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The High Prices of Drugs and Devices

I know this blog is not about health policy generally, but for anyone even vaguely concerned about health care and its costs, which ought to be all of us, a must-read is Steven Brill’s piece in Time:

Mostly Brill focuses on ridiculous hospital charges and obscene profits, being careful, every time he mentions a hospital, to tell us how many millions of bucks its CEO is paid, even though these are mostly supposed to be nonprofit hospitals. I have to imagine the American Hospital Association is now in full damage control mode. My favorite is the hospital spokesperson who told Brill, when the reporter inquired about a hospital bill with outrageous overcharges, that the hospital was prevented by law from talking about its billing practices (which is, of course, a flat-out lie).

The article goes also after drug and device manufacturers and repeats the charges detailed here and in HOOKED about their excessive prices–how they lobby Congress to get exemptions from competition and price negotiation, how their claims that they need the extra money to do their research don’t match the math, and so on. Brill does a nice job on implantable devices, showing how the devide company first charges at least 2-3 times what it costs to make the device, and then the hospital that sells the device to the patient marks it up an extra 2.5 times on top of that.

For us the one bit that struck me as newsworthy was Brill’s recounting of testimony before a Senate committee in 2008 by Gregory Demske, an assistant inspector general at HHS.He told the committee,
“We found that during the years 2002 through 2006, four manufacturers, which controlled almost 75% of the hip- and knee-replacement market, paid physician consultants over $800 million under the terms of roughly 6,500 consulting agreements.”

We’ve reported instances of individual orthopedic surgeons, for example, walking home with more than $1M in consulting fees over a 1-2 year period; but this is the first time I recall seeing these figures reported for such a large chunk of the industry as a whole. Think about what this means. If these 4 companies find it in their own interest to pay what really amounts to $200M per year in bribes to docs just to get them to use their devices, think about what their profit margins must be.

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