Senator Angus King (I-Maine) has a new bill on the floor that he says will correct a fundamental imbalance in the medtech market, namely by imposing more pricing transparency on medical device makers.

He started out researching the controversial medical device tax, he said on the Senate floor this week, but his research into medtech’s share of the cost of U.S. healthcare hit a wall when he couldn’t turn up information on how much hospitals are paying for various implantable devices. Given the growing emphasis on reigning in healthcare costs, the lack of transparency in medical devices may be hindering market forces that may otherwise help lower prices, King said.

"If hospitals can’t be prudent purchasers, we who are paying the bills, quite often through Medicare and Medicaid, are not able to get the best prices," King said. "Who pays? All of us pay."

The culprit, that King aims to do away with, is the confidentiality contract that a hospital signs after negotiating pricing with a medical device provider.

"Hospitals, which are the purchasers of these devices, are often prevented by agreements with the medical device company from revealing the price they pay," King said on the Senate floor this week. "In other words, there is no transparency about the prices of these devices which find their way into the cost of everybody’s health care."

King maintained that he believes strongly in markets as the "best way to allocate goods and services," but that pricing secrecy hinders natural forces that help customers seek out the best prices for products. He stopped short of saying that device-makers over-charge for their technologies, but hinted that the pricing secrecy makes that sort of thing likely.

"Imagine for a moment going to buy a new car and there is no advertising about the prices of the cars. We couldn’t go on the Internet and determine the prices of the cars. We couldn’t compare the prices of the cars from one dealer to the other," King said. "But we go in and somebody behind a closed door says, OK, the price is $20,200, and we are not allowed to tell anybody the price we are paying for this car, and we have to sign an agreement that we are keeping that price secret. Imagine that system, and imagine for a moment what would happen to the price of cars. I don’t think it is gross speculation to assume that the price would go up, because there is no transparency."

King’s amendment would prohibit manufacturers from requiring that hospitals agree to confidentiality clauses in purchasing agreements, and would further require that device makers file quarterly reports on the average and median sales prices for covered devices. King attached his amendment, No. 3802, to the ongoing tax extenders negotiations that have also hosted negotiations about repealing the medical device tax.

"To the extent that prices of implantable medical devices, which are very expensive generally, are not disclosed, the ability of hospitals to bring price information to bear in negotiations and decisions is clearly limited," King said. "I believe if we are going to talk about repealing a medical device tax, we should also talk about calling upon the industry to provide to consumers and policymakers greater transparency in order to better control costs."

Pricing concerns and moves toward transparency have gotten traction with hospitals in the past, especially as the Centers for Medicare & Medicaid Services have put pressure on hospitals to open up about their billing practices. The American Hospital Assn. last year issued a statement in support of transparency in hospital billing, responding to growing concerns about the obscurity of the cost of care in the U.S. Various studies have exposed how difficult it can be for patients to gauge their medical expenses, especially for complicated procedures. Even hospitals themselves have had trouble figuring out how much a procedure may cost ahead of time.

Medical device makers, on the other hand, have actively lobbied against the notion that device costs are to blame for growing U.S. healthcare spending. Medtech lobby AdvaMed issued a report in 2012 showing that medical device spending as a share of national health expenditures barely budged between 1989 and 2010, growing from 5.3% of overall costs to 6.0%. Most of that growth occurred prior to 1992 and since then medtech spending has represented about 6% of U.S. health spending, researchers said.

Here’s the full transcript of Sen. Angus’ remarks:

Mr. President, I believe in markets and I believe in transparency, and that is what I wish to speak about today. I think markets generally are the best allocators of goods and services, but in order for markets to work, people who purchase – consumers – need information. I wish to address one small piece of a very important market today.

I serve on the Budget Committee of this body and as such I have had an opportunity to look at not only the current budget but projections of future budgets. I think it is important to emphasize that virtually all the growth – all the growth – in future Federal budgets is attributable to health care – all the growth. It is not Pell grants, it is not national parks, it is not national defense, it is not the National Security Agency; it is all in health care.

There are several ways we can control those costs. One way which has been suggested is to simply shift those costs off to other people – to the States, to the elderly, to other citizens – and say it is not the Federal Government’s problem; it is someone else’s problem. I would suggest that is not the answer. We need to be focused on the issue of health care costs generally, for everyone – for the Federal Government as a consumer, as it is in Medicare and Medicaid, but also for all of us as health care consumers across the country.

