AUG U ST 2017 Insight on the Issues UNDERSTANDING THE MARKET FOR IMPLANTABLE MEDICAL DEVICES Keith D. Lind, JD, MS AARP Public Policy Institute The market for implantable devices, such as hip replacements and heart valves, is an important and growing part of the health care industry. This Insight on the Issues delves into the market for implantable devices; financial incentives faced by manufacturers, hospitals, physicians, and payers; the impact of the current market structure on competition; and the lack of price transparency. Finally, without endorsing them, this paper discusses the strengths and weaknesses of a range of policy options that could increase price transparency and strengthen competition in the marketplace for implantable devices. A second Insight on the Issues explores the FDA’s process for approval and oversight of these devices and policy options that could both strengthen and streamline the process to better protect public health and safety while also encouraging the development and marketing of devices that will benefit patients. BACKGROUND arthritis; and cardiac pacemakers used to restore an Millions of Americans have implantable devices, irregular heart rhythm. such as artificial hips or cardiac pacemakers, in their bodies. During recent years, advances in technology Why Focus on the Market for Implantable and medical innovation have expanded the types and Devices? sophistication of implantable devices to include such Implantable devices often provide substantial things as artificial hearts and deep-brain stimulators benefits. Cardiac pacemakers save lives and artificial hips help people recover function and relieve pain. to control epilepsy. Due to an aging population and Millions of Americans have undergone surgery to the increasing presence of chronic conditions, the implant some type of medical device. Americans number of people who can benefit from implantable receive about 370,000 cardiac pacemakers and about devices continues to grow. 1 million total hip and knee replacements per year.2 What Are Implantable Devices? Experts estimate that 7.2 million Americans are Implantable devices make up a category of medical living with joint implants.3 devices1 that are inserted into the human body to On the other hand, the cost of implantable devices replace a missing body part, support a damaged is significant. The price hospitals must pay for body part, or modify an important body function. implantable devices accounts for 30–80 percent of the Examples of implantable devices include orthopedic payment they receive from insurers, such as Medicare, rods, pins, and screws used to repair fractured bones; for related procedures. For example, in 2008, Medicare artificial hip joints used to replace hip bones worn by paid about $33,000 for the entire surgical procedure AUG U S T 2017 to implant a cardiac defibrillator, while a hospital paid each had a market capitalization (i.e., total stock about 75 percent of that amount for the device. value) exceeding $10 billion in 2014.15 While device In the United States, medical devices expenditures manufacturers’ profits may go up and down from year to year, some large medical device companies amounted to over $170 billion and accounted for have been highly profitable with earnings of 20– about 6 percent of total national health expenditures 30 percent before interest, taxes, depreciation, and of $2.9 trillion in 2013.4 Industry reports suggest that amortization.16 Some large publicly traded medical implantable device sales totaled about $43 billion in device manufacturers have achieved substantial 2011 and are expected to grow to $74 billion by 2018.5 profits, even after taxes: Few data are publicly available on the average price • Zimmer Holding, which makes orthopedic paid by US hospitals for implantable devices. The implants, had a net profit of more than 15 percent Government Accountability Office (GAO) was able on revenue of $4.6 billion in 2014.17 to obtain limited data regarding implantable device prices in a small 2012 survey of 60 hospitals, about • St. Jude Medical, which makes cardiovascular half of which responded with price data. The survey devices such as pacemakers, had a net profit of found a range of several thousand dollars between 18 percent on revenue of $5.6 billion in 2014.18 the lowest and highest prices paid for similar devices. • Johnson & Johnson, which makes implantable For example, a particular implantable cardiac devices among other things, had net profits of defibrillator with a median price of about $19,000 23 percent on revenue of $72 billion.19 had a price range of almost $9,000.6 Who Buys Implantable Devices? Anecdotally, the device industry has a reputation for Implantable devices can be sold only to health care generating high profits with high prices.7 In 2013, providers, such as hospitals or physicians, and are a Time magazine article highlighted the case of a available to patients only by physician prescription. neurostimulator with a list price of about $19,000, Hospitals are the primary purchasers of most high- which was about four times the manufacturing cost.8 cost implantable devices in the United States. Another article, in the New York Times, reported that hospitals routinely pay about $8,000 for hip implants How Are Implantable Devices Regulated? that cost about $350 to manufacture.9 Studies suggest The approval and marketing of implantable devices that the high price for these implantable devices may in the United States is regulated by the Food and be due to lack of price transparency and other factors Drug Administration (FDA). FDA categorizes peculiar to the market for implantable devices.10,11 implantable devices according to their complexity and the degree of risk posed to patients. Greater risk Industry sources have reported that average prices means more stringent regulatory requirements. for several major categories of implantable devices declined from 2007 to 2011.12 However, these reports The vast majority of implantable devices are have not included data about actual price levels. considered intermediate risk (Class II). Devices in this category can be cleared for market through To the extent price data are available, the cost a simple administrative review, referred to as the of medical devices sold in the United States— “510(k) process,” if a company assures FDA that especially implantable devices—is often greater the device is “substantially equivalent” to devices than in other countries. In 2007, American hospitals already available.20 Although FDA may rely on reportedly paid an average of about $8,000 for an a paper application, in some cases, FDA may artificial hip. In Belgium, the government-approved request nonclinical bench performance testing or list price for the same hip implant was about $4,000 analytical studies using clinical samples.21 However, and could be marked up by only $180.13 this process does not require clinical testing to Although over 5,000 medical device manufacturers demonstrate safety or effectiveness of the device.22 operate in the United States, only a small number As a result, many implantable devices arrive on of them sell the vast majority of implantable device the market without the benefit of studies that products.14 The three largest device manufacturers demonstrate their safety and effectiveness.23 2 AUG U S T 2017 How Are Implantable Devices Paid For? To the extent that other payers, such as Medicaid and In many cases, health plans and insurers, such some private insurers, base provider reimbursement as Medicare, do not pay directly for a specific on Medicare’s methodology, hospitals face similar device. Instead, they agree to pay a fixed rate set in pressure to cut the price they pay for implantable advance for hospital services related to the surgical devices. procedure, including the implantable device, supplies, When private insurers pay hospitals separately for drugs, nursing care, and—in the case of inpatient implantable devices, hospitals may feel less pressure procedures—hospital room and board. For instance, to contain the cost of devices they purchase.27 In an for a hip