The cost of medical devices is something few seem to know. A recent study published in Health Affairs found that few orthopedic surgeons are aware of the costs of the devices they implant.
Bloomberg Businessweek reports that over 80% of the orthopedic surgeons surveyed estimated device costs deviating from the actual cost by 2 to 5000%. Bloomberg notes that at least one explanation for the surgeons’ incorrect estimates is that many hospitals negotiate confidential supply contracts which prevent broad disclosure of device prices. This phenomenon could also be partially explained by the high-stakes, lower volume nature of orthopedic surgery and associated implants.
Despite (or perhaps due to) surgeons’ inattention to device cost, there can be a dramatic price disparity between what hospitals perceive as equivalent devices. For example, the Journalgazette reports that the hardware for a total knee replacement can vary from approximately $1,800 to $12,000. Bloomburg reports that some surgeons pick the device they want, sometimes with little regard to price.
Because hospitals are sometimes reimbursed via lump sum, variable costs (such as hardware) can significantly impact the hospital’s bottom line. Therefore, a surgeon’s ability to pick devices without consideration of cost may soon be discouraged or limited. According to Bloomberg, while there may be factors weighing in favor of more expensive medical devices, including patient outcome, some hospitals are consolidating their device contracts and streamlining their supply chains to cut device costs.
In the future, medical device manufacturers may increasingly need to justify higher prices for what hospitals perceive as being equivalent products. Patient outcome will likely remain the most important metric for device success; consequently, the ability to prove superior patient outcome may justify a higher price. However, given the widely varying costs for devices having imperceptible performance differences and hospitals’ need to remain profitable, it is likely that competitive bidding will become increasingly common in the future.
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