The standard response around here to growing health care costs is to cut programs, cut recipients, reduce payments to States, or reduce payments to providers. That does nothing about the fundamental issue. I can tell my colleagues that none of these steps has anything to do with reducing the demand for services or the costs of those services. We have to spend the money we have more responsibly.

There have been discussions recently about repealing the medical device tax which was passed as part of the Affordable Care Act. The theory, by the way, was that the Affordable Care Act would produce, as it has, millions of new customers for the private insurance industry as well as for all of those who participate in the health care system, including those who manufacture medical devices. The Affordable Care Act has produced new customers. And the theory, as I understand it, because I wasn’t here when the bill was originally passed, was the industry – the businesses that will profit by the production of new customers through new people gaining insurance who never had it before – was that part of that would be paid back to support the overall system. That was the idea of the tax on medical devices. I realize the medical device tax is a controversial tax and that strong arguments can be made that it should be modified or reduced. But the repeal of the medical device tax would cost the government $29 billion over the next 10 years. That is money, as we all know, that has to be replaced somewhere else. So I think that is a consideration that has to be taken into account as we discuss this matter which is under consideration as part of the tax extenders package.

As I looked into this issue and thought about the medical device industry, I was surprised to find it is very difficult to find out the price of an implantable medical device. One of the reasons is that the hospitals, which are the purchasers of these devices, are often prevented by agreements with the medical device company from revealing the price they pay. In other words, there is no transparency about the prices of these devices which find their way into the cost of everybody’s health care.

Imagine for a moment going to buy a new car and there is no advertising about the prices of the cars. We couldn’t go on the Internet and determine the prices of the cars. We couldn’t compare the prices of the cars from one dealer to the other. But we go in and somebody behind a closed door says, OK, the price is $20,200, and we are not allowed to tell anybody the price we are paying for this car, and we have to sign an agreement that we are keeping that price secret. Imagine that system, and imagine for a moment what would happen to the price of cars. I don’t think it is gross speculation to assume that the price would go up, because there is no transparency.

I have filed amendment No. 3802 to H.R. 3474, which is the tax extenders bill that is pending. It simply says that when a medical device is being sold, the manufacturer cannot impose a secrecy provision on the hospitals that purchase these devices, and they also have to report median prices to the Secretary of Health and Human Services on a regular basis.

In 2012, the GAO did a report on Medicare and one of the pieces of the report was titled “Lack of Price Transparency May Hamper Hospitals’ Ability to Be Prudent Purchasers of Implantable Medical Devices” – a long title, but the conclusion is contained in the title: “may hamper hospitals’ ability to be prudent purchasers.” Well, if hospitals can’t be prudent purchasers, we who are paying the bills, quite often through Medicare and Medicaid, are not able to get the best prices. Who pays? All of us pay.

This amendment would prohibit medical device manufacturers from requiring hospitals and buyers to sign purchasing agreements that contain confidentiality clauses that would restrict them from revealing the prices paid for medical devices to third parties. In addition, as I mentioned, the amendment would require these manufacturers to submit the average and median sales prices of covered devices to the Secretary of Health and Human Services on a quarterly basis.

In 2007, my good friend Senator Grassley from Iowa sponsored a bipartisan bill to create a process of reporting this kind of price data to HHS, and I believe it is time to do just that.

To the extent that prices of implantable medical devices, which are very expensive generally, are not disclosed, the ability of hospitals to bring price information to bear in negotiations and decisions is clearly limited. I believe if we are going to talk about repealing a medical device tax, we should also talk about calling upon the industry to provide to consumers and policymakers greater transparency in order to better control costs.

In a world of limited resources, we have to spend the money we have most wisely. It is very difficult to spend money wisely if prices and comparative prices and prices of the various components of the health care system are essentially kept secret.

This is a simple amendment. It is simply based upon the fundamental idea that markets work, but they only work when consumers – in this case, hospitals – have the information necessary to make good purchasing decisions. I think markets, as I said at the beginning, are the best way to allocate goods and services, but that information is necessary for markets to work, and that is the purpose of this amendment.