Prices Likely to Increase with Mandatory Tech Pricing Disclosure
On the heels of proposed legislation in the Senate, the Transparency in Medical Device Pricing Act of 2007 (S. 2221) that will require disclosure of prices for different medical technologies, a study evaluating the effect of pricing disclosure on implantable medical devices was recently published. The complete text of the report was published on the Criterion Economics website. Many advocate that price transparency will increase patient involvement in their care and encourage them to choose cost-effective options.
The study, supported by the Advanced Medical Technology Association, considers the economics of shared pricing. To extrapolate such, previous efforts by government agencies to require price disclosure in a variety of industries were considered. Information from case studies and other sources, such as the Department of Justice, consider four distinct conditions that would result in financial improvements for purchasers and consumers secondary to mandatory price transparency.
Nevertheless, the study authors noted that the proposed price disclosure is unlikely to provide financial benefits for either patients or hospitals. In fact, concerns noted in the report are that costs may actually increase.
Reduced costs may result from voluntary price disclosure in the event that there is a significant reduction in large search costs. As well, pricing information that is shared must be current. Market conditions required for price reductions include the sharing of cost savings down to consumers and end users. A second required condition is that there is a huge difference in the costs paid by purchasers and consumers.
The conditions associated with increases in technology pricing, secondary to price coordination, include:
- Medical devices are primarily manufactured by a small number of organizations,
- Few substitutes are available for the existing technologies,
- Competitors have ongoing engagements within the market,
- Some devices are differentiated while others are standardized, and
- Prices are not shared among manufacturers.
Considering these factors delineated, the report authors suggest that price transparency is unlikely to decrease costs, in fact they anticipate the alternative. Pricing disclosure is unlikely to be current and, instead, more than three months old. As well, hospitals and patients would still sustain significant search costs. As well, the current healthcare environment does not encourage passing down cost savings from the hospital.
February 26, 2008 Related topics: Legal & legislative, Trends