Medicare: Lack of Price Transparency May Hamper Hospitals' Ability to Be Prudent Purchasers of Implantable Medical Devices
Published: 2012-01-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Implantable medical devices (IMD)including a variety of cardiac and orthopedic devices provided to Medicare beneficiaries in inpatient or outpatient hospital settingsrepresent 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.
section_title: What GAO Found
paragraphs: 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. 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 hospitalsboth the specific model and sale price net of discounts and rebateswas 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 hospitals 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.

section_title: Letter
paragraphs: Implantable medical devices (IMD)—a broad range of items that include  coronary stents, cardiac defibrillators, and hip and knee joint  replacements—can prolong life and improve the quality of life for patients   As the Medicare population grows and beneficiaries  that receive them.expect to live longer, the demand for IMDs is likely to increase steadily.  Therefore, the Centers for Medicare & Medicaid Services (CMS)—the  agency that administers the Medicare program—will continue to be a  major payer for procedures involving IMDs provided in both inpatient and  outpatient hospital settings.
See GAO, Group Purchasing Organizations: Services Provided to Customers and  Initiatives Regarding Their Business Practices, GAO-10-738 (Washington, D.C.: Aug. 24,  2010). available. Device manufacturers often require hospitals to sign  purchasing agreements that contain confidentiality clauses restricting  them from revealing to third parties the prices they paid for medical  devices. To the extent that information on IMD prices in the market is not  disclosed, the ability of hospitals to bring comparative price information to  bear in IMD purchasing negotiations and decisions may be limited.  Without such competitive pressure, the prices hospitals pay for IMDs may  be higher than they otherwise would be.
In an environment of increasing health care costs, the efficiency of the  IMD market has implications for Medicare cost containment.  Policymakers are concerned that the lack of price transparency inhibits  competition in the device market, leading to higher costs for hospitals,  and ultimately higher spending in Medicare. You asked us to examine various issues regarding Medicare spending and the prices of implantable  medical devices. In this report, we examined: (1) how Medicare’s hospital  payment systems account for the prices hospitals pay for IMDs, (2) the  spending and utilization trends for procedures involving IMDs provided to  Medicare beneficiaries, and (3) what available information shows about  the prices hospitals pay for IMDs and any factors particular to the IMD  market that influence those prices.
To describe how Medicare’s payment systems account for the prices  hospitals pay for IMDs, we reviewed annual regulations for the inpatient  prospective payment system and outpatient prospective payment system.
We also interviewed officials from CMS and the Medicare Payment  Advisory Commission.
To identify the Medicare spending and utilization trends for IMD  procedures provided to Medicare FFS beneficiaries, we analyzed the  most recently available Medicare inpatient and outpatient hospital claims  for a 6-year period, from fiscal years 2004 through 2009. Using  procedure and payment codes obtained from CMS and industry sources,  we identified 364 inpatient and 85 outpatient procedure codes that were  generally associated with an IMD. We matched these procedure codes  with 115 inpatient and 30 outpatient “device dependent” payment codes  in each claim. Because our list of IMD-dependent codes represented  procedures performed almost exclusively in a hospital setting, we  excluded procedures performed in other facilities (e.g., ambulatory  surgical centers). We only included services and expenditures when the  IMD-dependent procedure code was the primary procedure associated  with the payment for the claim submitted to Medicare. We examined  the extent to which changes in expenditures were explained by changes  in utilization or average cost. We determined that the claims data we  used were sufficiently reliable for the purposes of our analysis by  performing appropriate electronic data checks.
