Submitted by Michael Krieger of Liberty Blitzkrieg blog [5],
Growing up I recall hearing stories of how wealthy foreigners would frequently travel all the way to these United States in order to receive top notch medical attention. Fast forward a decade or two, and all I hear about now is how it is us Americans being forced abroad in order to receive affordable care. The article below from the New York Times, “In Need of a New Hip, but Priced Out of the U.S.” [6] is a fantastic, but depressing read on the subject.
We learn about a hip and knee implant cartel of five companies, kickbacks to surgeons, salespeople in the operating room, massive bureaucratic red tape and rampant price gouging, in complete contrast to the Hippocratic Oath. This is why “the list price of a total hip implant increased nearly 300 percent from 1998 to 2011.” While this is an extraordinarily complicated subject, one on which I claim zero expertise, one thing is for certain. If a U.S. citizen has to travel to Belgium to implant a medical device made right here in the USA, we have a very, very serious problem. From the New York Times:
WARSAW, Ind. — Michael Shopenn’s artificial hip was made by a company based in this remote town, a global center of joint manufacturing. But he had to fly to Europe to have it installed.
Desperate to find an affordable solution, he reached out to a sailing buddy with friends at a medical device manufacturer, which arranged to provide his local hospital with an implant at what was described as the “list price” of $13,000, with no markup. But when the hospital’s finance office estimated that the hospital charges would run another $65,000, not including the surgeon’s fee, he knew he had to think outside the box, and outside the country.
Makers of artificial implants — the biggest single cost of most joint replacement surgeries — have proved particularly adept at commanding inflated prices, according to health economists. Multiple intermediaries then mark up the charges. While Mr. Shopenn was offered an implant in the United States for $13,000, many privately insured patients are billed two to nearly three times that amount.
An artificial hip, however, costs only about $350 to manufacture in the United States, according to Dr. Blair Rhode, an orthopedist and entrepreneur whose company [7] is developing generic implants.
So why are implant list prices so high, and rising by more than 5 percent a year? In the United States, nearly all hip and knee implants — sterilized pieces of tooled metal, plastic or ceramics — are made by five companies, which some economists describe as a cartel. Manufacturers tweak old models and patent the changes as new products, with ever-bigger price tags.
Generic or foreign-made joint implants have been kept out of the United States by trade policy, patents and an expensive Food and Drug Administration approval process that deters start-ups from entering the market. The “companies defend this turf ferociously,” said Dr. Peter M. Cram, a physician at the University of Iowa medical school who studies the costs of health care.
In addition, device makers typically require doctors’ groups and hospitals to sign nondisclosure agreements about prices, which means institutions do not know what their competitors are paying. This secrecy erodes bargaining power and has allowed a small industry of profit-taking middlemen to flourish: joint implant purchasing consultants, implant billing companies, joint brokers. There are as many as 13 layers of vendors between the physician and the patient for a hip replacement, according to Kate Willhite, a former executive director of the Manitowoc Surgery Center in Wisconsin.
That is why the hip implant for Joe Catugno, a patient at the Hospital for Joint Diseases in New York, accounted for nearly $37,000 of his approximately $100,000 hospital bill; Cigna, his insurer, paid close to $70,000 of the charges.
The American health care market is plagued by such “sticky pricing,” in which prices of products remain high or even increase over time instead of dropping. The list price of a total hip implant increased nearly 300 percent from 1998 to 2011, according to Orthopedic Network News, a newsletter about the industry. That is a result, economists say, of how American medicine generally sets charges: without government regulation or genuine marketplace competition.
“Imagine you’re the C.E.O. of Zimmer,” he said. “Why charge $1,000 for the implant in the U.S. when you can charge $14,000? How would you answer to your shareholders?” Expecting device makers “to do otherwise is like asking, ‘Couldn’t Apple just charge $50 for an iPhone?’ because that’s what it costs to make them.”
But do Americans want medical devices priced like smartphones? “That,” Dr. Cram said, “is a different question.”
In 2011, all three manufacturers had joint implant sales exceeding $1 billion and spent about only 5 percent of revenues on research and development, compared with 20 percent in the pharmaceutical industry, said Stan Mendenhall, the editor of Orthopedic Network News. They each paid their chief executives over $8 million.
There goes the “we need the money for R&D” argument. They charge what they charge because they can get away with it.
Device makers have used some of their profits to lobby Congress and to buy brand loyalty. In 2007, joint makers paid $311 million to settle Justice Department accusations [8] that they were paying kickbacks to surgeons who used their devices; Zimmer paid the biggest fine, $169.5 million. That year, nearly 1,000 orthopedists in the United States received a total of about $200 million in payments from joint manufacturers for consulting, royalties and other activities, according to data released as part of the settlement.
Sounds a lot like the bankster business model. [9]
Despite that penalty, payments continued, according to a paper published [10] in The Archives of Internal Medicine in 2011. While some of the orthopedists are doing research for the companies, the roles of others is unclear, said Dr. Cram, one of the study’s authors.
Companies “build a personal relationship with the doctor,” said Professor Robinson, the Berkeley economist. “The companies hire sales reps who are good at engineering and good at golf. They bring suitcases into the operating room,” advising which tools might work best among the hundreds they carry, he said. And some studies have shown that operations attended by a company representative are more likely to use more and costlier medical equipment. While some hospitals have banned manufacturers’ representatives from the operating room, or have at least blocked salesmanship there, most have not.
With baby boomers determined to continue skiing, biking and running into their 60s and beyond, economists predict a surge in joint replacement surgeries, and more procedures for younger patients. The number of hip and knee replacements is expected to roughly double between 2010 and 2020, according to Exponent, a scientific consulting firm, and perhaps quadruple by 2030. If insurers paid $36,000 for each surgery, a fairly typical price in the commercial sector, the total cost would be $144 billion, about a sixth of the nation’s military budget last year.
When Dr. Daniel S. Elliott of the Mayo Clinic decided to continue using an older, cheaper valve to cure incontinence because studies showed that it was just as good as a newer, more expensive model, the manufacturer raised its price.
The above practices describe a lot of things, but the free market isn’t one of them. This is crony capitalism, or corporate capture with government assistance, at its finest.
Full article here [6].