replacement, Medicare will pay for all costs effort to control these costs, some large private insurers related to the surgery needed to implant an artificial contract with Device Benefit Managers, which act as hip, including the device—Medicare does not pay the intermediaries by negotiating with manufacturers and hospital separately for the specific implanted device. buying implantable devices in bulk at lower cost and Devices implanted in both inpatient and outpatient selling them to hospitals at a markup.28 settings are reimbursed under this “bundled payment” model. However, some private insurers pay WHAT ARE THE PROBLEMS WITH THE the hospital a per diem amount plus a supplement for MARKET FOR IMPLANTABLE DEVICES? the device. Typically, surgeons are paid separately for Limited Competition in the Marketplace for the procedure to implant the device. Implantable Devices Under Medicare’s payment system, hospitals pay The United States relies on market forces rather for implantable devices as part of the cost of doing than government regulation to control prices for business. Occasionally, Medicare creates a new implantable devices. Yet many of the key ingredients category and payment rate when an entirely new for a competitive market are not entirely satisfied, procedure is introduced that includes an expensive including the following:29 new device. In the case of particularly high-cost • Large number of sellers devices, such as an implantable cardiac defibrillator, • Existence of similar products that are good Medicare will temporarily make a separate substitutes for each other additional payment for the new device to ensure that beneficiaries have access to this new technology. • Low barriers to entry into the market Medicare’s payment systems, which are based on • Good information about prices, quality, and hospitals’ reported costs, tend to squeeze hospital performance of products margins and encourage hospitals to negotiate for Relatively few manufacturers supply the vast lower device prices.24 Unfortunately, these payment majority of implantable device products.30 Five systems are slow to capture price reductions that manufacturers control 90 percent of the market arise from improvements in hospital efficiency and for artificial hip and knee implants.31 Even fewer competitive price reductions for devices.25 Also, manufacturers control the market for many because Medicare makes payment adjustments in a sophisticated cardiovascular devices: three firms budget-neutral manner, allocating hospital payments produce implantable cardiac defibrillators and only to an expensive new device results in cutting four firms produce coronary artery stents that are payment for other services, such as nursing and other combined with an anticoagulant drug.32 routine costs. On the other hand, Medicare’s annual In consumer markets, such as the market for soft payment updates tend to lag device price increases drinks, many buyers don’t mind paying more for by at least two years. This two-year lag puts products they perceive as different, even when downward pressure on device prices. In addition, they are basically substitutes. This type of product delays in the process of creating new payment differentiation allows manufacturers to charge categories result in “stickiness” of prices—reducing higher than competitive prices. Similarly, implant upward price adjustments and slowing the diffusion device manufacturers often go to great lengths to of expensive new devices.26 differentiate their products in the minds of physicians 3 AUG U S T 2017 and surgeons.33 Some experts believe these efforts for hospitals to negotiate better prices with have resulted in an implantable device market manufacturers.49 These secrecy agreements prevent controlled by a small number of manufacturers hospitals from disclosing prices to physicians offering products that, while differentiated from who implant the devices, patients who use them, those of their competitors for marketing purposes, and insurers who indirectly pay for them. Some are in fact similar and meet the same needs.34,35 economists assert that the lack of price transparency In the United States, the medical device industry is created by gag clauses helps manufacturers disguise a highly regulated sector of the economy. According price differences for devices they sell and makes it to at least one federal agency, device manufacturers easier to sell the same device at higher prices.50,51 must devote considerable resources toward product Studies suggest that pressure to increase price approval processes, clinical trials, user fees, and transparency has prompted device manufacturers facility audits/inspections.36 Studies suggest that US to aggressively enforce these gag clauses through manufacturers of implantable devices are able to lawsuits.52 Often, the target of a manufacturer’s maintain high prices in part due to structural barriers lawsuit is not the hospital, but a consultant who has to competition, such as the complex, costly regulatory collected price data from many hospitals in an effort to approval process and patent protections.37,38,39 help negotiate lower prices.53 Manufacturers have been Structural barriers discourage imported implantable known to make implicit threats to rescind hospital contracts for violation of secrecy agreements.54 devices that might compete with domestically manufactured devices and bring down prices. Hospitals: Limited Ability to Negotiate Prices Manufacturers often find it faster and easier to Hospitals are the primary purchasers of most launch new products in Europe than in the United high-cost implantable devices in the United States.40 In any case, the majority of imported States, but they have limited bargaining power to medical devices are lower-tech products, such as negotiate lower prices. In addition to lack of price surgical gloves and instruments.41 transparency, they also face In addition to structural barriers and product • A fragmented hospital industry, differentiation, device manufacturers have created • Limited device data, and further hurdles to price competition through lack of price transparency, brand loyalty, and financial ties, • Lack of control over buying decisions. primarily to physicians who use the devices.42 While Fragmented Hospitals Industry most of these strategies are entirely legal in the US With many different hospitals as buyers, the market, in some cases manufacturers have crossed industry is fragmented. In the United States, about the line and been prosecuted for illegal activities, 5,000 acute care hospitals represent potential such as paying kickbacks to physicians for referrals.43 buyers of implantable devices.55 Many of them are Price Transparency: Gag Clauses Keep competitors in overlapping geographic markets. Device Prices Secret Hospitals have, to some extent, strengthened their Lack of price transparency significantly limits the bargaining position with manufacturers by acquiring ability of hospitals to be “prudent purchasers” of and merging with other hospitals.56 Because these devices.44,45,46 Device manufacturers typically insist health systems account for a larger share of a on a confidentiality agreement in the purchasing manufacturer’s business for any single device, they contract with hospitals.47 According to reports, these are often successful in obtaining discounts and lower clauses are sometimes slipped in surreptitiously as prices.57 part of boilerplate language that appears on a receipt Antitrust laws prevent hospitals from cooperating signed by a low-level employee to acknowledge directly with one another to negotiate prices. delivery of the device.48 However, hospitals are permitted to join forces Confidentiality or secrecy agreements act as through group purchasing organizations (GPOs) that “gag” clauses and are designed to make it difficult are allowed to negotiate discounts and pass them on 4 AUG U S T 2017 to participating hospitals. In its basic form, a GPO hospital.64,65 The poor alignment of hospital and is a cooperative of buyers. Virtually every hospital physician incentives is compounded by other factors, in the United