washington), a successor to the now-defunct AEI-Brookings Joint Center, opened his remarks at a press conference earlier this week at the National Press Club by stating “an old saying about economists: We don’t know very much, but what we do know we keep repeating.”

He said that the paper he researched and published with another economist, Hal Singer, president of Criterion Economics (Washington), attempted to answer the question, “Is greater price transparency needed in the device industry?” Hahn said that while this is the case for some items, especially anything that has attained the status of a commodity, “It turns out that for particular products ... this is not always the case.”

And Singer said, “the economic literature is filled with analyses” of such disclosure requirements, and “when you delve into the literature, it’s easy to find failures, but difficult to find success stories.”

Singer acknowledged that this could be the result of “a bias among economists in academe” propagated by the possibility that “it’s easier to get published when you report failures.” He added that the data are not promising.

One of the conditions that would have to be met using the economic model employed by Hahn and Singer is that search costs – those incurred in obtaining price information – tend to be “large [at the outset] and ... reduced substantially by disclosure.”

Singer said that search costs are not large to begin with due to the service provided by group purchasing organizations (GPOs), and most hospitals’ purchases are made “almost exclusively through GPOs.” The bill, he said, “would provide them zero incremental benefits.”

However, it might also be anticipated that in the case of patients, pricing rarely enters the equation because the patient has to rely on the physician regarding the appropriateness of the selected device, and price becomes secondary. The payer, in this case CMS, is also largely beholden to the provider’s selection.

A second condition for the success of price transparency is that the pricing disclosure also has to provide up-to-the-minute information. But the bill calls for this information only at 30 days after the end of each quarter.

Would such data be sufficiently relevant? “We think the answer is no,” Hahn said, because the previous quarter’s price data “is not all that helpful.”

Another problem with the disclosure scenario is that the healthcare industry places payers between patients and the true cost of care, “and hospital industry concentration limit[s] the extent to which hospitals would have an incentive to pass along savings,” Hahn said.

As to the history of such efforts, Hahn said that in 2004, the Federal Trade Commission conducted an analysis of California Assembly Bill 1960, requiring disclosure of prices charged by pharmacy benefits managers (PBMs). FTC concluded that consumers made little use of the data, and drugmakers were in a position to use the information to coordinate their prices. This produced an overall increases in drug prices paid by PBMs and, as a consequence, their customers.

Hahn described two other instances in which price disclosure requirements boomeranged, including a 1993 effort by the government of Denmark to control the price of cement via mandated reports. The result: “Prices not only increased, they actually converged for those serving the same market,” Singer said.

The exception found by Hahn and Singer in the literature was the 1974 imposition of grocery price disclosures by the Food Price Review Board of Canada. “Over a six-week period, grocery prices in Ottawa declined by 6.5%,” Singer said, and 43% of shoppers changed their shopping habits as a result.

One of the problems with published prices for medical devices is that the disclosure “may facilitate explicit or implicit coordination among competitors,” according to Hahn and Singer’s report.

Still another potential source of higher prices is the cost of compliance.

Hahn concluded that “the mandatory price disclosures as proposed ... are unlikely to benefit patients or hospitals and, worse, will likely increase costs.”

At press time, Grassley’s office had not returned calls for comment on the prospects for S. 2221.