To determine what information is available on the prices hospitals pay for  IMDs, we selected five specific devices used in the five IMD-related  procedures that ranked highest in terms of Medicare spending in 2009.  The five devices were primary total knee implants, primary total hip  implants, coronary drug-eluting stents, automated implantable  cardioverter defibrillators (AICD), and cardiac resynchronization therapy  defibrillators (CRT-D). We asked 60 randomly selected hospitals,   6 GPOs, Department of Defense (DOD) medical centers and hospitals,  and the Department of Veterans Affairs (VA) to report fiscal year 2010  pricing information for each of these five IMDs. Of the 60 hospitals,   39 hospitals—or 65 percent—provided IMD pricing data; in some cases,  the information reflected purchases made by the health system with  which the hospital is affiliated or for a point in time during fiscal year 2010.  In addition, 5 of the 6 GPOs, 8 DOD medical centers or hospitals, and the  VA health care system provided IMD pricing data. To compare the  prices that hospitals paid for cardiac IMDs, we limited our analysis to  those hospitals that provided detailed information on both the specific  model and the sale price net of discounts and rebates. Not all hospitals  provided pricing information for each device model in our study. To  compare the prices that hospitals paid for orthopedic IMDs, we used  examples from the information provided by hospitals and GPOs on behalf  of their member hospitals. The data we obtained on cardiac and  orthopedic IMD prices are not generalizable. To identify the factors that  affect the prices hospitals pay for IMDs, we reviewed relevant literature  and interviewed officials from the 6 GPOs from which we requested  pricing data, 3 nongovernment hospital systems with the highest  revenues for 2009 and 2010, 5 large IMD manufacturers that  volunteered to participate through a trade association, 2 small hospitals  that performed a low volume of procedures involving orthopedic IMDs  commonly used among Medicare beneficiaries in 2009, and professional  associations representing orthopedic surgeons and cardiologists.
We conducted this performance audit from June 2010 to December 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Device Features and Industry Characteristics
paragraphs: Cardiac IMDs include cardiac rhythm management devices (such as  pacemakers, AICDs, CRT-Ds) and coronary stents. A pacemaker  monitors the patient’s underlying heart rhythm and delivers an electrical  pulse to cause the heart to beat at the desired rate. An AICD is similar to  the pacemaker in design, but is capable of delivering a higher energy  electrical pulse—called defibrillation shocks—to correct more serious  rapid and sustained heart rhythm irregularities. A CRT-D is a combination  of a pacemaker and defibrillator. A coronary stent (either bare metal or  drug-eluting) is a wire mesh tube used to prop open a blocked coronary  artery.
Orthopedic devices include joint implants—mostly commonly hips and  knees—as well as spinal devices used for spinal fusion. Typically, hip and  knee implants have a variety of components and are made up of different  materials, which may be combined into different configurations to make  the total device. The components and configurations of orthopedic  devices can vary by manufacturer. For example, for a hip replacement  with four different components there are different configurations and  different types of materials (metal, plastic, ceramic) that can be used as  well as different ways to secure the implant (cemented or fitted into the  bone with new bone growth to hold the implant in place). See figure 1.
The markets for specific cardiac and orthopedic IMDs are generally  dominated by a few large manufacturers. In the cardiac rhythm  management segment, the market is dominated by three U.S.  manufacturers. Also, four manufacturers share the drug-eluting stent  market.four manufacturers accounted for about 83 percent of the market share in  2009.
section_title: IMD Purchasing Agreements
paragraphs: Typically, hospitals negotiate IMD prices with manufacturers directly or  through GPOs. Contract negotiations between hospitals or GPOs and  manufacturers can occur at the national or local level. A custom or local  contract establishes a price for products that were not part of the GPO’s  overall contract portfolio or achieves a better price for a specific product  than what the national GPO contract offered. Contracts can include an  agreed-upon price for one or more devices and reflect rebates—an  agreement by the manufacturer to return a portion of the payment, which  may depend on a hospital’s commitment to purchase a certain volume.
