The Healthcare Imperative Lowering Costs and Improving Outcomes: Workshop Series Summary (2010) / Chapter Skim
Currently Skimming:
5 Prices That Are Too High
5 Prices That Are Too High
Pages 175-218
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 175... ...
However, a policy change in 1993 has since allowed for the concentration of healthcare providers and relative increase of market inefficiencies. Estimating that current healthcare expenditures are about 0.4 to 0.5 percent higher than they would be absent price increases from hospital consolidations, Capps postulates that "unconcentrating" the market would yield between $10 billion and $12 billion in savings annually.
|
From page 176... ...
Lastly, Jeffrey C Lerner of ECRI Institute concludes this session discussing price-setting practices and market practices for medical devices.
|
From page 177... ...
Bates White, LLC Because Medicare and Medicaid payments are largely determined by administrative fiat, only payments by private parties, primarily insurers, are subject to potential price increases resulting from hospital ownership consolidation. Since 2002, payments to hospitals by private payers have made up 13 to 14 percent of national healthcare expenditures.1 This implies, for example, that if hospital prices increase by 10 percent then total national healthcare expenditures would increase by 1.3 to 1.4 percent.
|
From page 178... ...
Inpatient spending grow th rate 4% ( right scal e) 60 % 50 % 2% 40 % 0% 30 % PPO -2 % 20 % -4% HMO / POS 10 % 0% -6 % 00 06 04 05 02 03 07 01 0 6 8 9 9 2 4 5 8 3 7 91 8 8 9 9 9 9 9 9 9 9 9 20 20 20 20 20 20 20 20 19 19 19 19 19 19 19 19 19 19 19 19 FIGURE 5-2 Managed care penetration and inpatient spending growth.
|
From page 179... ...
. Economic literature exploring the relationship between hospital mergers and hospital pricing suggests that a significant portion of the resurgence in hospital spending growth rates was caused by price increases resulting from hospital mergers.
|
From page 180... ...
The majority of studies to date, however, conclude that hospital mergers and acquisitions have either no effect or a modest negative effect on quality, with the former finding being the more common.
|
From page 181... ...
During the 1990s, as described below, courts overwhelmingly sided with the merging hospitals. Subsequent research has shown that hospitals generally compete locally and that hospital mergers -- even those that have very small effects on MSA-level or multicounty HHIs -- can lead to large price increases (Capps and Dranove, 2004; Dafny, 2009; FTC, 2005)
|
From page 182... ...
In the decade after the last of these losses, 1998 to 2008, neither the FTC nor DOJ challenged a prospective hospital merger in court.6 Over the 15 years spanning 1993-2008, antitrust policy likely had little restraining effect on hospital mergers over this period. Hospital Consolidation and Likely Price Effects From 1997 to 2006, the average number of hospitals per MSA declined only slightly (American Hospital Association, 1997, 2006)
|
From page 183... ...
conclusion that prices increase by 1 percent per 160-point increase in HHI, hospital consolidation between 1997 and 2006 likely resulted in a 1.9 percent increase in hospital prices across MSAs and an average 1.6 percent price increase across patients.8 7 The antitrust agencies define markets with HHIs above 1,800 as "highly concentrated." U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, http://www.usdoj.gov/atr/public/guidelines/horiz_book/15.html.
|
From page 184... ...
Figure 5-4.eps 19 97 20 06 Independent hospitals Independent hospitals Systems with multiple facili ty licenses in M SA Systems with multiple facility licenses in M SA Systems with one facili ty license in M SA Systems with one facility license in M SA 28.0 % 30.4% 42 .5 % 50.9 % 21.0 % 27.1% FIGURE 5-5 The share of beds owned by independent hospitals and multihospital systems. NOTE: MSA = metropolitan statistical area.
|
From page 185... ...
The hospital prices faced by the average patient, computed by weighting by MSA admissions, would be about 6 percent lower. Hospital Consolidation and Healthcare Expenditures Within the set of 94 MSAs for which (1)
|
From page 186... ...
premiums are estimated to be 3.2 percent higher than they would have been absent any hospital merger activity during the 1990s." Another noteworthy fact is that the degree of hospital ownership consolidation, and thus the likely average price effect, is not evenly distributed across the country. The data show a mix of highly concentrated MSAs and unconcentrated MSAs, and a correspondingly high variation in price effects is likely.
|
From page 187... ...
likely to result in higher or lower prices. PRESCRIPTION DRUG PRICES Jack Hoadley, Ph.D.
|
From page 188... ...
