Continued commentary on Section 2 of the TIME magazine article “Bitter Pill: Why Medical Bills Are Killing Us“.
2. Medical Technology’s Perverse Economics
On page 5, Brill drills down to an incredibly important reason why technology and medical devices in particular drive up the costs of health care as much as they do. For starters, much like reimbursement negotiations and contracts between insurance companies and hospitals are considered a trade secret, so are the price negotiations between hospitals and pharmaceutical companies as well as hospitals and medical-device companies. Brill points out that “pharmaceutical and medical-device companies routinely insert clauses in their sales contracts prohibiting hospitals from sharing information about what they pay and the discounts they receive.” The lack of price transparency and the information inequality fostered by such a negotiation system leads to large variations in the amounts hospitals pay for drugs and devices. Hospitals with high profile names (such as MD Anderson) and large market clout (e.g. the Partners system here in Massachusetts – which includes both the high profile Massachusetts General Hospital and Brigham and Women’s Hospital) are better able to garner lower prices on drugs and devices, while smaller community hospitals pay more for the same medications and devices.
However, hospitals often listen to what their physicians want. Even though physicians are not directly involved in price negotiations, they often prefer one product or device over another, though there may be no evidence to suggest one device is better than another. Physicians have no incentive to buy one item or another as a group, and most do not. A hospital like Brigham and Women’s Hospital might have nine orthopedic surgeons who perform knee replacements and might have nine different types of implants in stock. The lack of standardization means that an individual hospital is not able to obtain discounts from particular manufacturers based solely on volume.
This same lack of standardization may also be bad for patient outcomes, but that’s a story for a different day. Add in the fact that many physicians are paid (one way or another) by drug and device companies as consultants or to represent and promote their products – and you can imagine that there is little incentive to stop using one device/drug over another.