In addition, hospitals may engage consulting firms that may act as data  intermediaries by gathering price information from clients and sharing  benchmarks for IMD costs with them. 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.
section_title: Medicare’s Payment Systems for Hospital Services
paragraphs: Medicare has separate inpatient and outpatient prospective payment  systems (PPS) for paying hospitals for services provided to beneficiaries  enrolled in FFS Medicare. Under the inpatient PPS, a hospital generally  receives a fixed, predetermined payment amount for a bundle of services   Inpatient payment rates  provided during a beneficiary’s hospital stay.are based on Medicare-severity diagnosis-related groups (MS-DRG), a  system that classifies inpatient stays according to both patients’ clinical  conditions (the primary diagnosis along with any secondary illnesses and  complications developed during the stay) and the procedures patients  receive. In general, an inpatient MS-DRG payment is calculated using a  base payment amount—a per hospital-stay rate for operating costs that  efficient hospitals would be expected to incur in furnishing covered  inpatient services—multiplied by a MS-DRG relative weight. The MS- DRG relative weight signifies the average costliness of stays assigned to  that MS-DRG relative to the average costliness of other inpatient stays.  CMS updates MS-DRG weights annually to incorporate any changes in  the cost of inpatient care.
Under the outpatient PPS, generally, the unit of payment is the individual  service. Outpatient PPS rates are based on ambulatory payment  classifications (APC), a system that classifies services based on their  similarity in terms of clinical characteristics and cost. For each APC,  Medicare makes a single bundled payment for the primary service and  any ancillary or supportive services. 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. An APC payment is calculated by multiplying an APC relative  weight by the conversion factor, a dollar amount that translates the  relative weight into dollar amounts. the resource requirements of the service and is based on the median cost  of services in the APC. CMS updates APC weights annually to account  for any changes in the cost of outpatient care.
CMS initially set the conversion factor so that projected total payments would equal the  estimated amount that would have been spent under the old cost-based outpatient  payment system, after correcting for some anomalies in statutory formulas.
Medicare claims to CMS identifying charges for services delivered to the  beneficiary—such as procedures involving IMDs.
section_title: Medicare’s Payment Systems Indirectly Account for Prices Hospitals Pay for IMDs; Efforts Are Under Way to Better Account for These Prices
paragraphs: Medicare does not directly purchase IMDs but accounts for hospitals’ IMD  prices indirectly. To help set prospective payment rates for inpatient and  outpatient hospital procedures, Medicare’s payment systems use data  from cost reports and claims. CMS collects data on hospitals’ costs for all  services and supplies from Medicare cost reports. The cost reports  capture data on hospitals’ costs for all services and supplies, including  IMDs, but do not separately identify specific IMD costs. Rather, hospitals  report costs for all medical supplies in one category, aggregating the  costs of low-cost items, such as surgical gloves, with the costs of high- cost items, such as cardiac defibrillators and total knee replacements. On  hospitals’ claims submitted for inpatient services, charges are billed by  categories of service. For example, an inpatient hospital claim for the  implantation of an AICD could include charges for an AICD and surgical  dressings in the supplies category. Using these aggregated cost data,  Medicare’s inpatient and outpatient payments indirectly account for prices  hospitals reportedly paid for IMDs.
Compared to hospital cost reports and charges on inpatient claims, the  data on hospitals’ charges on outpatient claims provide more specific  information about hospitals’ charges for individual IMDs. This occurs  because of the way Medicare classifies outpatient procedures for claims  and payment purposes. Specifically, CMS requires hospitals to include  device codes on claims where an appropriate code exists to describe a  device utilized in the procedure. Further charges reported on the  outpatient claims generally reflect what the hospital reports as the full cost  of the IMD.
Due to a lag in data, the cost of the newest IMD technology may not be  reflected in data used to set payment rates. Although CMS uses the most  recently available hospital claims data in order to help set inpatient MS- DRG and outpatient APC payments, the claims reflect data that predate  the year for which rates are being set by 2 years. For example, 2009  inpatient payments are based on Medicare claims from 2007.
To better reflect costs of new technology, Medicare makes additional  payments under the inpatient and outpatient payment systems. These  additional payments are generally made for 2 to 3 years, until sufficient  data on hospitals’ new technology costs can be collected and used in  payment rate setting. For inpatient procedures, CMS makes add-on  payments—made in addition to the MS-DRG payment—for procedures  involving new IMDs that meet certain criteria for newness, clinical benefit,  and cost. For outpatient procedures involving new IMD technology,  CMS makes pass-through payments for eligible new IMDs that can be  used in an existing service, and new technology APC payments for a new  procedure involving an IMD that cannot be adequately described by an  existing APC. Pass-through payments are made in addition to the APC  payment for the procedure involving the new IMD. CMS assigns  services to new technology APCs based on cost information collected on  applications for new technology status.