Single-source brand-name drugs Typically drug purchases for those with private insurance are managed by a pharmacy benefit manager (PBM) under contract to health plans or private insurers.
|
From page 189... ...
Drug price negotiations are based primarily on shifts in market share among competing medications in a particular class of drugs. The PBM uses a variety of tools to move market share in negotiating lower prices.
|
From page 190... ...
NOTE: AMP = average manufacturer price; 5-9.eps Figure AWP = average wholesale price; PBM= pharmacy benefit manager.
|
From page 191... ...
According to the Congressional Budget Office (CBO) , the average Medicaid rebate for brand-name drugs in 2003 was about 35 percent of the average manufacturer price (CBO, 2005)
|
From page 192... ...
Frequently, they are purchased by physicians TABLE 5-2 Relative Prices for Federal Purchasers Average Price as a Setting Percentage of List Price Average wholesale price ("list price") 100 Best price (lowest for any private purchaser)
|
From page 193... ...
. At the same time, generic drug prices fell by 10.6 percent (MedCo Health, 2009; Purvis, 2009)
|
From page 194... ...
Drug prices are a key contributor to spending levels and vary widely across different sectors and payers. For most drugs, the manufacturing cost may be small (although higher for many specialty drugs)
|
From page 195... ...
Shift to more use of generic drugs Second, the effective average price for drugs overall is reduced to the extent the market shifts from brand drugs to generics when popular drugs lose patent protection. Due to lower prices, incentives imposed by payers, and rules allowing automatic substitution of a therapeutically equivalent generic at the pharmacy, about 90 percent of a drug's use is switched to the generic version within about 6 months of market approval.
|
From page 196... ...
market: those with private drug coverage, including those enrolled in Medicare drug plans. System savings will not be achieved, however, if lower prices in one market segment lead to higher prices elsewhere.
|
From page 197... ...
RTI International Durable medical equipment (DME) is defined in the National Health Expenditures Accounts as "retail sales of items such as contact lenses, eyeglasses, and other ophthalmic products; surgical and orthopedic products; hearing aids; wheelchairs; and medical equipment rentals" (CMS, 2009a)
|
From page 198... ...
Price Studies Because of concerns that Medicare's fee schedule leads to prices that are too high, the OIG and the GAO periodically conduct studies comparing Medicare fees to the prices for DME charged to other healthcare providers. Past studies focused on oxygen equipment, manual and power wheelchairs, inhalation drugs, hospital beds, and diabetes testing equipment, among other DME.
|
From page 199... ...
Products covered included oxygen equipment, hospital beds, enteral nutrition, urological supplies, surgical dressings, manual wheelchairs, general orthotics, and nebulizer inhalation drugs. Suppliers submitted bids on all of the items in a product category and provided quality and
|
From page 200... ...
Partly as a result of the demonstration projects, Congress mandated a national competitive bidding program for DME as part of the Medicare Modernization Act of 2003. Between 2007 and 2008, bidding was conducted for 10 products in 10 metropolitan areas, winning suppliers were selected, and the new, lower prices based on bidding were scheduled to go into effect on July 1, 2008.
|
From page 201... ...
= 0.28 * Total payments = $2.8 billion The potential savings of $2.8 billion equals 28 percent of current Medicare payments for DME and converts to 11.5 percent of the $24.5 billion total expenditures on DME and 0.12 percent of the $2,241.2 billion in total national health expenditures in 2007.
|
From page 202... ...
In this paper, we will describe attempts to operate bidding programs for Medicare, describe the use of demonstration programs to test public policy innovations, and suggest some alternative methods of obtaining market prices for durable medical equipment.
|
From page 203... ...
Medicare classifies durable medical equipment with prosthetics, orthotics, and supplies into an overall category with the ungainly acronym of DMEPOS, and generally pays for 80 percent of these items, with the remaining 20 percent copayment the responsibility of the beneficiary or his or her "Medigap" insurer. Medicare pays approximately $10 billion a year for DMEPOS items, about 2 percent of total Medicare spending.
|
From page 204... ...
