Christopher Delporte, Group Editor03.14.08
An organization, to play with the old adage a little bit, may only be as good as the sum of its parts—or even its partnerships. The front cover of this issue of Medical Product Outsourcing highlights “Process Partners.” Many times within the pages of MPO, we examine how OEMs increasingly create partnerships, rather than one-time solutions, as part of long-term manufacturing strategies—from complete full-service relationships to specific product development projects.
In this month’s extrusion feature, Joe Pignotti, vice president of sales and marketing for Easton, PA-based Fluortek Inc., told Editor at Large Stacey Bell: “The biggest opportunity I see is building partnerships with—and offering innovative solutions to—more of our major customers. By building strategic alliances, you are ... guaranteeing you will have work and your customer will have product—it mitigates their risk. It’s a win-win for both parties.”
This month’s extrusion and testing stories describe many examples of such arrangements—in addition, of course, to a host of technological advancements in each field. But no matter how earth shattering the process may be or how prosperous the partnership, success inevitably hangs on a number of important factors. Taking the alliteration one step further, one of those important factors is price. Pricing in the medical device industry is getting a lot more scrutiny. The Transparency in Medical Device Pricing Act of 2007 (S. 2221), introduced in the US Senate by Sens. Charles Grassley (R-IA) and Arlen Specter (R-PA), would, if passed, require government reporting of product pricing by manufacturers of implantable medical devices.
To be reimbursed by Medicare, device companies would have to file quarterly reports on median sales prices. Based on the bill’s language, the law would apply to implantable devices such as stents, pacemakers and orthopedic joint replacements. Less clear in the legislation is whether it would apply to tools used to implant devices—tools such as surgical saws, drills or computer-assisted navigation equipment. Reporting would be required by April 2009 under the current version of the bill. Manufacturers that fail to report or that submit false information would be subject to penalties of between $10,000 and $100,000 per violation. In the case of false information, the fine would include each day for which the false information was available.
In response, recent reports on device pricing (both sponsored by AdvaMed) seemed to indicate that such legislation would be an unnecessary burden on device makers. One study—titled “Is Greater Price Transparency Needed in the Device Industry?”—was commissioned to gauge the possible effects of S. 2221 and found that seeking the mandatory disclosure of prices for certain medical technologies would likely result in increased prices and “provide no tangible benefits to patients.”
Researchers reviewed previous attempts by government to impose price disclosure rules in a number of other industries. The authors used evidence from case studies and other sources to identify four conditions that, if satisfied, imply that mandatory price disclosure would provide large benefits to consumers or other purchasers.
“We found that mandatory price disclosure, as proposed in S.2221, is unlikely to benefit patients or hospitals and worse, will likely increase costs,” said Robert W. Hahn, study co-author, senior fellow at the American Enterprise Institute (AEI) in Washington, DC, and executive director of the AEI’s Center for Regulatory and Market Studies
Yet another recent study took on the issue by examining the slow rate of growth in overall prices in the medical technology sector. The study’s authors found that medical technology is “a relatively small and constant share of total national health expenditures (NHE).”
In 2004, the latest year studied, spending on medical devices and in vitro diagnostics totaled $112 billion, or 6% of total NHE, and has stayed relatively constant at that modest proportion for the last 15 years. During that same period, overall medical device prices grew far more slowly than either the Consumer Price Index (CPI) for medical services or the CPI overall.
The report also found that during the 15-year period studied, medical device prices increased at an average annual rate of only 1.2%, compared to 5% for the Medical CPI and 2.8% for the CPI overall.
“This relatively slow rate of price increase suggests that the industry is highly competitive,” study authors said.
For now, it seems the debate will continue between government and industry, with one side claiming healthcare technology is a major driver of health cost increases, while the other maintains that the return on spending far exceeds short-term costs. This type of debate undoubtedly will continue to attract attention, particularly in a presidential election year.
In the meantime, from partnerships to pricing (and everything in between), we’ll continue our attempt to sort out and make sense of the myriad pieces of the medical device manufacturing puzzle.