HAL J. SINGEREMPIRIS, L.L.C.

Is Greater Price Transparency Needed in the

Medical Device Industry?

Overview

Assess previous attempts to mandate disclosure rules Health care industry Other industries

Identify economic conditions where mandatory disclosure generates net social benefits

Apply lessons to the medical device industry

Case Studies

Cement: In 1993, Danish antitrust authority published stats on transactions prices of individual firms for two types of ready-made cement in three regions of Denmark

Rail rates: In 1986, Congress required disclosure of all essential grain contract terms to the ICC

Long-distance rates: In the mid-1980s, FCC required AT&T to post its tariffs.

Conditions Under Which Mandatory Disclosure Generates Large Benefits

General conditions 1. search costs are large and are reduced

substantially; and 2. disclosure provides current price information.

Industry-specific conditions are3. competitive forces would cause

intermediaries to pass cost savings on to end users; and

4. there is a large variation in the price paid by purchasers not related to volume, loyalty, or bundled discounts

Conditions Under Which Mandatory Disclosure Generates Large Costs

1. production is concentrated among only a small number of firms;

2. there are few other products that can be easily substituted for the product in question;

3. there is significant repeated interaction between firms in the industry;

4. there is significant product standardization across firms in the industry;

5. firms do not already know their rivals’ prices.

Application of Framework to Implantable Devices (Benefits)

Are Search Costs Large? No: GPOs reduce search costs for negotiated

medical product sales. Would Disclosure Provide Current Price

Information? No: Prices disclosed would represent prices for

the past quarter rather than current prices. Average price data also incorporate discounts

(volume, bundled, loyalty), which frustrate straightforward comparisons

Application of Framework to Implantable Devices (Benefits)

Would Competitive Forces Cause Hospitals to Pass Cost Savings on to Their Patients? No: Hospital purchasing decisions are influenced by

individual surgeons. Hospitals with local market power are not likely to

pass on savings.

Do Prices for Medical Devices Vary Across Hospitals for Reasons Unrelated to Volume Discounts? Unsure: GAO notes that price differences varied by the

size of the hospital involved

Application of Framework to Implantable Devices (Costs)

Is the Supply of Medical Devices Concentrated? Yes: 2 makers of drug-eluting heart stents, 3

makers of ICDs

Are Other Products Substitutable? No: Hospitals prefer to standardize In cases where substitution is possible (e.g., bare

metal stent v. drug-eluting stent ), supply is characterized by same firms

Application of Framework to Implantable Devices (Costs)

Do Industry Participants Repeatedly Interact? Yes: GPO contracts tend to be re-bid every three to five

years

Are Products Homogenous? Mixed: E.g., implantable orthopedics are differentiated

by type, shape, and adjustability

Do Industry Participants Already Know Their Rival’s Prices? No: GPO transaction prices are not publicized and tend

to vary by contract

Conclusion

Conditions under which the benefits of mandatory price disclosure are likely to be large are not met.

Conditions under which the costs of mandatory price disclosure are likely to be large are met.

Analysis indicates that the proposed rule would not reduce prices for hospitals or patients.