Medicare Compliance & Reimbursement

Pending congressional legislation that would impose a mandatory disclosure of prices for certain medical technologies might result in increased prices. This legislation would also offer "no tangible benefits to the patients" states a new study published on the Criterion Economics Web site.

The study, which examines the prospective economic impacts of the Transparency in Medical Device Pricing Act of 2007 (S. 2221), was undertaken by Robert W. Hahn, executive director, Reg-Markets Center and senior fellow at the American Enterprise Institute, and Hal J. Singer, president of Criterion Economics. The Advanced Medical Technology Association supported the research.

The researchers assessed previous attempts by the government to impose similar regulations in other industries, such as: cell phones, groceries, cement, barges, railroads and long-distance telephone services.

"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 Hahn.

The authors say that in order for price disclosure to have a favorable effect, the search costs must be reduced substantially, and the pricing information disclosed should be current. To have a lower price it is necessary to pass on the savings to end-users.

More importantly, the report finds that:

• The number of suppliers in the medical device industry is less as compared to other industries.

• There are not enough economical substitutes for many medical devices.

• Competitors repeatedly interact in the marketplace.

• Some medical devices are standardized, whereas other devices are differentiated; and, firms do not already know their rivals' prices.

The report draws these conclusions:

• Significant search costs for hospitals and patients would remain;

• Disclosure would not provide current price information since the data would be at least three months old; and,

• The structure of the health care industry would not ensure that hospitals pass cost savings on to consumers.

"Applying these conditions to the medical device industry, we conclude that mandatory price disclosure policy would likely increase prices hospitals pay for these products and provide no tangible benefit to patients," the authors say.

For more information and access to the full report, visit http://www.criterioneconomics.com.