CMS is taking further steps to better account for hospitals’ reported IMD  prices in the data it uses to set inpatient and outpatient prospective  payment rates. Specifically, CMS has modified the way hospitals report  costs of IMDs on Medicare cost reports. CMS created a new cost  category called “Implantable Devices Charged to Patients,” which  requires hospitals to report separately their high-cost IMDs and their other  lower-cost medical supplies. The new cost category is intended to provide  CMS with more accurate information about hospitals’ reported costs  specific to IMDs for use in setting inpatient and outpatient payment rates.  The revised cost report with the new cost category for “Implantable  Devices Charged to Patients” was made available for use for cost  reporting periods beginning on or after May 1, 2009. According to CMS,  data collected with the revised cost reports will likely be available for  setting payment rates for 2013.
In addition to more accurately accounting for IMD costs, CMS intends to  link payment to the quality and efficiency of care provided—a move  toward value-based purchasing in Medicare. One of the principles of  value-based purchasing is having good data on performance; currently  such data generally are lacking for specific brands of implantable medical  devices. Most IMDs are introduced as incremental modifications to  existing devices without studies of performance relative to alternative  devices and for specific patient populations. There are registries of  postoperative outcomes for some cardiac devices, such as AICDs, but  none for orthopedic or spinal devices outside of specific organizations  such as Kaiser Permanente. Furthermore, because hospital data  currently are embedded in multiple data systems—such as medical  records, operating room logs, purchasing department records, and billing  systems—it can be difficult to match which device brand was used with a  particular patient.
section_title: Medicare Expenditures for IMD Procedures Increased from About $16 Billion to $20 Billion from 2004 through 2009—Driven Largely by Increased Utilization of Orthopedic Devices
paragraphs: From 2004 through 2009, Medicare expenditures for IMD hospital  procedures increased from about $16 billion to $20 billion. 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.
subsections: section_title: 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
paragraphs: 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. Expressed in terms of expenditures per beneficiary—a  measure which accounts for changes in the size of Medicare’s FFS  population—IMD expenditures increased from $444 to $561, an increase  of 4.8 percent per year (see fig. 2). Inpatient expenditures for IMD  procedures increased from $15.1 billion to $17.0 billion, an increase of  2.4 percent per year. Outpatient expenditures for IMD procedures  increased from $1.0 billion to $2.9 billion, an increase of 24.1 percent per  year. In comparison, Medicare expenditures for all non-IMD procedures  increased by 4.3 percent per year, 4.8 percent when measured per  beneficiary. Inpatient and outpatient expenditures for these procedures  increased by 2.9 and 10.8 percent per year, respectively.
As figure 2 indicates, orthopedic and cardiac procedures accounted for  nearly all IMD-related Medicare expenditures from 2004 through 2009.  Furthermore, during this period, the share of inpatient orthopedic  expenditures relative to all IMD-related Medicare expenditures increased  from 38 percent to 45 percent. In addition, an increasing share of cardiac  procedures shifted to the outpatient setting. Generally, Medicare pays  hospitals a relatively lower rate for the same procedures delivered in the  outpatient setting than in the inpatient setting. Specifically, as a share of  Medicare’s total IMD expenditures, inpatient cardiac IMD procedures  decreased from 56 percent to 40 percent while outpatient cardiac IMD  procedures increased from 5 to 12 percent.
From 2004 through 2009, orthopedic procedures accounted for most of  the growth in Medicare IMD-related expenditures. Medicare expenditures  for orthopedic IMD procedures increased from $6.1 billion to $9.0 billion,  an increase of 8.1 percent per year. Procedures related to knees,  hips, shoulders, and the spine accounted for nearly all of Medicare’s  orthopedic IMD expenditures in 2009. The average growth rate of  expenditures related to each of these procedure types exceeded that of  non-IMD hospital procedures. Spinal fusion procedures had the highest  growth in per beneficiary expenditures—more than doubling during the  period (see fig. 3).