States belongs to at least one GPO. described below, that undermine the ability of In 2012, an industry study estimated that GPOs hospitals to contain prices for implantable devices. purchased over $300 billion in medical supplies Physicians are often not aware of the cost of the including over $30 billion for implantable devices.58 devices they implant66 despite their active role in the Although industry sources claim that GPOs provide purchasing decision. According to a 2014 survey, hospitals with substantial savings on the cost of just 21 percent of orthopedic physicians correctly implantable devices, others have raised questions estimated the cost of orthopedic devices within about the extent of savings.59 20 percent of the actual cost.67 The survey also found Historically, most implantable devices are not that the majority (about 70 percent) underestimated purchased through GPOs because many large the price of high-cost devices (i.e., over $5,000) but manufacturers do not contract with GPOs.60 Instead, overestimated the price of low-cost devices (i.e., manufacturers market their devices to physicians who under $500). However, over 80 percent of respondents influence hospital purchases, as described below. said that cost should be “moderately,” “very,” or “extremely” important in the device selection process. Limited Device Data Hospitals are often hampered by insufficient data, These findings suggest that increased access to about not only implantable device prices, but also relevant device pricing information might improve device performance and how it affects clinical physician participation in cost containment efforts. outcomes. FDA’s 510(k) clearance process does not Manufacturers Influence Device Selection require clinical testing of most devices, which gives Many device manufacturers make concerted efforts cost and time advantages to implantable devices to build strong personal relationships with physicians that can demonstrate that they are “substantially who implant their devices. Manufacturers cultivate equivalent” to a similar device that is already on the these relationships as they work with physicians market.61,62 As a result, most implantable devices through iterative collaborations during the product arrive on the market without the benefit of studies development cycle. These relationships often lead to that demonstrate their effectiveness. The absence strong physician loyalties to particular devices and of comparative performance data makes it difficult manufacturers. for hospitals to evaluate the relative effectiveness Large manufacturers employ many sales of implantable devices or to assess the cost- representatives, who promote implantable devices to effectiveness of similar devices. the surgeons who use them. For example, Medtronic, Lack of Control over Buying Decisions a large medical device manufacturer, has created Physicians typically select the devices they want to more than a dozen mobile applications to help a staff implant.63 The hospital then pays for them, resulting of more than 4,500 people promote device sales.68 in strong incentives to reduce the prices it pays for Sales representatives are frequently present in the implantable devices. Often, physicians do not share operating room during procedures to train surgeons these incentives and rarely face liability for the in the use of a device.69 This support further cost of devices they implant under siloed payment influences physician preference and builds loyalty. mechanisms in fee-for-service systems. To a limited extent, patients who express personal Although hospitals might want to encourage preferences to their physicians for a specific physicians to use lower-priced implantable devices, implantable device may indirectly influence hospital they rely on physicians to bring in patients. Hospitals purchasing decisions. Anecdotal evidence suggests do not want to risk alienating physicians and that patients’ expression of personal preferences surgeons who generate most of a hospital’s revenue, has increased over time, largely in response to especially if the effect might be to encourage manufacturer marketing campaigns directed at physicians to leave and move to a competing consumers. However, patients are often not aware of 5 AUG U S T 2017 whether their physician has a financial relationship of interest and higher spending. Under these with the device’s manufacturer. arrangements, the physician-owners receive profits from the sale of devices they implant in their own Physician Conflicts of Interest Lead to Higher patients. Although a Senate report and the US Spending Department of Health and Human Services Office of Manufacturers frequently provide physicians with financial incentives to use their products.70,71 A 2007 the Inspector General have warned against the use study revealed that 94 percent of US physicians had a of physician-owned distributorships as “inherently financial relationship with the industry—83 percent suspect” and a conflict of interest, the use of these received gifts and 28 percent received payments arrangements has continued to expand.81 The growth for consulting or research participation.72 In 2015, of these entities is concerning because many fail to medical device companies paid at least $2.3 billion to disclose their physician-ownership or comply with health care providers in the United States.73 financial reporting requirements. Financial relationships between manufacturers and POLICY OPTIONS/SOLUTIONS physicians can create conflicts of interest. Studies Without endorsing or ranking them, this paper have shown that physicians tend to use more of a discusses the strengths and weaknesses of a range of manufacturer’s products and incur higher health policy options that could increase price transparency care costs when they have a financial relationship and strengthen competition in the marketplace for with manufacturers.74,75 High-volume surgeons may implantable devices. These policy options fall into receive multiple payments from manufacturers for several categories: a variety of activities (e.g., research, consulting, • Increase device price transparency in the market and promotional speaking engagements). In 2007, by restricting gag clauses and disclosing prices. implantable device manufacturers paid orthopedic surgeons about $200 million for consulting, royalties, • Improve availability of information on implantable and other activities.76 These payments can exceed device performance and clinical outcomes. physicians’ professional fees for performing surgical • Require disclosure or impose restrictions on procedures.77 Firms may also provide physicians with abusive marketing practices. free tickets to sporting events and pay for travel to • Encourage cost containment through payment and conferences in exotic locations. delivery reforms. While some industry trade groups have adopted a • Increase competition among device manufacturers. code of ethics that prohibits manufacturers from paying physicians for expenses that are unrelated Increase Price Transparency in the Market to scientific and educational purposes,78 compliance Restrict Gag Clauses with these guidelines is voluntary. Experts have recommended that policy makers enact Financial relationships between manufacturers and legislation that would legally invalidate gag clauses, physicians sometimes cross the line to become illegal thus increasing price transparency. Such laws would kickbacks. In 2007, several device manufacturers paid allow hospitals to share price data with physicians $311 million to settle claims by the US Department and consultants without exposing themselves to legal of Justice that they had paid kickbacks to surgeons to liability for breach of contract.82 Some would argue use their artificial joint implants.79 In 2014, Medtronic that arming hospitals with comparative pricing data paid $10 million to settle claims by the Department would strengthen their bargaining position and could of Justice that it had paid kickbacks to doctors in the allow them to negotiate lower prices with device form of lucrative speaking engagements and tickets to