Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - October 23, 2007)

BREAK IN TRANSCRIPT

By Mr. GRASSLEY (for himself and Mr. SPECTER):

S. 2221. A bill to amend title XVIII of the Social Security Act to provide for the reporting of sales price data for implantable medical devices; to the Committee on Finance.

Mr. GRASSLEY. Mr. President, I am pleased to introduce today with Senator SPECTER the Transparency in Medical Device Pricing Act of 2007.

As we all know, both parties to a transaction need information in order for the free market to properly work. If only one party has information, the market does not properly function because you have a one-sided negotiation. The purpose of this legislation is to bring transparency to medical device pricing so that there will be sufficient information available for market forces to truly work.

In the Medicare program, most hospitals receive a single payment for all the health care goods and services provided during a beneficiary's stay. This payment structure is designed to give hospitals incentives to provide efficient, effective, and economical care. Why? Because when a hospital lowers its costs, more of the Medicare payment can go toward the hospital's bottom line.

Hospitals normally have many resources like consultants or reference materials to help them when they negotiate prices for things like drugs, nursing care, or hospital gowns. Unfortunately, this is not the case with implantable medical devices like pacemakers, stents, and artificial hips and knees.

Hospitals have no way of knowing what a fair market price for a medical device is, because in this one industry there is a veil of secrecy over pricing information. In fact, manufacturers typically require hospitals to agree to secrecy or gag clauses in their contracts. The device makers actually prohibit hospitals from disclosing the price of a medical device to others. So hospitals have no idea of what is a fair price. Instead they must engage in one-sided negotiations with medical device manufacturers.

We all know that there must be enough transparency for market forces to work. The free market, after all, thrives on complete information and open competition--not on gag rules and secrecy clauses.

As a farmer, when I go out and buy a tractor, I first go out and talk to a number of people to help me figure out what is a fair price. Having this information puts me on equal footing with the dealer when we negotiate the price. After all, I don't want to be taken to the cleaners.

Today, there is no level playing field when hospitals negotiate with device manufacturers. It shows. This is a major reason why many hospitals pay absurdly more than others for the same medical device. The inflated prices many hospitals pay have implications for the health care system on multiple levels.

First, higher medical device costs take up more of the Medicare payment. That means hospitals have less to spend on other crucial components of care such as staff. And hospitals have less of the Medicare payment to devote toward their bottom line. So they have less money for activities to improve hospital quality and safety. They have less money to spend on health information technology systems. Most importantly, they have less money to keep their doors open and provide care to Medicare beneficiaries. In rural areas in my state where hospitals are barely squeaking by, this is a problem.

Also, I want to point out how hospitals paying more than the fair market price for medical devices adds to skyrocketing entitlement spending. Medicare hospital payments are updated every year. The update takes into account the increased cost of goods and services used to provide care to beneficiaries. Let us say medical device prices are higher than they should be. As a result, Medicare hospital payment updates and Medicare spending will rise faster than they should.

Also, let us remember that there are cost-sharing requirements for certain hospital services. And so Medicare beneficiaries will be paying more out-of-pocket than they should.

All this adds up to one thing: a need for greater transparency in medical device pricing. My good friend and colleague, Senator SPECTER, and I have developed a way to provide greater transparency.

The Transparency in Medical Device Pricing Act of 2007 would bring this needed transparency to medical device pricing by building on current initiatives at the Department of Health and Human Services, HHS. Under the act, here are some conditions device manufacturers would have to receive direct or indirect payments under Medicare, Medicaid, or SCHIP. Every quarter they would have to submit to the HHS Secretary data on average and median sales prices for all medical devices that are implanted during inpatient and outpatient procedures. Manufacturers would be subject to civil money penalties from $10,000 to $100,000 for failure to report or misrepresentations of price data.

Collecting such data is not new to HHS. The Secretary has been collecting average sales price data for drugs covered under Part B of the Medicare program for a number of years now.

The Secretary would also be required to make the data available to the public on the website of the Centers for Medicare & Medicaid Services, CMS. CMS would have to update the website on a quarterly basis.

Again, this is nothing new at HHS. It has been promoting transparency in Medicare for quite some time. The Secretary already publicly reports quality and price data of various Medicare providers. This is so beneficiaries can use these resources when selecting a provider.

Publicly reporting implantable medical device pricing would help hospitals negotiate fair prices. For once, they would have a resource to consult so negotiations would be fairer.

Mr. President, let me be clear. I fully support the medical device industry making a profit. I just think it should not be at the expense of hospitals, beneficiaries and the American taxpayer paying much more than they should. We must let the market work, and markets depend on information.

The Transparency in Medical Device Pricing Act of 2007 would go a long way toward ensuring that free market forces actually work. The act would enable hospitals to obtain medical devices at fair prices.

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