Cardiac procedures accounted for relatively little of the growth in  Medicare IMD-related expenditures from 2004 through 2009. Medicare  expenditures for cardiac IMD procedures increased from $9.8 billion in  2004 to $10.3 billion in 2009, an increase of 1.2 percent per year. In  2009, procedures involving stents, pacemakers, AICDs, and CRT-Ds  accounted for 93 percent of expenditures for cardiac IMD procedures.Over the entire 2004 through 2009 period, only cardiac expenditures  related to AICD procedures increased at a higher annual rate than that of  non-IMD procedures. On a per beneficiary basis, expenditures peaked in  2006 but reached their second lowest point of the period in 2007, largely  resulting from expenditures for coronary stent procedures, which  decreased by 15 percent that year (see fig. 4). Furthermore, inpatient  expenditures for cardiac IMD procedures generally decreased over the  2004 through 2009 period, while those expenditures in the lower payment  outpatient setting generally increased. Inpatient expenditures for cardiac  IMD procedures reached their peak of $10.0 billion in 2005 but dropped to  $7.9 billion in 2009, decreasing 5.5 percent per year over that period. In  contrast, outpatient expenditures for cardiac IMD procedures increased  from $0.8 billion in 2004 to $2.4 billion in 2009, an increase of   25.5 percent per year. During that period, expenditures for coronary stent,  AICD, and pacemaker procedures decreased in the inpatient setting but  increased in the outpatient setting.
From 2004 through 2009, utilization of IMD procedures increased from  about 1.3 million cases to about 1.6 million cases, an increase of   3.8 percent per year.cases increased from 357 to 440, or an increase of 4.3 percent per year.  During our period of study, inpatient IMD utilization increased from   1.1 million cases to 1.2 million cases, an increase of 1.4 percent per year.  In contrast, outpatient IMD utilization increased from about 180,000 cases  to about 363,000 cases, an increase of 15.0 percent per year.
Per 10,000 beneficiaries, the utilization of IMD  Utilization increased at a faster rate for orthopedic devices compared with  cardiac devices. From 2004 through 2009, orthopedic IMD procedure  utilization increased from about 556,000 cases to about 697,000 cases,  yielding an annual growth rate of 4.6 percent per year or 5.1 percent  when measured per beneficiary. While utilization per beneficiary of  orthopedic IMD procedures related to knees and hips were highest, the  fastest increase in utilization of orthopedic IMD procedures came from  those related to spinal fusions, increasing at a rate of 12.1 percent per  year (see fig. 5). In contrast, utilization of cardiac IMD procedures  increased from about 705,000 cases to about 797,000 cases, yielding an  annual growth rate of 2.5 percent per year, 3.0 percent when measured  per beneficiary. Not all cardiac procedures followed a steady increase in  utilization. For example, between 2006 and 2007, utilization associated  with stent procedures decreased by 9.3 percent and increased thereafter  (see fig. 6). Inpatient utilization of cardiac IMD procedures decreased  from 154 to 140 cases per 10,000 beneficiaries, while such utilization in  the outpatient setting increased from 41 to 85 cases per 10,000  beneficiaries during the period. Per-beneficiary utilization related to  cardiac stents, AICDs, and pacemakers all decreased in the inpatient  setting and increased in the outpatient setting.
Between 2004 and 2009, the overall increase in per-beneficiary Medicare  expenditures for IMD procedures resulted more from increased utilization  than from an increased average payment per claim. Specifically, our  analysis shows that utilization contributed to 67 percent of the increase in  such inpatient expenditures. Utilization and average payment growth  rates varied by year during the study period. The largest rate of increase  in inpatient per-beneficiary utilization occurred from 2007 to 2008. During  this time period, CMS adjusted inpatient discharge payment rates to  better distinguish beneficiaries with comorbidities and complications,which was followed by the only decrease of average inpatient  expenditures. The average IMD-related inpatient payment decreased by  5.4 percent while per-beneficiary utilization of those same procedures  increased by 6.5 percent. Similarly, utilization contributed to 69 percent of  the increase in per-beneficiary Medicare expenditures for outpatient IMD  procedures.
