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Is Greater Price Transparency Needed in the Medical Device Industry?

Is Greater Price Transparency Needed in the Medical Device Industry?. Hal J. Singer Empiris, L.L.c. Overview. Assess previous attempts to mandate disclosure rules Health care industry Other industries Identify economic conditions where mandatory disclosure generates net social benefits

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Is Greater Price Transparency Needed in the Medical Device Industry?

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  1. Is Greater Price Transparency Needed in the Medical Device Industry? Hal J. Singer Empiris, L.L.c.

  2. Overview • Assess previous attempts to mandate disclosure rules • Health care industry • Other industries • Identify economic conditions where mandatory disclosure generates net social benefits • Apply lessons to the medical device industry

  3. Case Studies • Cement: In 1993, Danish antitrust authority published stats on transactions prices of individual firms for two types of ready-made cement in three regions of Denmark • Rail rates: In 1986, Congress required disclosure of all essential grain contract terms to the ICC • Long-distance rates: In the mid-1980s, FCC required AT&T to post its tariffs.

  4. Conditions Under Which Mandatory Disclosure Generates Large Benefits • General conditions • search costs are large and are reduced substantially; and • disclosure provides current price information. • Industry-specific conditions are • competitive forces would cause intermediaries to pass cost savings on to end users; and • there is a large variation in the price paid by purchasers not related to volume, loyalty, or bundled discounts

  5. Conditions Under Which Mandatory Disclosure Generates Large Costs • production is concentrated among only a small number of firms; • there are few other products that can be easily substituted for the product in question; • there is significant repeated interaction between firms in the industry; • there is significant product standardization across firms in the industry; • firms do not already know their rivals’ prices.

  6. Application of Framework to Implantable Devices (Benefits) • Are Search Costs Large? • No: GPOs reduce search costs for negotiated medical product sales. • Would Disclosure Provide Current Price Information? • No: Prices disclosed would represent prices for the past quarter rather than current prices. • Average price data also incorporate discounts (volume, bundled, loyalty), which frustrate straightforward comparisons

  7. Application of Framework to Implantable Devices (Benefits) • Would Competitive Forces Cause Hospitals to Pass Cost Savings on to Their Patients? • No: Hospital purchasing decisions are influenced by individual surgeons. • Hospitals with local market power are not likely to pass on savings. • Do Prices for Medical Devices Vary Across Hospitals for Reasons Unrelated to Volume Discounts? • Unsure: GAO notes that price differences varied by the size of the hospital involved

  8. Application of Framework to Implantable Devices (Costs) • Is the Supply of Medical Devices Concentrated? • Yes: 2 makers of drug-eluting heart stents, 3 makers of ICDs • Are Other Products Substitutable? • No: Hospitals prefer to standardize • In cases where substitution is possible (e.g., bare metal stent v. drug-eluting stent ), supply is characterized by same firms

  9. Application of Framework to Implantable Devices (Costs) • Do Industry Participants Repeatedly Interact? • Yes: GPO contracts tend to be re-bid every three to five years • Are Products Homogenous? • Mixed: E.g., implantable orthopedics are differentiated by type, shape, and adjustability • Do Industry Participants Already Know Their Rival’s Prices? • No: GPO transaction prices are not publicized and tend to vary by contract

  10. Conclusion • Conditions under which the benefits of mandatory price disclosure are likely to be large are not met. • Conditions under which the costs of mandatory price disclosure are likely to be large are met. • Analysis indicates that the proposed rule would not reduce prices for hospitals or patients.

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