manufacturers. However, this legislation would be sporting events in exchange for using its pacemakers controversial because a variety of stakeholders would and defibrillators.80 likely oppose it. Physician ownership of entities, such as physician- Less-controversial approaches may include providing owned distributorships, can also lead to conflicts physicians with relative pricing information rather 6 AUG U ST 2017 than actual purchase price data. For example, the Furthermore, opponents argue that, because University of Maryland Division of Orthopedic hospitals differ substantially in the volume and Trauma posts color-coded categories for commonly type of devices they purchase, many hospitals may used devices based on their relative prices in order not be able to use information about how much to broadly educate physicians about the cost of the other hospitals pay for a device to negotiate a lower devices they use.83 In this manner, hospitals can price for themselves. In addition, surgeons may be encourage physicians to cooperate in the selection of unwilling to accept standardized device purchasing lower-cost devices without disclosing actual prices by hospitals because manufacturers have effectively and violating gag clauses. differentiated their devices in the minds of physicians and patients. According to some economists, such Allow or Require Price Disclosure product differentiation contributes to the ability of Mandatory public disclosure of sales prices manufacturers to charge some hospitals more than for implantable devices has been proposed as others for the same device and earn higher profits.89 a mechanism to improve price transparency. Finally, critics point out that even if mandatory Advocates argue that price disclosure would disclosure allows hospitals to negotiate lower device strengthen hospitals’ bargaining position with prices, consumers and insurers may not benefit manufacturers and suppliers. For example, in 2007, unless hospitals pass along the savings they realize.90 proposed federal legislation would have required manufacturers to disclose prices for all implantable Adopting mandatory price disclosure would require devices as a condition for receiving direct or indirect legislation at the state or federal level, which has payments from Medicare or Medicaid.84 Some proven controversial and difficult to enact. Efforts by states have imposed mandatory public disclosure of Congress and the federal government to influence hospitals’ prices for common surgical procedures.85 implantable device prices or costs have had limited success. In general, industry lobbying efforts have Price disclosure could help hospitals and payers deflected such legislative efforts. In 2007, the device evaluate the value of similar implantable devices industry successfully opposed federal legislation to the extent data on performance and clinical (described above) that would have imposed mandatory outcomes could be collected and combined with price disclosure for all implantable devices as a price data. In addition, concerns that price disclosure condition for Medicare or Medicaid reimbursement.91 could facilitate collaboration among manufacturers In a notable exception, in 2010, Congress imposed might be addressed using new approaches, such as a 2.3 percent tax on medical device manufacturers. protected websites that are accessible only to hospital While this measure was primarily designed to raise purchasers. federal revenue, it might also have had the effect of Critics, however, argue that mandatory public dampening the rise in implantable device prices. disclosure could result in higher, rather than lower, However, before it could take effect, Congress device prices.86 Experts have observed that, without suspended this tax for two years (2016–2017).92 quality information, many consumers believe Improve Information on Implantable Device price acts as a proxy for quality and interpret a Performance and Clinical Outcomes higher price as an indication of higher quality.87 Technology assessment committees can evaluate the In addition, publicly available price data could be performance of implantable devices to the extent used by manufacturers to collaborate and raise appropriate data are available. These committees prices, especially in highly concentrated markets for gather reliable data on quality, performance, and implantable devices. For instance, the Federal Trade patient outcomes and integrate this information to Commission has found that public disclosure of objectively assess the comparative effectiveness and prescription drug prices may increase prices.88 While cost—sometimes referred to as the overall “value”— explicit price collusion would violate antitrust laws, of similar devices. Many hospitals have established tacit price collaboration among manufacturers and technology assessment committees of physicians suppliers would not. and hospital executives as part of a broader cost 7 AUG U S T 2017 containment strategy.93 As hospitals become larger, registries. A registry is a collection of information the use of such committees has become more about individuals, usually focused on a specific widespread. As these committees have acquired diagnosis, condition, or device.98 A number of more detailed data on devices, the sophistication and professional societies, government agencies, private effectiveness of their assessments have increased. corporations, and independent researchers have Technology assessments have strengthened the established registries that collect standardized data bargaining position of hospitals as they negotiate for a limited number of implantable devices.99 To with device manufacturers and put downward some extent, analysis of device registry data could pressure on device prices. For example, Kaiser help provide information on safety, effectiveness, and Permanente, a large, integrated managed care performance.100,101 organization, has used this approach to gather and analyze large amounts of internal data on cost and Meanwhile, opportunities for data acquisition use of key implantable devices, such as artificial continue to emerge in other areas. Until recently, for joints.94 This evidence-based approach has allowed example, defective implantable devices were difficult Kaiser to identify safer and more effective devices. to identify and track on a patient-specific basis. In Based on its own analysis and experience, Kaiser 2014, FDA started phasing in requirements that has standardized its purchasing of many implantable high-risk implantable devices carry a unique device devices and negotiated lower prices for them. identifier (UDI).102 These identifiers are intended Some large payers have established technology to facilitate tracking and identification of medical assessment centers, such as the Blue Cross/Blue devices by appearing on the device itself and on the Shield Technology Evaluation Center.95 Similarly, label as plain text and in bar code form. UDIs are ECRI Institute, a nonprofit organization that expected to increase implantable device safety by represents multiple stakeholders, including payers, enabling FDA to more quickly identify and recall hospitals, and health systems, provides comparative defective devices. effectiveness analysis and cost data on implantable As more detailed data on implantable devices become devices to its members for a fee.96 available, hospitals and payers are expected to use Currently, federal agencies do not perform data to better analyze and understand the safety, technology assessments of specific implantable performance, and clinical outcomes related to specific devices. However, with congressional approval, the devices. Hospitals and private insurers are expected mission of some federal agencies could be expanded to be able to use UDI data to identify the best- to include assessments of implantable devices. For performing implantable devices and strengthen their example, the Agency for Healthcare Research and bargaining position in price negotiations. However, Quality (AHRQ), an agency of the US Department of it may take years before UDI data become available Health and Human