Why Things Are So Very Unfair for Medical Device Makers in America

Medical devices are big business in America. They are not quite as big a business in Europe and other countries, but manufacturers can still sell a $400 hip implant for several thousands of dollars.

Joint replacements have increased significantly between 1997 and 2011. As we baby boomers continue to age and old injuries or disease claim our joints, that business is likely to increase substantially. According to the Agency for Healthcare Research and Quality, joint replacements have risen as follows:

Elisabeth Rosenthal just published a well-researched article in the New York Times about the relative costs for major joint replacements in the United States as it compares to other countries. Ms. Rosenthal cited as an example, a man who had suffered an old sports injury and his insurance company refused to pay the cost of the replacement, claiming it was a “pre-existing condition”. Fortunately for this gentleman, he knew someone at a medical device manufacturer and his friend was able to supply the hospital with an implant at “list price” of $13,000 and agreed to apply no markup. Unfortunately, the hospital advised him that their charge would be over $65,000 and that would not include the surgeon’s fee. This man ultimately went to Brussels and had the entire replacement; device implant, rehabilitation and medical charges, done for $13,660.

Compare this patient’s experience to these cited in the United States:

• Patient at the Hospital for Joint Diseases in New York: $100,000
• Mills-Peninsula Health Services: $112,317
• Sacred Heart Hospital in Pensacola: $50, 935

When you hear that the cost of doing business and the liability exposures in the United States is the reason costs are so high, listen to what Dr. Rory Wright, an orthopedic surgeon from the renown Orthopedic Hospital of Wisconsin has to say about that:

“Manufacturers will tell you it’s R&D and liability that makes implants so expensive and that they have the only one like it. They price this way because they can.”

In countries like Belgium, the cost at which a manufacturer can mark up their devices is carefully controlled by the country. For example, the patient with the $13,000 surgery had his implant marked up by the manufacturer in an amount of $180. At the same time, in the United States, the implant was being sold for over $8,000.

As a cost expert from the US put it:

““Imagine you’re the C.E.O. of Zimmer,” he said. “Why charge $1,000 for the implant in the U.S. when you can charge $14,000? How would you answer to your shareholders?” Expecting device makers “to do otherwise is like asking, ‘Couldn’t Apple just charge $50 for an iPhone?’ because that’s what it costs to make them.”

The current world giants in the joint implant device market are:

• Zimmer
• Biomet
• Depuy
• Stryker

In 2011, the first three of those manufacturers had joint implant sales exceeding $1 billion each, but spent only 5% on research and development ($50 million), compared to 20% R&D in the pharmaceutical industry. They each paid their CEO’s over $8 million in compensation.

We are finished though. The three device makers paid out $311 million in fines in 2007; including $169.5 million by Zimmer for illegal kickbacks to surgeons to “encourage” use of their devices. In 2007 there were approximately 1000 US physicians who received around $200 million from joint manufacturers for “consulting and royalties”.

This has become much more than just about healthcare. Manufacturers come out with “new” medical devices constantly that are really only slight changes in older devices and begin the marketing machine all over again.

It is estimated that the number of hip and knee replacements will double between 2010 and 2020, and may quadruple by 2030. That would mean by 2020 there will be over 2 million procedures and if the price remains at 2011 levels (unlikely), they would cost approximately $37,000 each; for a grand total in sales of over $77 billion.

The medical device industry takes profits seriously. Last year they spent nearly $30 million lobbying law makers, according to the Center for Responsive Politics.

There are a few truths we can take from all this:

Medical device sales in the United States is so important that device makers are willing to pay hundreds of millions in kickbacks.

Medical device makers will pay hundreds of millions in fines and risk criminal and civil prosecution.

Pushing the legal envelope pays off for device maker CEO’s to the tune of sveral millions of dollars a year in compensation.

So, when you hear conservatives, insurance companies and Corporate America whine about the “cost of lawsuits”; remember the $500 million they paid in unethical conduct in one year; the multi-millions they paid their CEO’s ; the and the more than $70 billion dollars they will be making in 2020.

Gosh, ya just have to grieve with them — the unfairness of it all!