The product categories that were selected for bidding were oxygen equipment and supplies, hospital beds, surgical dressings, urological supplies, enteral nutrition, manual wheelchairs, nebulizer drugs, and simple orthotics. Medicare announced five objectives for the DMEPOS bidding demonstration: • To use bidding to determine market prices of DMEPOS items; • To reduce the amounts paid by Medicare for DMEPOS items, and to reduce the copayment amounts paid by beneficiaries; • To assure continued beneficiary access to high-quality DMEPOS items;
|
From page 205... ...
According to an independent evaluation by Research Triangle Institute (RTI) , the demonstration was a success, with continued beneficiary access to high-quality DMEPOS items.
|
From page 206... ...
Great Solution, Even Greater Challenges The Medicare program has had a difficult history of operating bidding demonstrations. For example, as noted above, the DMEPOS bidding program was delayed for 18 months.
|
From page 207... ...
While the planned competitive bidding project in 80 metropolitan areas is best able to capture market prices, it suffers from continued political opposition and significant administrative time and costs required to operate the projects. Alternative methods of obtaining market prices and making the existing fee schedule more accurate include: • Operating a competitive bidding program in test markets, and ap plying the results of these bids on a national basis.
|
From page 208... ...
Medicare transparently pays more than market prices for DMEPOS items. The DMEPOS bidding demonstration showed an ability to reduce payment levels while maintaining access for high-quality items.
|
From page 209... ...
ECRI Institute The market for medical devices (including capital equipment and supplies) in the United States in 2008 was approximately $153 billion.13 In this paper, we estimate that hospitals, the primary purchasers of devices, would have saved approximately 3.1 percent or $4.73 billion in 2008 had they negotiated with manufacturers to achieve average savings for every device they bought.
|
From page 210... ...
The size and characteristics of the market for medical devices are further complicated by the sheer number of products and the rates at which manufacturers introduce technical changes in their products. For example, ECRI Institute categorizes a half-million supply items bought by hospitals into 2,278 categories in the Institute's Universal Medical Device Nomenclature System (UMDNS)
|
From page 211... ...
Other options to keep manufacturers from making prices opaque, such as banning the signing of secrecy clauses by hospitals doing business with the Medicare program, have also been proposed. With some 60 percent of the expenditures on medical devices potentially subject to secrecy clauses, this issue looms large in the ability to achieve the 3.1 percent average savings upon which we based our estimate of waste (Lerner et al., 2008)
|
From page 212... ...
For the purpose of this paper, ECRI Institute evaluated datasets of supplies from 123 hospitals that provided their complete "item masters" of purchases recorded from January 1, 2009 to May 1, 2009. Table 5-4 illustrates the findings from an analysis of actual prices paid, demonstrating that these hospitals collectively could achieve an average 3.1 percent savings if they negotiate to the average price paid for every supply item.16 We derive our estimate of total potential national savings in 2008 by multiplying the size of the market for medical devices, $152.65 billion, by 3.1 percent to arrive at $4.73 billion.
|
From page 213... ...
Volume Purchased Price Paid per Unit 600 6 $4,400 1,100 17 $4,500 200 9 $4,513 600 33 $4,650 300 15 $4,700 1,900 25 $4,800 500 20 $4,837 100 38 $5,000 * Number of beds rounded to the nearest 100 beds.
|
From page 214... ...
Conclusion The above analysis shows substantial savings but perhaps less than some policy makers might believe possible. These policy makers might note that the United States spends far more per capita on medical devices than the second largest purchaser of medical devices in the world, Japan, or the third largest purchaser, Germany (Table 5-7)
|
From page 215... ...
* United States 5.1 13.9 278 Japan 5.1 7.6 158 Germany 8.6 10.7 230 France 5.8 8.6 107 United Kingdom 4.8 7.6 97 NOTE: GDP = gross domestic product; MD = medical devices; THE = total health expenditures.
|
From page 216... ...
Hospitals are the major purchasers of medical devices, but they are not the only purchasers. Outpatient clinics and physician groups buy devices, but we were not able to study the prices they pay.
|
From page 217... ...
2005. Medical devices competitiveness and impact on public health expenditure.
|
From page 218... ...
2008. Price transparency for medical devices.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.