Medical device makers have long faced intense pricing pressure from customers and scrutiny from policy-makers, but an ongoing industry study suggests that medtech has for years been a minor factor in the growing cost of U.S. care.
Researchers for industry lobbying group AdvaMed released the 2nd edition of their pricing study, reporting that medtech represents a reliably small portion of total U.S. healthcare spending. Devices spending has grown from 5.3% to 5.9% of total national healthcare spending over a 23-year period spanning from 1989 to 2011, and most of that increased occurred before 1992, according to the researchers. Furthermore, their analysis found that medical devices have grown far more slowly than the Medical Consumer Price Index.
Medical devices have often been cited as a driver of rising healthcare costs. A study released in November 2013 highlighted medtech as a major "culprit" in driving up U.S. healthcare spending, although the team of physician researchers lumped medtech spending together with pharmaceuticals.
The AdvaMed study aimed to dispel "misconceptions" about medtech spending and pricing, using Census Bureau data and methods consistent with those used by the Centers for Medicare & Medicaid Services to tease out the costs of and spending on medical technologies up to 2011, the latest data available.
The researchers found $159.4 billion in spending on medical devices and in-vitro diagnostics in 2011, representing 5.9% of the total spent on U.S. healthcare that year. Medtech has represented about 6% of total healthcare spending for years, having grown from 5.3% in 1989, a 0.6% boost over 23 years.
During that time, total healthcare spending in the U.S. grew from $647.5 billion in 1989 to $2.69 trillion in 2011. Medical device expenditures grew from $34.6 billion to $159.4 billion. During that period, medtech never accounted for more than 6.1% of total healthcare spending.
Prices for medical devices have grown at an even slower rate, increasing at an average of 1% per year over the duration of the study. That compared with a 2.7% annual growth rate in the Consumer Price Index and a 4.6% annual growth rate in the Medical Care CPI, according to the study.
Medtech prices saw some significant increases in the early 90s, with a 3.4% year-over-year bump in 1990 and a 3.1% bump in 1991, but increases slowed significantly in the mid-90s. Since 1994, annual pricing bumps have stayed below 2%, and since 2004 rates have stayed at or below 1.1%.
"During much of the 23-year period 1989 to 2011, a significant driver of changed medical practice has been the development of new medical devices – from stents to implantable defibrillators to artificial hips and knees to new imaging modalities to new diagnostic tests and new surgical tools," the authors wrote. "In view of the conventional wisdom about the role of medical technology in driving up costs, it is surprising that the cost of medical devices has risen little as a share of total national health expenditures. It is also striking that, unlike most other areas of medicine, the prices of medical devices have actually been growing more slowly than both the MC-CPI and the CPI as a whole."
However, medical device pricing is a tricky issue, especially since many hospitals negotiate individual pricing for their devices, and those prices are kept confidential. Obscurity in medical device pricing has gotten the attention of some lawmakers, including Senator Angus King (I-Maine) who introduced a new bill that would prevent medical device companies from including pricing confidentiality clauses in their contracts with hospital and healthcare providers.
The study included a wide range of medical devices, from pacemakers to contact lenses and prosthetics, as categorized under "surgical and medical instrument manufacturing" codes maintained by the North American Industry Classification System, a coding system developed under the Office of Management & Budget and federal statistical agencies.
The researchers examined electrochemical and electrotherapeutic devices; irradiation devices; surgical and medical instruments; surgical devices and supplies; and opthalmic goods, according to the report. All categories are classified by NAICS under "surgical and medical instrument manufacturing." (For more detailed information on each of these codes, see full list and summaries below.)
NAICS codes included in this study:
334510 – Electromedical and electrotherapeutic apparatus
This U.S. industry comprises establishments primarily engaged in manufacturing electromedical and electrotherapeutic apparatus, such as magnetic resonance imaging equipment, medical ultrasound equipment, pacemakers, hearing aids, electrocardiographs, and electromedical endoscopic equipment.
334517 – Irradiation apparatus
This U.S. industry comprises establishments primarily engaged in manufacturing irradiation apparatus and tubes for applications, such as medical diagnostic, medical therapeutic, industrial, research and scientific evaluation. Irradiation can take the form of beta-rays, gamma-rays, X-rays, or other ionizing radiation.
339112 – Surgical and medical instruments
This U.S. industry comprises establishments primarily engaged in manufacturing medical, surgical, ophthalmic, and veterinary instruments and apparatus (except electrotherapeutic, electromedical and irradiation apparatus). Examples of products made by these establishments are syringes, hypodermic needles, anesthesia apparatus, blood transfusion equipment, catheters, surgical clamps, and medical thermometers
339113 – Surgical apparatus and supplies
This U.S. industry comprises establishments primarily engaged in manufacturing surgical appliances and supplies. Examples of products made by these establishments are orthopedic devices, prosthetic appliances, surgical dressings, crutches, surgical sutures, personal industrial safety devices (except protective eyewear), hospital beds, and operating room tables.
339115 – Ophthalmic goods
This U.S. industry comprises establishments primarily engaged in manufacturing ophthalmic goods. Examples of products made by these establishments are prescription eyeglasses (except manufactured in a retail setting), contact lenses, sunglasses, eyeglass frames, and reading glasses made to standard powers, and protective eyewear.