The Power of Negotiated Prices


A lot of health care is wasted because it’s not very effective. David Leonhardt of the New York Times returned to that theme in a useful article in today’s paper. But when will economics writers with broad reach like Leonhardt begin writing about the bigger problem behind skyrocketing health care costs, and the one that’s more easily fixed — unjustified high prices for drugs, devices and procedures?

One need only review the past decade’s history of the pricing of drug-eluting stents, which are used during percutaneous coronary interventions to prevent further arterial blockages, to get a window onto the problem. They were introduced around 2003 at a price point — about $5,000 a stent — that was five times the bare metal stents they replaced.

Did the evidence suggest they were better? Not really. Was it worth that level of extra costs? Absolutely not, according to this systematic review of the literature. And when it was learned in 2008 that they might actually cause new blockages, their sales — and prices — dropped like a rock. When industry funded new studies showing that might not really be the case, sales — and I bet prices, although the latest data is hard to find — began edging back up.

Given that history, ask yourself this question: Was the original high price required because of the cost of inventing the product, as industry always claims? Clearly not, given the companies’ willingness to adjust prices immediately when confronted by new marketplace realities.

There’s a million stents inserted a year, give or take a few hundred thousand. Could you eliminate, say, 10 percent of that multi-billion-dollar cost by giving physicians comparative effectiveness research that would encourage them to put their patients on a solid diet-and-exercise routine instead of a costly invasive intervention, as Leonhardt suggests? Absolutely. But it’s a tough row to hoe.

The system could save a lot more money a lot faster if hospital administrators bargained the price of the 90 percent of drug-eluting stents that will be inserted no matter what down to their true medical value — which is about the same as the bare metal stents. That’s anywhere from a half to a fifth of their current price.

As Uwe Reinhardt, the Princeton professor who serves on insurance company boards and doubles as a blogger on the New York Times website, said in 2003: “It’s the prices, stupid.”

It’s time for health care writers to focus on the prices paid for individual items that go into the nation’s skyrocketing health care tab. Remember the “wasteful defense spending” stories like the $600 hammer that appeared a few decades ago? One didn’t have to convince Americans that defense spending was bad to get the public outraged about such obvious ripoffs. Health care is an analagous situation. One can spend years trying to convince physicians and patients that this new procedure, test, drug or device that might save or improve their lives really isn’t necessary. Or you can spend a half hour showing them that its price is just too damn high.

There’s an awful lot of $600 hammer health care stories out there for enterprising reporters willing to look.

Another issue is physician pay, which is wrongfully skewed in favor of high-priced specialists. The upcoming debate on restoring the 20 percent cut in Medicare reimbursements for physicians provides an excellent opportunity for reporters to write articles that highlight the average pay of various specialties (see this GoozNews post). Such articles would be an enlightening backdrop for the negotiations now taking place on Capitol Hill between the American Medical Association, the specialty societies, and Congress.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect and The Washington Post. His most recent book, The $800 Million Dollar Pill – The Truth Behind the Cost of New Drugs ” (University of California Press, 2004) has won acclaim from critics for its treatment of the issues facing the health care system and the pharmaceutical industry in particular. You can read more pieces by Merrill at  Gooznews.com, where this post first appeared.

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