“Have I Got A Deal For You?” — The Medical-Device Tax Shuffle and Medical Tourism


An Opinion piece in today’s New York Times by Topher Spiro, VP for health policy at the Center for American Progress, brought to mind two earlier posts I wrote about medical devices, more specifically hip replacements.

The first post, How much is that Hip Replacement in the Window?, described one woman’s attempt to get prices for hip replacement for her fictitious grandmother. The second post, If it is Tuesday, It Must Be Belgium, or an Inexpensive Hip Surgery, described how an American man went to Belgium to get a hip replacement and discovered that the cost of his hip differed drastically in Belgium from the price it cost in the US. The hip he received was manufactured by the same company that had quoted him a higher price here.

Spiro’s article, The Myth of the Medical-Device Tax, explodes the myth about the Medical-Device tax and its repeal, which was one of the ransom demands made by the Tea Party Republicans, as part of their attempt to defund, delay or repeal outright, the ACA, also known as “Obamacare”, during the recent hostage taking affair that ended today.

According to Spiro, the medical-device industry waged an intense lobbying campaign to repeal the tax on medical-devices, claiming that it would stifle innovation and increase health care costs. Spiro rightly labels this argument as “doubly disingenuous”, because he states that not only can the industry afford the tax without compromising innovation, but their enormous profits are the result of anticompetitive practices that drive up medical costs. He calls the tax a distraction from urgently needed reform to lower costs.

Here’s where the shuffle comes in, according to Spiro:

  • The medical-device industry faces virtually no price competition.
  • Confidentiality agreements that manufacturers require hospitals to sign mean the prices of the devices are cloaked in secrecy.
  • Lack of transparency (where have we heard this before, I wonder?) impedes hospitals from sharing price information and thus knowing whether they are getting a good deal.
  • Manufacturers often maintain personal relationships (sometimes involving financial payments like consulting fees) – more like bribes [emphasis added] with physicians who choose the medical devices that their hospitals purchase, creating a conflict of interest.
  • Often the physicians don’t know the costs of the devices and the individual physicians choose devices on their own, weakening the hospitals ability to get volume discounts.

These anticompetitive practices, Spiro writes, help generate a wide variation in the prices of medical devices, which contribute to higher prices in general. Spiro points out that the GAO (General Accountability Office of the US Congress), found that prices for implantable cardiac devices in the US vary by several thousand dollars, and the lowest-price devices are expensive when compared to those in other developed countries, as my second post on the subject describes in Belgium.

Spiro cites the consulting firm, McKinsey & Company, who reported that the US spends about 50% more on the top five medical devices, compared with Europe and Japan. This amounts to $26 billion in excessive spending each year, according to McKinsey.

What does Spiro recommend to lower costs? Here are the three key points he makes:

  • End the anticompetitive practices that prevent hospitals from getting the best deals.
  • Medicare should force manufacturers to compete for business based on a product’s price and quality, instead of simply paying hospitals based in part on what they have spent on them.
  • Medicare should also pay hospitals a single lump sum for all associated costs of a procedure, like hip replacements. This is called “bundling”.

With the recent “temper tantrum” of the GOP now abated for the next two or three months, it seems that the ACA is safe from the likes of Ted Cruz and his band of 18th century Classical Libertarians (i.e., conservative, laissez-faire capitalism). But as anyone who understands the mindset of such individuals knows, they will never give up in their attempt to recrudesce the Calvinist, Puritan spirit of original capitalism that Max Weber so eloquently described in his now-famous essay, “The Protestant Ethic and the Spirit of Capitalism”.

Yet, when one examines the high cost of the US health care system, due in part to  the free-market, and in the case of hip replacements, that traditional, capitalist practices as fair competition and transparency of prices, can be distorted by the manufacturers of such devices, then perhaps it is time to change direction and allow greater competition and greater transparency by opening up the US health care system to medical tourism, and for our purposes on this blog, the workers’ compensation system as well.

We have seen in the earlier posts that I have written on the subject, and others, that medical tourism can offer better health care at lower cost and at equal or better quality than what is available in the US today. I have said this before, and it bears repeating again and again…both the medical tourism industry and the workers’ compensation industry, must get to know each other, so that price transparency can  prove once and for all that medical tourism destinations are really cheaper than anything the workers’ compensation industry claims they can get here, and the workers’ compensation industry can see proof from the medical tourism industry that their quality is better.

It’s a win-win for both. To not do so is, well, you know, crazy.


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This entry was posted in Health Care Costs, Medical Tourism, Transparency, Workers' Compensation and tagged , , , , , , on by .

About Transforming Workers' Comp

Have worked in the Insurance and Risk Management industry for more than thirty years in New York, Florida and Texas in the Claims and Risk Management spheres, primarily in Workers’ Compensation Claims, Auto No-Fault and Property & Casualty Claims Administration and Claims Management. Have experience in Risk and Insurance Business Analysis, Risk Management Information Systems, and Insurance Data Processing and Data Management. Received my Master’s in Health Administration (MHA) degree from Florida Atlantic University in Boca Raton, Florida in December 2011. Received my Master of Arts (MA) degree in American History from New York University, and received my Bachelor of Arts (BA) degree in Liberal Arts (Political Science/History/Social Sciences) from SUNY Brockport. I have studied World History, Global Politics, and have a strong interest in the future of human civilization in all aspects; economic, political and social. I am looking for new opportunities that will utilize my previous experience and MHA degree. I am available for speaking engagements and am willing to travel. LinkedIn Profile: http://www.linkedin.com/in/richardkrasner Resume: https://www.box.com/s/z8rxcks6ix41m3ocvvep

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