Services, performs comparative in sufficient quantity to be useful for evaluating the effectiveness research based on reviews and synthesis effectiveness of many implantable devices. of published studies.97 While AHRQ’s research is publicly available, it typically evaluates procedures, In the meantime, using currently available data rather than specific implantable devices. In addition, from other sources, some hospitals and insurers Congress has prohibited AHRQ from including cost have negotiated risk-sharing contracts that amount data in its analyses. Congress could expand the scope to performance guarantees or warranties with of comparative effectiveness research performed by manufacturers for selected implantable devices. AHRQ or other federal agencies doing similar work For instance, St. Jude Medical provides its hospital to include cost and price data. customers with a performance guarantee on its Use Patient Data Registries and Unique Device implantable cardiac resynchronization device, an Identifiers advanced type of cardiac pacemaker. St. Jude will Hospitals might be able to get better information on refund 45 percent of the device cost if a patient needs implantable devices through wider use of patient data corrective surgery within one year.103 8 AUG U S T 2017 Require Disclosure or Impose Restrictions device manufacturers. Policy makers could also on Abusive Marketing Practices place marketing restrictions on manufacturers to Greater transparency of financial relationships discourage conflicts of interest. For example, Nevada between manufacturers and physicians could requires device manufacturers to adopt a marketing discourage potential conflicts of interest. To code of conduct, provide training to sales staff, some extent, increased disclosure and scrutiny of and conduct compliance audits. Massachusetts and manufacturer–physician financial relationships could Vermont ban gifts from device manufacturers to limit physician preference as a driver of hospital health care professionals.108 Policy makers could purchasing decisions, help increase competition in the also require physicians to disclose to their patients market, and drive down prices of implantable devices. that they have a financial relationship with a The Physician Payments Sunshine Act104 is designed manufacturer when prescribing or recommending to invite such public scrutiny of financial relationships the use of that manufacturer’s products. that tend to drive higher health care costs.105 This Encourage Cost Containment through federal legislation requires medical device and Payment and Delivery Reforms pharmaceutical companies to publicly disclose Recent “value-based purchasing” initiatives payments to physicians and teaching hospitals, encourage providers to increase efficiency while including free meals, free travel, speaking fees, and maintaining and improving quality of care. These research participation grants, as well as ownership initiatives strengthen competition in health care or investment interests held by physicians, family markets and create strong incentives for purchasers members, or teaching hospitals in manufacturers or and providers to negotiate lower prices for group purchasing organizations. Starting in fall 2014, implantable devices. information on manufacturer–physician payments became publicly available.106,107 However, the Sunshine Medicare’s bundled payment initiatives require Act does not require physicians to disclose to their participating providers to accept a predetermined patients that they have a financial relationship with package of payments for the average cost of a group any particular manufacturer, even when prescribing or of related services—that is, the same fixed fee recommending the use of that manufacturer’s products. for treatment of patients with the same diagnosis. Bundled payments cover all services related to the Although many patients may have difficulty procedure, including devices and drugs.109 Recent evaluating the information, more sophisticated Medicare initiatives have increased the scope of stakeholders—such as hospitals, health insurers, and bundles to include payments to multiple providers, consumer watchdog organizations—are expected such as hospitals and skilled nursing facilities, to use this information to exert pressure to reduce for both acute care and postacute care related to conflicts of interest and increase efficiency of the a hip or knee replacement.110 Under these large market for implantable devices. Medicare initiatives, participating providers share The effects of the Sunshine Act on financial any profit (or loss)—referred to as shared savings relationships have not been assessed and may take or gainsharing—which creates strong incentives to some time to achieve their full impact. Even before reduce cost and increase efficiency. that, the Centers for Medicare & Medicaid Services Still, regulations could better align financial (CMS) could undertake increased enforcement incentives by bundling physician payments together actions to ensure compliance with Sunshine Act with those of hospitals. Most Medicare value-based reporting requirements by entities, such as physician- purchasing initiatives continue to pay physicians owned distributorships. on a fee-for-service basis separately from hospitals In the meantime, Congress could do more to and other providers. As long as these payments are discourage physician brand loyalty and conflicts separate, physicians have weak incentives to save on of interest. For instance, measures could be device costs. Under a combined payment approach, adopted that would penalize or limit certain physicians would be placed at risk for profits or financial relationships between physicians and losses along with hospitals. 9 AUG U S T 2017 In the private sector, large employers are using could employ competitive bidding to put downward bundled payment approaches with providers pressure on device prices. designated as “Centers of Excellence” for certain In theory, hospitals could request competitive bids cardiac and orthopedic procedures. This model from multiple manufacturers in cases for which more encourages hospitals to negotiate more aggressively than one model of an implantable device is available. with device manufacturers. Employees are Some large health care organizations, such as Kaiser incentivized through lower cost sharing to receive Permanente, have successfully employed competitive care at a Center of Excellence that the employer bidding to gain lower prices for implantable devices. has identified as a high-quality, low-cost provider. But the potential effectiveness of this approach is For example, PepsiCo pays for its employees and limited by physician preference for particular devices their dependents to have cardiac and complex joint and the fragmented structure of the hospital market, replacement surgeries at Johns Hopkins Hospital described previously, which makes it difficult for in Baltimore, with no patient cost sharing, and will most hospitals to purchase sufficient volume to gain even pay for travel and lodging for patients and their a price advantage through competitive bidding. In companions who live outside the Baltimore area. addition, many implantable devices lack clinically PepsiCo pays the hospital an all-inclusive rate, which appropriate substitutes, reducing the potential for includes all related physician and hospital services, competitive bidding. and preoperative testing.111 Use Reference Prices Although shared savings and gainsharing arrangements provide clear incentives for providers That is not to say the market doesn’t offer options for to improve efficiency and cut the cost of such certain devices. For implantable devices available supplies as implantable devices, Medicare places from multiple sources, some payers have intervened important limitations on the use of these incentives. in the marketplace to set a single reimbursement According to the Office of Inspector General, rate, or reference price, for the device and all related these arrangements, if not properly structured and services. These reference prices are designed