The cost of healthcare. It’s a popular topic lately. If you haven’t heard much about it (which means you’ve probably been vacationing on the moon or sequestered in an undisclosed location without electricity), brace yourself. You’re about to be bombarded by talk of healthcare reform.

During a recent meeting with members of Congress at the White House, the president said the system must drive down costs across the board.

“It is not sufficient for us simply to add more people to Medicare or Medicaid to increase the rolls, to increase coverage in the absence of cost controls and reform,” he said. “And let me repeat this principle:If we don’t get control over costs, then it is going to be very difficult for us to expand coverage. These two things have to go hand in hand. So we’ve got to reform the underlying system. And this means promoting best practices, not just the most expensive practices.”

The White House’s goal is to save $2 trillion in 10 years.

In response to this directive, a number of healthcare industry trade groups, including the Advanced Medical Technology Association (AdvaMed), sent a letter to the president, pledging action and offering a plan for reining in healthcare’s growing bottom line. The groups proposed strategies that would reduce costs, strengthen quality and improve access through areas such as the utilization of care, improving the expense of doing business, administrative simplification and significant disease prevention activities to reduce the need for chronic care.

Critics have said the administration’s plan is light on specifics and that efforts by the industry coalition don’t drive costs down nearly enough. Supporters claim action is long overdue and this is a big step in the right direction. Either way, there’s going to be a ripple effect along the entire medical device food chain that includes contract manufacturers. As I’ve noted on this page on a number of occasions, what impacts OEMs directly also impacts their suppliers, which is why outsourcing partners need to be involved in this discussion.

As one outsourcing industry executive told me in this month’s molding feature (page 36): “I don’t see how any participant in the industry cannot expect to be affected as our healthcare system evolves.” He couldn’t be more correct. Another said: “Pricing pressures from government find their way down the ladder to OEMs and then to us.”

That said—and as front and center as the group has been in the healthcare debate lately—AdvaMed wants you to know that medical technology isn’t responsible for skyrocketing costs. The association issued a report recently that found medical technology is a small and slow-growing part of national health expenditures

In 2006, medical device spending totaled $131.6 billion or 6.2 percent of total national health expenditures ($2,112.7 billion), and that during the 18 years covered by the study (1989-2006), medical device spending rose only slightly as a percent of national healthcare expenditures—growing from 5.4 percent in 1989 to 6.2 percent in 2006— a 0.8 percentage point increase in the 18-year period.

The report found that medical device price changes have been consistently low during the 18 years examined. Medical device prices have increased at an average annual rate of 1.1 percent, compared to the Consumer Price Index (CPI) increase of 2.9 percent, the Medical Consumer Price Index (MCPI) increase of 4.9 percent and the Medical Services Consumer Price Index Increase of 5.2 percent.

While medical device spending has grown slightly faster than national health expenditures overall, prices for medical devices have actually grown far more slowly than the Medical Consumer Price Index or even the overall Consumer Price Index.

“This relatively slow rate of price increase is … due, in large part, to the highly competitive nature of the medical technology industry,” said Roland King, a healthcare actuary and co-author of the study.

The report concluded: “During much of the eighteen year period, 1989-2006, a significant driver of changed medical practice has been the development of new medical devices—from stents to implantable defibrillators to artificial hips and knees to new imaging modalities to new diagnostic tests to new surgical tools. In view of the conventional wisdom about the role of medical technology in driving up costs, it is surprising that the cost of medical devices has risen little as a share of total national health expenditures. It is also striking that, unlike most other areas of medicine, the prices of medical devices have actually been growing more slowly not only than the MCPI but than the CPI as a whole.”

Despite this bit of positive news and the White House’s assertion that quality care and clinical effectiveness won’t be impacted by efforts to drive prices down, many in the industry are justifiably worried about the cost of reducing cost—a chilling effect on innovation as a result of a “price reduction at all costs” philosophy on Capitol Hill. Time will tell, and many unanswered questions remain (which is usually the case in the early stages of an undertaking of this magnitude). But, as yet another molding executive told me, as we sort all this out:“If it’s a true partnership—OEMs and suppliers—we’re all in this together.”

You can’t put a price on that.