US Price Pressure Looming?
A report in the New York Times published on June 1, 2013, argues that US healthcare costs are substantially inflated compared with other developing countries. The report is based on an analysis of the cost of healthcare procedures in developed countries contained in the 2012 Comparative Price Report produced by the International Federation of Health Plans, a leading network of US health insurers.
Honing in on the cost of a colonoscopy procedure, a relatively quick and simple process, the report cites the average cost excluding sedation at US$1,185 compared with US$665 in Switzerland. The report also points out that the cost of the procedure varies enormously across the USA, and even within a city. Highest prices paid for a colonoscopy in metropolitan areas across the country range from the cheapest in Baltimore at US$1,908 to the most expensive in New York of US$8,577—making the price of the one in New York 350% more than that in Baltimore.
The report also points out that USA spends around 18% of its GDP on healthcare, stating this is nearly twice as much as most other developed countries. It claims that hospitals, drug companies, device makers, physicians and other providers are able benefit by charging inflated prices, favouring the most costly treatment options and curbing competition that could give patients more, and cheaper, choices.
The report continues a theme of price pressure on the US healthcare sector, triggered by the Affordable Care Act, aka the Obamacare healthcare reform brought into US law in March 2010. Obama’s goal is to help America’s poor gain better access to the country’s healthcare services.
So is a price squeeze looming for medical device makers? And if so, how would this be impressed on the industry?
Citing a July 2013 report in the New York Times as its source, Wikipedia states that the US healthcare market "lacks transparent market-based pricing". It says that patients are typically not able to comparison shop for medical services based on price, as they are in other consumer sectors, as medical service providers do not typically disclose prices prior to service.
If correct, this state of affairs can lead to market fundamentals which are unfairly balanced, in the interests of the medical service providers. An insurance based system whereby services are not quoted for in advance, means that consumers can be the ultimate losers, because as prices rise, so too do insurance premiums.
With economic recovery from the credit crisis in 2008-09 being the absolute priority and main goal of all Western nations right now, and with that recovery being mainly driven by the development of economies with efficient and profitable use of capital, good cost control, and good debt, it is easy to understand why this may trouble some US politicians. Most US citizens enjoy free health insurance as part of their employment terms. So the flip side to this might be that if there is a way of taking some of the pressure of out of the healthcare sector by pushing back on its suppliers, it could help reduce healthcare insurance bills for US employers and create capital for reinvestment and growth. If the health insurers analysis is accurate across the board and medical procedures are so much more expensive in the US than abroad, in countries where the quality of live and cost of living are comparable, then it will inevitably cause observers to ask why.
These arguments will not sit well with medical device makers who generate a significant proportion of their revenues in the US market, nor with their US users—the healthcare providers. Manufacturers have already been stung with the device tax at the beginning of this year which, in many cases, has been passed downstream to buyers, increasing sales prices by around 2.3%. The most vocal in the medical device industry expect this to negatively affect R&D. Any further squeeze on prices, be it from the government or health insurers, is likely to meet complaints around a similar vein.
If there is one thing Obama will be remembered for in his two terms as US president it will be a shake up of the healthcare sector. His healthcare reform act, aka Obamacare, has been a powerful attempt to extend the reach of the USA's world leading healthcare services to America’s poor. Obama’s goal is to help them get affordable access to healthcare through taxation, while industry wants to provide value-added healthcare through capital investment, clinical research economic growth and the creation of jobs. I see the work as a continuation of steps that President Clinton, the last Democratic US president, made to prevent hospitals from turning away patients in need of emergency life saving care if they didn't have health insurance nor funds to pay.
If the politicians do see the US healthcare sector as one for change, in terms of releasing financial pressure on the economy by attempting to limit pricing, they must be very careful to balance this with the impressive and high levels of innovation which come from the excellence the country offers in terms of medical technology, research and development (in all areas), and clinical excellence.
Sam Anson