to monitored, can also be abused by providers.112 establish a limit on the amount insurers will pay for As a result, under Medicare rules, shared savings a given procedure, such as a hip implant.116 Reference arrangements are allowed only in the context prices allow an insurer to negotiate lower prices for of integrated provider networks (e.g., Medicare a bundle of services within a designated network of Advantage Plans and authorized demonstrations, providers. A similar approach has been applied to such as Medicare’s Shared Savings Program for pay the same low price for a brand name drug that is Accountable Care Organizations).113,114 Thus, equivalent to a generic drug.117 Such limitation acts gainsharing arrangements have limited application in like a price cap reflecting the cost of a less-expensive the current Medicare fee-for-service environment. class of implantable devices. Providers are expected to accept this fixed amount as payment in full. Increase Competition among Device Patients, meanwhile, have the option of choosing Manufacturers procedures involving implantable devices that exceed Use Competitive Bidding the reference price and paying the excess cost. Competitive bidding has been suggested as a Reference prices could drive down costs for mechanism that could put downward pressure on implantable devices and procedures for which prices for implantable devices. Medicare already multiple alternatives are available. For example, uses competitive bidding as a cost control measure using reference prices, a large California pension for such health care supplies as durable medical fund succeeded in pressuring hospitals to reduce equipment (DME). CMS estimated that competitive prices by 34 percent for hip and knee replacements.118 bidding was responsible for the 45 percent decline In theory, the power of reference prices to control in Medicare DME costs in 2013.115 Similarly, while device prices could be increased further if all Medicare does not pay separately for implantable hospitals were required to use Medicare’s prospective devices, with congressional approval, Medicare payment systems. For many procedures involving 10 AUG U S T 2017 implantable devices, Medicare pays providers less implantable device prices may be higher than they than private plans and commercial insurers. For would be in a competitive environment. instance, Medicare pays hospitals about $15,000 The current dynamic results from many factors. for a hip replacement procedure, including the hip Reimbursement mechanisms tend to hamper price implant119—less than the $25,000 to $35,000 paid by transparency, while manufacturers impose gag many insurers. Thus, using Medicare as the basis for clauses to keep prices secret for many implantable reference prices would facilitate price comparisons devices. Limited data on prices reduce the leverage and increase competition among hospitals.120 of buyers, like hospitals, to negotiate lower prices. The use of reference prices has important limitations. Incomplete data on the quality, performance, and They may be ineffective when an implantable device comparative effectiveness of many implantable is one of a kind or a related procedure is sufficiently devices limit the ability of hospitals to assess the complex that few surgeons are able to safely perform relative value of devices. Physician conflicts of interest can undermine competitive market pressures. it (e.g., implanting an electrical brain stimulator to control epilepsy). Patients may find that access to A range of policy options to increase price needed implantable devices is limited and quality of transparency and enhance competition in the market care may be undermined. for implantable devices is available for policy makers to consider. Employing at least some of these These potential impacts suggest that, when reference measures would benefit patients and taxpayers alike. prices are used, patient protections are necessary to ensure adequate access to providers. For instance, REFERENCES prior to surgery, patients need access to information 1 Federal law defines medical device quite broadly to about the reference prices for procedures they may be include devices that are intended for “human use.” Medical devices include both diagnostic and therapeutic considering, such as a list of services and their prices, devices ranging from items as simple as toothbrushes, together with a list of providers who will accept the wooden tongue depressors, and stethoscopes to those reference price and information about the quality of as complex as magnetic resonance imaging scanners care they deliver. In addition, patients need time to and implantable devices, like an artificial heart. Federal Food, Drug, and Cosmetic Act, §201(h), 21 U.S.C. consider their options, potentially making reference §321(h) (2010), http://www.gpo.gov/fdsys/pkg/USCODE- prices inappropriate for emergency services.121 2010-title21/html/USCODE-2010-title21-chap9- Finally, reference pricing may offer limited potential subchapII.htm. for savings. One study estimated that using reference 2 Centers for Disease Control, “Number of Procedures in pricing for inpatient procedures involving most Short-Stay Hospitals” (Centers for Disease Control, 2010), http://www.cdc.gov/nchs/fastats/inpatient-surgery.htm. implantable devices might save a few tenths of a percent of total spending in the privately insured 3 Mayo Clinic, “First Nationwide Prevalence Study of Hip and Knee Arthroplasty Shows 7.2 Million Americans sector.122 This is because only a small proportion Living with Implants,” Clinical Updates, Mayo Clinic, of inpatient procedures are “shoppable,” and Rochester, MN, June 2014, http://www.mayoclinic.org/ reference prices directly affect only the high end of medical-professionals/clinical-updates/orthopedic- the price distribution. On the other hand, reference surgery/study-hip-knee-arthroplasty-shows-7-2-million- prices might have an important effect on prices for americans-living-with-implants. implantable devices. 4 Gerald Donahoe and Guy King, “Estimates of Medical Device Spending in the United States” Advanced Medical CONCLUSION Technology Association, June 2015), http://www.analysis Despite a large and growing market, not much group.com/uploadedfiles/content/insights/publishing/ implantable_medical_device_price_trends.pdf. information is publicly available about the prices of implantable devices. Lack of price transparency has 5 Arundhati Parmar, “U.S. Implantable Medical Devices Market Will Grow 8 Percent to $73.9 Billion by 2018,” made it difficult to gather substantial direct evidence MedCity News, January 23, 2013, http://medcitynews. of high device prices. This market lacks many of com/2013/01/u-s-implantable-medical-devices-market- the attributes of competitive markets, suggesting will-grow-8-percent-to-73-9-billion-by-2018/. 11 AUG U S T 2017 6 Government Accountability Office (GAO), “Lack of Price 19 MarketWatch, “Johnson & Johnson,” (MarketWatch, Transparency May Hamper Hospitals’ Ability to Be February 3, 2017), http://www.marketwatch.com/ Prudent Purchasers of Implantable Medical Devices,” investing/stock/JNJ/financials. GAO-12-126 (Government Accountability Office, 2012), 20 Food and Drug Administration (FDA), “FDA Premarket http://www.gao.gov/products/GAO-12-126. Notification (510k)” (FDA, updated September 7 Consumers Union, “Medical Device Manufacturer 16, 2015), http://www.fda.gov/MedicalDevices/ Profits,” Health Policy Brief (Consumers Union, DeviceRegulationandGuidance/HowtoMarketYourDevice/ September 2013), http://consumersunion.org/research/ PremarketSubmissions/PremarketNotification510k/ default.htm. health-policy-brief-medical-device-manufacturer-profits/. 21 FDA, “The 510(k) Program: Evaluating Substantial 8 Steven Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” Equivalence in Premarket Notifications” (FDA, July 28, Time, February 20, 2013. 2014), http://www.fda.gov/downloads/MedicalDevices/ 9 Elizabeth Rosenthal, “In Need of a New Hip, But Priced DeviceRegulationandGuidance/GuidanceDocuments/ Out of the U.S.,” New York Times, August 3, 2013. UCM284443.pdf. 10 GAO, “Lack of Price Transparency.” 