Getting value from medical devices

The buyers of medical devices aren’t very good shoppers. They lack the kind of information about technologies that would help them make value-based purchasing decisions, according to James Robinson in the most recent issue of Health Affairs.

This issue is so important because medical technology is the No. 1 factor driving up health spending in the U.S., according to the Center for Studying Health System Change in their recent report, High and Rising Health Care Costs: Demystifying U.S. Health Care Spending.

What are medical devices? They’re the hardware used by surgeons and clinicians in curing, cobbling together, stabilizing, and managing patients’ medical challenges. They cover orthopedics, interventional cardiology, cardiovascular surgery, and neurosurgery. The technologies represented here are collectively known as “physician preference items.” They can account for one-third of overall hospital supply costs and are growing as a percent of total costs according to the Financial Leadership Council of the Advisory Board. They have an FDA-designed life cycle, as shown in the figure.

Robinson identified several factors that cause market failure for value-based purchasing of medical devices:

  • Physicians’ weak business relationships with their hospitals
  • Physicians’ strong bonds with medical device companies
  • Shifts of surgical facilities to competing sites (e.g., physician-owned heart hospitals).

There’s also lack of price transparency in medical device negotiations and the need for performance data of the devices in real patients (in other words, useful outcomes data).

Robinson found that the “demand side of the market” lacks the price and performance data that would bolster a healthy market and drive a buoyant, high quality supply side of devices. Complicating the market are intermediaries, such as group purchasing organizations and insurance plans that may misalign incentives and skew the market away from true patient value.

Jane’s Hot Points: Among many smart observations of Robinson’s, one is particularly striking: that a hospital’s and medical staff’s ability to adapt to a changing technological environment is a “larger organizational ability to evaluate and improve the many processes of hospital care.”

What could address this misalignment and mis-cuing of the medical device market that would move it toward value-based purchasing? Price transparency; studies into clinical effectiveness comparing existing technologies with new; and rational reimbursement based on the studies. Robinson also suggests transparency of physician relationships with device firms in terms of consulting fees and other financial relationships; and, aligning incentives such that physicians’ clinical services (and not their own pocketbooks) would be rewarded for using the devices with highest patient value.

As medical device spending is a major health cost driver, adopting these strategies could go a long way to reducing the rate of health cost inflation in the U.S.

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Smooth Melon

Medical devices are a minor driver of healthcare costs, and James Robinson’s screed about the industry is off-base, poorly researched, and in some cases, factually incorrect. Medical devices from 1989-2004 grew at approximately 1% per year on a compound annual rate, as compared to all medical services at 5% and the CPI at 2.7% (King and Donahoe, 2006). The US Medical Device industry in 2007 accounted for approximately $94 billion in spending (AdvaMed). The US healthcare market in 2007 was approximately $2.3 trillion, so medical devices are 4% of the total healthcare bill, a smaller percentage than 1989-2004, when they… Read more »