Among orthopedic IMD procedures, utilization contributed to the  majority—62 percent—of the overall growth in per-beneficiary Medicare  expenditures between 2004 and 2009. Utilization contributed to most of  the increased expenditures for three of the four main types of orthopedic  IMD procedures (see fig. 7). Four of the five orthopedic IMD procedures  with the largest expenditures in 2009 had growth that resulted more from  increased utilization than an increased average payment.
The extent to which utilization drove changes in per-beneficiary Medicare  expenditures for cardiac IMD procedures varied by hospital setting.  Decreased utilization contributed to 94 percent of the decrease of such  inpatient expenditures between 2004 and 2009. The decrease in  utilization accounted for all of the decrease in per-beneficiary inpatient  expenditures related to pacemakers. Decreased utilization contributed to  61 percent and 52 percent of the decrease in per-beneficiary inpatient  expenditures related to AICDs and coronary stents, respectively. In  comparison, increased utilization contributed to 67 percent of the increase  in per-beneficiary outpatient expenditures for cardiac IMD procedures.  Increased utilization contributed to 79 percent and 93 percent of the  increase in such expenditures related to pacemakers and AICDs,  respectively. Furthermore, increased utilization explained 59 percent of  the increase in per-beneficiary outpatient expenditures related to coronary  stents.
section_title: Information Available on the Prices Hospitals Paid for Selected IMDs Shows Substantial Variation; Hospital-Physician Relationships Are a Particular Influence on Prices Paid
paragraphs: 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.
subsections: section_title: Various Factors Limit the Availability of Detailed Information on the Prices Hospitals Paid for Selected IMDs
paragraphs: 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. Only 31 hospitals,   1 GPO, and 1 DOD medical center provided detailed information on  cardiac device prices, and only 14 hospitals,1 DOD medical center, and   1 DOD hospital provided detailed information on orthopedic device prices  (see table 1).adequately reference the IMD by model, provide the sale price net of  discounts and rebates, or both.
section_title: Concluding Observations
paragraphs: 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. In 2009, Medicare spent over $19 billion for  hospital procedures involving IMDs. A substantial portion of this amount  may be attributable to the cost of the devices themselves, but exactly how  much is unknown, in part, because hospitals purchase the IMDs and  Medicare does not track IMD prices or how much individual hospitals pay  for them.
Although Medicare’s payment approach provides hospitals with an  incentive to seek the best price on IMDs, hospitals may vary in their ability  to achieve the best price because of limited price information and  bargaining power. 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. Some hospitals paid several thousand dollars more than other  hospitals paid for the exact same device produced by the same  manufacturer. 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. A hospital that is constrained in sharing price data with its  physicians loses an opportunity to enlist their assistance in the hospital’s  efforts to be a prudent purchaser of IMDs.
section_title: Agency and Industry Comments
paragraphs: 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.
Representatives from AdvaMed, the trade association representing  device manufacturers, reviewed relevant portions of the draft and  commented that there are many other factors—in addition to the hospital- physician relationship—that influence IMD prices. AdvaMed  representatives noted that confidentiality clauses are not unique to the  IMD market. AdvaMed representatives also provided technical comments,  which we incorporated as appropriate.
A representative from the American Hospital Association (AHA) also  reviewed relevant portions of the draft and stated that confidentiality  clauses that restrict hospitals from informing physicians about IMD prices  inhibit hospitals from fully integrating care and making informed, cost- conscious decisions. Furthermore, the AHA representative noted that  wide variation in IMD prices reported by hospitals shows that much of  device price is driven by negotiations; therefore, lack of IMD price  transparency puts hospitals at a disadvantage. The AHA representative  also provided technical comments, which we incorporated as appropriate.
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If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix I.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, individuals making key  contributions to this report include Jessica Farb, Assistant Director;  Gregory Giusto; Luis Serna III; and Ann Tynan. George Bogart and  Krister P. Friday also provided valuable assistance.