22 National Academy of Medicine (formerly known as the Institute of Medicine), “Medical Devices and the Public’s 11 James Robinson and Annemarie Bridy, “Confidentiality Health: The FDA 510(k) Clearance Process at 35 Years” and Transparency for Medical Device Prices: Market (Institute of Medicine, July 29, 2011), http://www.nap.edu/ Dynamics and Policy Alternatives” (University of catalog/13150/medical-devices-and-the-publics-health- California, Berkeley Center for Health Technology, the-fda-510k-clearance. October 2009), http://bcht.berkeley.edu/docs/Device- 23 For more details about the FDA approval process and Prices-Transparency-Report.pdf. options for improving it, see AARP Public Policy Institute, 12 Genia Long, Richard Mortimer, and Geoff Sanzenbacher, “Implantable Devices: Regulatory Framework and Reform “Recent Average Price Trends for Implantable Medical Options,” Insight on the Issues 130, August 2017. Devices, 2007–2011” (Analysis Group, September 2013), 24 MedPAC, “Payment for New Technologies.” http://www.analysisgroup.com/uploadedfiles/content/ insights/publishing/implantable_medical_device_price_ 25 Ibid. trends.pdf. 26 Ibid. 13 Rosenthal, “In Need of a New Hip.” 27 Jeffrey C. Lerner et al., “The Consequences of Secret Prices: The Politics of Physician Preference Items,” 14 International Trade Administration, “Medical Device Health Affairs 27, no. 6 (2008): 1560–65. Industry Assessment” (International Trade Administration, March 24, 2010), http://ita.doc.gov/td/health/medical%20 28 Robert Betz, “Best Possible Price,” Journal of Healthcare device%20industry%20assessment%20final%20ii%20 Contracting (April 16, 2013), http://www.jhconline.com/ 3-24-10.pdf. best-possible-price.html. 15 Ernest & Young, “Pulse of the Industry, Medical 29 “Perfect Competition,” Wikipedia, updated July 7, 2016, Technology Report 2015” 17, http://www.ey.com/ https://en.wikipedia.org/wiki/Perfect_competition. Publication/vwLUAssets/ey-pulse-of-the-industry/$FILE/ 30 International Trade Administration, “Medical Device ey-pulse-of-the-industry.pdf. Industry Assessment.” 16 Medicare Payment Advisory Commission (MedPAC), 31 Frost & Sullivan, “US Orthopedic Joint Replacement “Payment for New Technologies in Medicare’s Prospective Markets” (Frost & Sullivan, February 7, 2005), Payment Systems,” Report to Congress (MedPAC, March http://www.frost.com/prod/servlet/press-release.pag? 2003), Chapter 4, http://www.medpac.gov/documents/ docid=32053125; Frost & Sullivan, “U.S. & Asian Markets reports/Mar03_Ch4.pdf?sfvrsn=0. for Orthopedic Joint Replacements” (Frost & Sullivan, January 27, 2005), http://www.frost.com/sublib/display- 17 Google Finance, “Zimmer Biomet Holdings Inc.,” report.do?id=A751-01-00-00-00&bdata=aHR0cDovL3d3 Company Summary, (Google Finance, 2016), dy5mcm9zdC5jb20vcHJvZC9zZXJ2bGV0L3ByZXNzLXJ http://www.google.com/finance?cid=666999. lbGVhc2UucGFnP2RvY2lkPTMyMDUzMTI1QH5AQmFja 18 Google Finance, “St. Jude Medical Inc.,” Company 0B%2BQDE0MDc2ODk2NTA1NTQ%3D. Summary, (Google Finance, 2016), 32 Some implants contain drug delivery devices, such as https://www.google.com/finance?q=NYSE%3ASTJ& drug-eluting stents (wire mesh tubes that prop open ei=F_qYV8m4D8iSmgH0vLnACA. coronary arteries to prevent heart attacks). 12 AUG U S T 2017 33 Eric Campbell et al., “A National Survey of Physician- 55 American Hospital Association, “Fast Facts on US Industry Relationships,” New England Journal of Hospitals” (American Hospital Association, 2015), Medicine 356 (2007): 1742–50. http://www.aha.org/research/rc/stat-studies/fast- facts.shtml. 34 Mark Pauly and Lawton Burns, “Price Transparency for Medical Devices,” Health Affairs 27, no. 6 (2008): 56 California Healthcare Institute, “Driving toward Value: 1544–53. Principles to Ensure Patient Access to Medical Innovation in New Payment and Delivery Models” 35 MedPAC, “Payment for New Technologies.” (California Healthcare Institute, 2013), http://www.chi.org/ 36 International Trade Administration, “Medical Device wp-content/uploads/2012/11/CHI-White-Paper_Driving- Industry Assessment.” Toward-Value_Final.pdf. 57 David Cutler and F. Scott Morton, “Hospitals, Market 37 MedPAC, “Payment for New Technologies.” Share, and Consolidation,” Journal of the American 38 Pauly and Burns, “Price Transparency.” Medical Association 310, no. 18 (2013): 1964–70. 39 Robinson and Bridy, “Confidentiality and Transparency.” 58 Dobson DaVanzo & Associates, LLC, “A 2014 Update of Cost Savings and a Marketplace Analysis of the Health 40 “The Bleeding Edge: The Drugs Giants Are in Trouble, Care Group Purchasing Industry” (Dobson DaVanzo & but Medical Devices Are Booming,” Economist, February Associates, LLC, 2014), https://c.ymcdn.com/sites/higpa. 28, 2008, 66–67, http://www.economist.com/node/ site-ym.com/resource/resmgr/research/hsca_cost_ 10766453/print. savings_group_purc.pdf. 41 International Trade Administration, “Medical Device 59 GAO, “Group Organizations: Research on Their Pricing Industry Assessment.” Impact on Health Care Providers,” Letter to Senator 42 The market characteristics described above suggest Grassley, January 29, 2010, http://www.gao.gov/ new.items/d10323r.pdf. that prices for implantable devices may be higher than they would be in a competitive market, but studies have 60 Betz, “Best Possible Price.” been unable to gather substantial direct evidence of high 61 S. Walker et al., “Coverage with Evidence Development, prices due largely to lack of price transparency. MedPAC, Only in Research, Risk Sharing or Patient Access “Payment for New Technologies.” Scheme? A Framework for Coverage Decisions,” Value in 43 U.S. Department of Justice (DOJ), “DOJ Settlement with Health 15 (2012): 570–79. Medtronic,” news release, May 29, 2014, 62 James Robinson, “Value-Based Purchasing for Medical http://www.justice.gov/opa/pr/minnesota-based- Devices,” Health Affairs 27, no. 6 (2008): 1523–31. medtronic-inc-pay-99-million-resolve-claims-company- paid-kickbacks-physicians. 63 Pauly and Burns, “Price Transparency.” 44 GAO, “Lack of Price Transparency.” 64 Robinson and Bridy, “Confidentiality and Transparency.” 45 Uwe Reinhardt, “The Disruptive Innovation of Price 65 John Tozzi, “How Much Do Medical Devices Cost? Transparency in Health Care,” Journal of American Doctors Have No Idea: Secrecy in Pricing Keeps Doctors and Hospitals in the Dark,” Bloomberg Business, Medical Association, 310, no. 18 (2013): 1927–28. January 23, 2014, http://www.bloomberg.com/news/ 46 Christopher Whaley et al., “Association between articles/2014-01-23/how-much-do-medical-devices-cost- Availability of Health Service Prices and Payments doctors-have-no-idea. for These Services,” Journal of the American Medical 66 Robinson, “Value-Based Purchasing.” Association 312, no. 16 (2014): 1670–76. 67 Kanu Okike et al., “Survey Finds Few Orthopedic 47 GAO, “Lack of Price Transparency.” Surgeons Know the Costs of the Devices They Implant,” 48 Robinson and Bridy, “Confidentiality and Transparency.” Health Affairs 33, no. 1 (2014): 103–09. 49 Robinson and Bridy, “Confidentiality and Transparency.” 68 Mike Hammons, “5 Ways Mobile Is Revolutionizing Medical Device Sales,” MedCity News, November 5, 50 Pauly and Burns, “Price Transparency.” 2013, http://medcitynews.com/2013/11/5-ways-mobile- 51 Robinson and Bridy, “Confidentiality and Transparency.” revolutionizing-medical-device-sales/. 52 Pauly and Burns, “Price Transparency.” 69 Under hospital rules, the operating surgeon exercises control over who may enter the operating room. Robinson 53 Pauly and Burns, “Price Transparency.” and Bridy, “Confidentiality and Transparency.” 54 Pauly and Burns, “Price Transparency.” 70 Jeffrey Lerner et al., “Consequence of Secret Prices.” 13 AUG U S T 2017 71 Katie Thomas et al., “Detailing Financial Links of Doctors 88 Federal Trade Commission (FTC), Letter to California and Drug Makers,” New York Times, September 30, Assemblyman G. Aghazarian, September 7, 2004. 2014. 89 Pauly and Burns, “Price Transparency.” 72 Campbell et al., “National Survey.” 90 Hahn, Klovers, and Singer, “Need for Greater Price 73 MedPAC, “Payment for New Technologies.” Transparency.” 