A potentially costly discovery?

As I understand it, basic economic theory suggests that buyers can't make rational decisions unless they can get and compare prices for equivalent products and services. If it's costly or difficult to get pricing information, that tends to drive prices up, and in essence, people don't know if they're being ripped off.

However, this week, a study [1] (.pdf) came out from the Reg-Markets Center, American Enterprise Institute and Criterion Economics that draws the opposite conclusion. The study, which critiques the recently-introduced Transparency in Medical Device Pricing Act of 2007 (SB 2221), argues that if medical device prices were widely available, prices actually would go up. (Did we mention that the study also was backed by the Advanced Medical Technology Association, the device makers' trade group?)

The researchers say that at present, competing device maker firms don't know their rivals' prices, that there only are a few firms that have substantial shares of the medical device industry and that few substitutes exist for many devices. Given these factors--and a few others--disclosing prices might actually drive firms to mark up their prices, the report argues. On top of all of that, the analysis suggests that even if prices went down, patients wouldn't benefit, as healthcare providers wouldn't pass on the savings they'd gained--which would contradict the bill's stated purpose.

Now, although I left my PhD in economics at home (OK, I don't have one), something feels fishy about all of this to me. I admit that if my doctor wants to use a drug-eluting heart stent sold by Johnson & Johnson, he's probably not going to consult with me regarding the extra $100 it costs in comparison to the Boston Scientific model. And as a consumer, I'm not going to get involved; I'm just not qualified to make this kind of decision.

That being said, there is a large and powerful interest group--health plans--that use price as a criterion to make delicate medical decisions every day. Doctors are just as loyal to their favorite drugs, but health plans and pharmacy benefit managers have never hesitated to use aggressive tactics to move them to cheaper, allegedly equal alternatives.

If health plans have free and open access to medical device information, I'm betting they'll start using it like a club in record time to favor cheaper products. This might even do something to put a damper on backdoor deals where hospitals or doctors get volume discounts, then mark things up big time for health plans.

Ultimately, it's hard to imagine that this wouldn't put some downward pressure on prices, even in a concentrated market with few competitors. But of course, I don't work for the American Enterprise Institute or AdvaMed. In their world, it seems, more information is bad. Doesn't that make you just a little bit uncomfortable? -Anne [2]

P.S. During the first half of next week, I'll be reporting from the HiMSS08 health information technology conference in Orlando. Look for ongoing coverage on the FierceHealthIT site, including the scoop on the Tuesday keynote scheduled to be delivered by HHS Secretary Mike Leavitt.