However, to the extent that such  information is derived from purchasing agreements containing  confidentiality clauses, these data intermediaries may be potential targets  of litigation by device manufacturers. For example, the APC payment for a  pacemaker implantation procedure represents a bundled payment for the  pacemaker device, routine supplies, and the operating or procedure  room. Medicare’s Payment Systems Indirectly Account for Prices Hospitals Pay for IMDs; Efforts Are Under Way to Better Account for These Prices

Medicare does not directly purchase IMDs but accounts for hospitals’ IMD  prices indirectly. CMS collects data on hospitals’ costs for all  services and supplies from Medicare cost reports. Further charges reported on the  outpatient claims generally reflect what the hospital reports as the full cost  of the IMD. While cardiac  and orthopedic procedures accounted for nearly all IMD-related  expenditures, orthopedic procedures accounted for most of the increase  in such expenditures during our period of study. Utilization increased at a  faster rate for orthopedic devices and explained the majority of changes  in expenditures for IMD procedures during the period. Medicare Expenditures for IMD Procedures Increased from About $16 Billion to $20 Billion between 2004 and 2009, with Orthopedic IMD Procedures Driving Most of That Growth

From 2004 through 2009, expenditures for hospital IMD procedures  increased from $16.1 billion to $19.8 billion, an increase of 4.3 percent  per year—a rate equal to that of Medicare spending for other hospital  procedures. 2). 6). Per-beneficiary utilization related to  cardiac stents, AICDs, and pacemakers all decreased in the inpatient  setting and increased in the outpatient setting. Information Available on the Prices Hospitals Paid for Selected IMDs Shows Substantial Variation; Hospital-Physician Relationships Are a Particular Influence on Prices Paid

Complete and comparable information on the prices hospitals paid for the  various models of IMDs was limited, as reflected in responses to our data  request. The price information that was provided showed substantial  variation in the prices hospitals paid for the same type of device. A  particular factor that influences the prices hospitals pay for IMDs is  hospitals’ ability to manage relationships with physicians and  manufacturers. Various Factors Limit the Availability of Detailed Information on the Prices Hospitals Paid for Selected IMDs

Detailed information on both the specific model purchased and the sale  price net of discounts and rebates is needed to accurately compare the  amount hospitals paid for various types of IMDs. However, not all 39  hospitals, 5 GPOs, the VA health care system, and 8 DOD medical  centers or hospitals responding to our request provided us with such  detailed information for three types of cardiac IMDs and two types of  orthopedic IMDs purchased during fiscal year 2010. Concluding Observations

The lack of price transparency for the IMDs we examined makes it difficult  to know whether hospitals are achieving the best device prices. This lack  of price transparency may have implications for Medicare because  excess or unnecessary IMD costs that hospitals incur may be passed on  to the Medicare program. While we were able to obtain detailed IMD pricing data  from 31 of the 60 hospitals we contacted, the effort revealed the  challenges in compiling and analyzing meaningful price information even  from this relatively small number of hospitals. Furthermore, we observed  substantial variation in the prices that these 31 hospitals paid for cardiac  devices. These data suggest that some hospitals have substantially  less bargaining power with the small group of companies that  manufacture particular IMD devices and consequently face challenges in  obtaining more favorable prices. Physician preferences for particular manufacturer’s devices and models  may further complicate hospitals’ bargaining power. Such preferences  may shape hospitals’ purchasing decisions and limit their ability to obtain  volume discounts from device manufacturers. Moreover, many device  manufacturers require confidentiality clauses that prohibit hospitals from  disclosing their negotiated prices with third parties, which may include  physicians. Agency and Industry Comments

The Department of Health and Human Services and VA reviewed a draft  of this report and provided technical comments, which we incorporated as  appropriate. DOD also reviewed a draft of this report and had no  comments.
Why GAO Did This Study

Implantable medical devices (IMD)including a variety of cardiac and orthopedic devices provided to Medicare beneficiaries in inpatient or outpatient hospital settingsrepresent a significant share of hospitals supply costs. Hospitals purchase IMDs directly from manufacturers or through group purchasing organizations (GPO) and their purchasing agreements often contain confidentiality clauses restricting them from revealing to third parties the prices they pay for such devices. Policymakers are concerned that the lack of price transparency inhibits competition in the device market, leading to higher costs for hospitals, and ultimately higher Medicare spending. GAO was asked to examine (1) Medicare spending and utilization trends for procedures involving IMDs provided to beneficiaries, and (2) what available information shows about the prices hospitals pay for IMDs and any factors particular to the IMD market that influence those prices. GAO analyzed the most recently available Medicare inpatient and outpatient hospital claims from fiscal years 2004 through 2009. GAO requested price information on five devices from 60 hospitals, 6 GPOs, Department of Defense (DOD) medical centers, and the Department of Veterans Affairs (VA) health system. GAO interviewed officials from GPOs, device manufacturers, large hospital systems, and small hospitals about the factors that affect the prices hospitals pay for IMDs.

What GAO Found

From 2004 through 2009, expenditures for hospital IMD procedures increased from $16.1 billion to $19.8 billion, an increase of 4.3 percent per yeara rate equal to that of Medicare spending for other hospital procedures. While cardiac and orthopedic procedures accounted for nearly all IMD-related expenditures, orthopedic procedures accounted for most of the increase in such expenditures during this period. Utilization increased at a faster rate for orthopedic devices and accounted for the majority of changes in expenditures for IMD procedures during the period.
The information GAO obtained on the amounts hospitals paid for selected IMDs showed substantial variation. For a number of reasons, the detailed information needed to accurately compare prices across hospitalsboth the specific model and sale price net of discounts and rebateswas not reported by all respondents for all IMDs in our study. However, data from 31 hospitals indicated substantial variation in reported prices for cardiac devices. For example, the difference between the lowest and highest price hospitals reported paying for a particular automated implantable cardioverter defibrillator (AICD) model was $6,844. The difference between the highest and lowest price reported for another AICD model was $8,723. The price differences for the remaining two AICD models in our study fell in between $6,844 and $8,723. The median prices across the four AICD models ranged from $16,445 to $19,007. A factor particular to the IMD market that affects prices hospitals pay is the influence of physicians on hospitals IMD purchasing. Although physicians are not involved in price negotiations, they often express strong preferences for certain manufacturers and models of IMDs. To the extent that physicians in the same hospital have different preferences for IMDs, it may be difficult for the hospital to obtain volume discounts from particular manufacturers. Also, confidentiality clauses barring hospitals from sharing price information make it difficult to inform physicians about device costs and thereby influence their preferences. Other factors that influence IMD prices include the degree of seller competition and a hospitals market share.
These data suggest that some hospitals have substantially less bargaining power with the small group of companies that manufacture particular IMDs and consequently face challenges in obtaining more favorable prices. The lack of price transparency and the substantial variation in amounts hospitals pay for some IMDs raise questions about whether hospitals are achieving the best prices possible. Any excess or unnecessary costs that hospitals incur through IMD pricing may be passed onto the Medicare program.
The Department of Health and Human Services, VA, and DOD reviewed a draft of this report and had no general comments.