Due to high research and development costs, clinical trial expenses and market factors, an innovative medical device almost always commands a premium price. In addition, manufacturers may set higher prices in the hope that the Centers for Medicare and Medicaid Services (CMS) will also set higher reimbursement rates. A recent investigation by the International Consortium of Investigative Journalists found that over a 10-year period, 1.7 million medical device-related injuries and 83,000 deaths were reported to the FDA. Netflix's new documentary, The Bleeding Edge, investigates one of the biggest health costs: medical devices.
By this it means that, from an economic point of view, it can be difficult to reject out of hand the exorbitant prices of medical advances. The GAO also found that physician preferences for medical devices, such as brand or model, can also have an impact on costs. Although some medical device companies have already entered into value-based purchasing agreements, medical device trade group AdvaMed says that "safe harbours need to be added to the Anti-Kickback Statute before medical device companies can truly engage in alternative payment models". The markets for conventional devices, such as surgical gloves and other routine surgical supplies, are quite competitive.
Moreover, in a competitive bidding environment, unsuccessful suppliers would lose their Medicare business, at least for the categories of supplies they were not chosen to provide, leading to a large reduction in business, as Medicare accounts for about half of many suppliers' business. The Medicare rate was 37% higher than the supplier's website prices and more than double the wholesaler and negotiated supplier prices. We have the world's largest market for medical devices, which should come as no surprise in light of America's population, wealth and technological prowess. The evidence shows that there are clear safety and cost issues associated with medical devices.
Limited competition, he told me, "allows medical device companies to charge higher prices because of the reduced threat of a competitor entering the market at a lower price". Because of the lack of clinical studies, medical devices may be overused or used in the wrong population. Wynn suggests that well-defined products, such as durable medical equipment, are the best candidates for competitive bidding.