74 Mary-Margaret Chren and C. Seth Landefeld, 91 Transparency in Medical Device Pricing Act of 2007. “Physicians’ Behavior and Their Interactions with Drug 92 Consolidated Appropriations Act of 2016 (Pub.L. No. Companies: A Controlled Study of Physicians Who 114–113). Requested Additions to a Hospital Formulary,” Journal of the American Medical Association, 271, no. 9 (1994): 93 California Healthcare Institute, “Driving toward Value.” 684–89. 94 Elizabeth W. Paxton et al., “The Kaiser Permanente 75 Thomas et al., “Detailing Financial Links.” National Total Joint Replacement Registry,” Permanente Journal 12, no. 3 (2008): 12–16. 76 Barnaby J. Feder, “Artificial-Joint Makers Settle Kickback Case,” New York Times, September 28, 2007. 95 “Blue Cross Blue Shield Association Launches Evidence Street Website to Streamline Evaluations of Medical 77 Thomas et al., “Detailing Financial Links.” Devices, Diagnostics and Pharmaceuticals”, Blue Cross/ 78 AdvaMed, “Code of Ethics on Interactions with Health Blue Shield, Center for Clinical Effectiveness, formerly Care Professionals” (AdvaMed, 2009). Technology Evaluation Center, Press Release, December 2, 2016. 79 Feder, “Artificial-Joint Makers.” 96 “About ECRI Institute”, ECRI Institute, 2016, 80 DOJ, “DOJ Settlement.” http://www.ECRI.org. 81 Majority Staff, Committee on Finance, U.S. Senate, 114th 97 “What We Do”, Agency for Healthcare Research and Cong. 2nd Sess., “Physician Owned Distributorships: Quality, http://www.AHRQ.Gov. An Update on Key Issues and Areas of Congressional 98 National Institutes of Health (NIH), “NIH Clinical Trials Concern” (2016); HHS Office of Inspector General, and You: List of Registries” (Bethesda, MD: NIH, updated “Special Fraud Alert: Physician-Owned Entities,” Federal May 11, 2016), http://www.nih.gov/health-information/nih- Register 78, no, 19271 (March 29, 2013). clinical-research-trials-you/list-registries. 82 Robinson and Bridy, “Confidentiality and Transparency.” 99 Paxton et al., “Kaiser Permanente.” 83 Okike et al., “Survey Finds Few Orthopedic Surgeons.” 100 Richard E. Gliklich and Nancy A. Dreyer, eds., Registries 84 Transparency in Medical Device Pricing Act of 2007, S. for Evaluating Patient Outcomes: A User’s Guide, 2nd 2221, 110th Cong. (2007), https://www.congress.gov/ ed. (Rockville, MD: Agency for Healthcare Research and bill/110th-congress/senate-bill/2221?q=%7B%22search Quality, September 2010). %22%3A%5B%22Medical+Device+Pricing+Act%22%5 101 Pew Charitable Trusts, “Medical Device Registries: D%7D. Recommendations for Advancing Safety and Public 85 National Conference of State Legislatures, “State Health” (Pew Charitable Trusts, August 2014), Legislation Relating to Transparency and Disclosure http://www.pewtrusts.org/en/research-and-analysis/ of Health and Hospital Charges” (National Conference reports/2014/09/medical-device-registries. of State Legislatures, June 2014), http://www.ncsl.org/ 102 DA, “Unique Device Identification System, Final Rule,” research/health/transparency-and-disclosure-health- Federal Register 78, no. 185 (2013), http://www.gpo.gov/ costs.aspx. fdsys/pkg/FR-2013-09-24/pdf/2013-23059.pdf. 86 Robert Hahn, Keith Klovers, and Hal Singer, “The Need 103 John Tozzi, “Drugs Could Soon Come with a Money- for Greater Price Transparency in the Medical Device Back Guarantee,” Bloomberg Business, October 8, 2015, Industry: An Economic Analysis,” Health Affairs 27, no. 6 http://www.bloomberg.com/news/articles/2015-10-08/ (2008): 1554–59. drugs-could-soon-come-with-a-money-back-guarantee. 87 Suzanne Delbanco, Francois de Brantes, and Judith 104 Patient Protection and Affordable Care Act of 2010, § Hibbard, “The Payment Reform Landscape: A Road 6002, “Transparency Reports and Reporting of Physician Map for States to Bring Their Transparency ‘A’ Game,” Ownership or Investment Interests,” Pub. L. 111-148 Health Affairs Blog, July 26, 2016, http://healthaffairs.org/ (2010), http://www.cms.gov/Regulations-and-Guidance/ blog/2016/07/26/the-payment-reform-landscape-a-road- Legislation/National-Physician-Payment-Transparency- map-for-states-to-bring-their-transparency-a-game/. Program/index.html. 14 AUG U S T 2017 105 Shantanu Agrawal, Niall Brennan, and Peter Budetti, 115 CMS, “Contract Suppliers Selected under Medicare “The Sunshine Act—Effects on Physicians,” New Competitive Bidding Program,” press release, April 9, England Journal of Medicine 368 (2013): 2054–57. 2013, https://www.cms.gov/Newsroom/MediaRelease Database/Press-releases/2013-Press-releases- 106 “Open Payments”, Centers for Medicare & Medicaid items/2013-04-092.html. Services (CMS), 2016, http://www.cms.gov/Regulations- 116 James Robinson and Kimberly MacPherson, “Payers and-Guidance/Legislation/National-Physician-Payment- Test Reference Pricing and Centers of Excellence to Transparency-Program/index.html. Steer Patients to Low Price and High-Quality Providers,” 107 Thomas et al., “Detailing Financial Links.” Health Affairs 31, no. 9 (2012): 2028–36. 117 Kai Ruggeri and Ellen Nolte, “Pharmaceutical Pricing: 108 Elizabeth Carder-Thompson and Katie Pawlitz, The Use of External Reference Pricing” (Santa Monica, “Update on Medical Device Manufacturer Marketing CA: RAND Europe, 2013), http://www.rand.org/content/ Activities: State and Federal Restrictions and Reporting dam/rand/pubs/research_reports/RR200/RR240/ Requirements” (Reed Smith LLP, May 31, 2011), RAND_RR240.pdf. https://www.reedsmith.com/en/perspectives/2011/05/ 118 James Robinson and Timothy Brown, “Increases in update-on-medical-device-manufacturer-marketing-ac. Consumer Cost Sharing Redirect Patient Volumes and 109 “Innovation Models”, Centers for Medicare & Medicaid Reduce Hospital Prices for Orthopedic Surgery,” Health Services (CMS) Innovation Center, “Bundled Payments Affairs 32, no. 8 (2013): 1392–97. for Care Improvement” (CMS, 2016), https://innovation. 119 Barry Meier, “Hospital Billing Varies Wildly, Government cms.gov/initiatives/BPCI-Model-1/. Data Shows,” New York Times, May 8, 2013. 110 Medicare Program, “Comprehensive Care for Joint 120 Reinhardt, “Disruptive Innovation.” Replacement Payment Model for Acute Care Hospitals 121 US Department of Labor, “FAQs about Affordable Care Furnishing Lower Extremity Joint Replacement Services: Act Implementation (Part XXI)” (US Department of Labor, Final Rule,” Federal Register 80, no. 73237 (2015) (to be October 10, 2014), http://www.dol.gov/ebsa/faqs/faq- codified at 42 C.F.R. 510). aca21.html. 111 PepsiCo, “Johns Hopkins Medicine to Offer PepsiCo 122 Chapin White and Megan Eguchi, “Reference Pricing: Employees New Travel Surgery Benefit,” news release, A Small Piece of the Health Care Price and Quality December 8, 2011, http://www.pepsico.com/PressRelease/ Puzzle,” Research Brief 18, National Institute for Health Care Reform, October 2014, https://www.mathematica- Johns-Hopkins-Medicine-to-Offer-PepsiCo-Employees- mpr.com/our-publications-and-findings/publications/ New-Travel-Surgery-Benefit12082011.html. reference-pricing-a-small-piece-of-the-health-care-price- 112 U.S. Department of Health and Human Services (HHS), and-quality-puzzle. Office of Inspector General, “Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries,” Special Advisory Insight on the Issues 129, August 2017 Bulletin, HHS Office of Inspector General, July 1999, © AARP PUBLIC POLICY INSTITUTE http://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm. 601 E Street, NW 113 CMS and HHS Office of Inspector General, “Waiver Washington DC 20049 Designs in Connection with the Medicare Shared Savings Follow us on Twitter Program,” Federal Register 76, no. 19655 (2011), Follow us on Facebook http://www.gpo.gov/fdsys/pkg/FR-2011-04-07/pdf/2011- Visit our Web site 7884.pdf. For more reports from the Public Policy Institute, visit the Public Policy Institute 114 HHS Office of Inspector General, “Safe Harbors for Web site. Gainsharing Arrangements,” Federal Register 79, no. 59717 (2014), http://oig.hhs.gov/authorities/docs/2014/safe_ harbor_beneficiary_inducements_proposed_rule.pdf. The information and options expressed here are intended for discussion and debate and do not necessarily represent official views of AARP. 15