Empirical Study Finds U.S. Hospitals Could Save Up To $37.5 Billion Annually

COLLEGE STATION, TX - October 6, 2010 - According to a new empirical study using capital equipment purchase records compiled by College Station, Texas based MEMdata, U. S. medical facilities could reduce supplies and equipment costs by up to $37.5 billion each year by using more open and competitive purchasing processes.

The empirical study, which is under review by federal legislators, analyzed the prices hospitals in 41 states paid on 8,100 transactions for almost 20,000 equipment items ranging from thermometers to CT scanners. According to the study, medical facilities could achieve massive cost reductions by adopting open, competitive auction processes, as opposed to long term vendor contracting methods currently used by large health systems and Group Purchasing Organizations (GPOs).

In the first and only empirical study of its kind, economists Robert Litan and Hal Singer were commissioned by the Washington, D.C. based Medical Device Manufacturers Association (MDMA) to determine if hospital equipment prices through GPO and health system contracts were competitive.

Drs. Litan and Singer analyzed equipment pricing gathered over a ten year period by MEMdata, a firm hired by hospitals to assist in the procurement of equipment using an open, competitive auction process. The analysis concludes the MEMdata process yields up to 18% savings as compared to current contracting methods.

MEMdata's service is unique in healthcare because it ensures all suppliers are free to compete for the right to sell equipment to hospitals, rather than being excluded or protected from competition by exclusive contracts. MEMdata archives its competitive auction prices in a benchmark database, which is the only one of its kind and provided the empirical data used in the study.

The authors concluded the current healthcare supply chain structure, which promotes the contracting practice, does not provide incentive to reduce costs, but in fact restricts competition and holds the prices hospitals pay for supplies and equipment high by up to $37.5 billion annually.

MEMdata CEO Bob Yancy was not surprised by the findings. "The study confirms our hospitals need assistance, and that healthcare's supply chain needs free market competition to innovate and prepare for the national tidal wave of healthcare services to come," he said. "We are convinced that competitive pricing can only be obtained through competition, and that all suppliers deserve a full, fair and free opportunity to compete for every transaction."

As a condition to providing database access, MEMdata required full confidentiality of pricing sources, whether from hospitals, vendors, or GPOs. All information from the MEMdata database had to be returned upon completion of the 52 page study, which took several months to complete. The study will be made available for download at www.medicaldevices.org.

About the Study Authors

Robert E. Litan is a Senior Fellow in Economic Studies at the Brookings Institution, a Vice President for Research and Policy at the Kauffman Foundation and a Senior Consultant with Navigant Economics. Hal J. Singer is a Managing Director at Navigant Economics and has served as adjunct professor at the McDonough School of Business at Georgetown University.

About the Medical Device Manufacturers Association

MDMA is a national trade association based in Washington, DC providing educational and advocacy assistance to innovative and entrepreneurial medical technology companies. Since 1992, MDMA has been the voice for smaller companies, playing a proactive role in helping to shape policies that impact the medical device innovator.

About MEMdata

Established in 2000, MEMdata processes capital equipment transactions for approximately 550 medical facilities nationwide, using a procurement auction technique designed for healthcare. In addition to achieving competitive equipment pricing for existing medical facilities, MEMdata also offers equipment planning for construction projects, web-based tools in support of capital equipment investments, price benchmarking, and other services.


Scott Jennings


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