Study: Medtech Costs Grow At Slower Rate Than Other Healthcare Sectors, Fueling Price War

07/08/2020
Medtech Costs Grow At Slower Rate Than Other Healthcare Sectors

Medical device companies have notoriously faced pressure from clients and policy-makers regarding their prices. However, according to an ongoing study, the medtech sector has been a slow growing factor among the total cost of healthcare in the United States, making the price war over medical devices even more challenging.

Researchers from the lobbying group AdvaMed released the second edition of the pricing study and reported that medtech companies represent only a small portion of total spending in the United States healthcare market. Over a 23 year period, medtech device spending has increased from 5.3 percent to 5.9 percent from 1989 to 2011. However, the researchers stated that most of this increase occurred before 1992. Additionally, their research found that medtech devices have not grown as fast as other areas in the Medical Consumer Price Index.

Here are some key findings of the AdvaMed study:

  • According to Census Bureau data, which included a 23 year period from 1989-2011, the total spending of medical devices and in vitro tools was 5.9 percent of total national healthcare spending, totaling $159.4 billion.
  • The medical device industry grew from 5.9 percent in 1989 (an increase of only 0.6 percent) and totaled approximately 6 percent of all healthcare spending over the years.
  • Total healthcare spending in the United States during the 23 years increased from $647.5 billion in 1989 to $2.69 trillion in 2011. Despite the increase, medtech spending never accounted for more than 6.1 percent of total healthcare costs.
  • Medical device prices are growing at a slow rate of 1 percent year-over-year, compared to the Consumer Price Index (up 2.7 percent) and the Medical Care CPI (up 4.6 percent).

Study Aim To Put Misconceptions About Medtech Prices To Rest

The results of the study are surprising to most as the medical equipment industry has always been thought of as a major contributor to the rising healthcare costs. According to a study published in JAMA, the medical device industry was cited as a key culprit among healthcare spending in the United States. However, the researchers categorized mech and pharmaceuticals together, which could explain the increase in price.

The AdvaMed study released its findings in hopes of dispelling misconceptions about spending and pricing within the medtech sector. It used data from the Census Bureau and other methods that are consistent with the ones used by the Centers for Medicare & Medicaid Services. The purpose of the study was to list out the costs and spending habits of medical technology companies up to 2011.

Results indicated that the spending on the medical device industry and in vitro diagnostics in 2011 reached $159.4 billion, which accounted for 5.9 percent of the total amount of money that the United States spent on healthcare that year. The medical device industry accounted for approximately 6 percent of total US healthcare spending for years, which grew from 5.9 percent in 1989 (a 0.6 percent increase over 23 years).

Also noted during the 23 year period studied, total healthcare spending in the United States increased from $647.5 billion in 1989 to $2.69 trillion in 2011. However, despite the increase, the medical device industry never accounted for more than 6.1 percent of total healthcare costs during that time. Additionally, medical device prices have grown at an even slower rate. According to the study, they have increased at an average of 1 percent per year over the 23 years. In comparison, the Consumer Price Index grew 2.7 percent annually while the Medical Care CPI annual growth rate was 4.6 percent.

Medtech Price Increases Have Remained Low Since 2004, Study Says

According to the study, medtech prices had a brief period of significant increases in the 1990’s with a 3.4 percent annual increase in 1990 and a 3.1 percent increase in 1991. However, these increases slowed down after that. Year-over-year price increases have stayed below 2 percent since 1994. They have stayed at or below 1.1 percent since 2004.

According to one of the study authors, during the 23 year period of 1989 to 2011, a major driving factor in the changed medical costs was due to the development of new medical devices. This included implantable defibrillators, stents, artificial knees and hips, new imaging systems, surgical tools, and diagnostic tests.

The author stated that it is surprising that the costs of these medical devices has not risen much when compared to the total national healthcare costs, as conventional wisdom leads us to believe that prices have skyrocketed. Another surprising aspect of the study is that, unlike most areas of the healthcare sector, medical device pricing has been rising at a more gradual rate than both the CPI and MC-CPI total.

It should be noted that the medical device industry is not always easy to track. This is because many hospitals and healthcare systems negotiate individual pricing for the devices they buy, and these prices are not disclosed to the public. Some lawmakers have gotten word that there has been obscurity in the medical device industry. For example, Senator Angus King (I-Maine) introduced a bill that would make it illegal for medical device companies to include price confidentiality disclaimers in the contracts that they have with hospitals and healthcare centers. This would make it easier to track medical device pricing trends.

Medical Devices and Codes Included In The Study

The study reviewed a wide range of medical devices, including contact lenses, pacemakers, prosthetics, and more. These items were categorized as “surgical and medical instrument manufacturing” codes and maintained by the North American Industry Classification System, which is a coding organization that was created under the federal statistical and Office of Management and Budget agencies.

According to the report, the researchers examined the following devices:

  • Electrochemical and electrotherapeutic devices
  • Irradiation devices
  • Medical instruments
  • Surgical devices and supplies
  • Ophthalmic goods

The following sections were classified under “surgical and medical instrument manufacturing” by the NAICS, and included the following codes:

Electromedical and electrotherapeutic devices - 334510

The United States industry report includes organizations that are mostly engaged in the production of electrotherapeutic and electromedical devices, including:

  • Magnetic resonance imaging equipment
  • Medical ultrasound equipment
  • Hearing aids
  • Electrocardiographs
  • Electromedical endoscopic equipment

Irradiation devices - 334517

The United States industry report includes organizations that are mostly engaged in the production of devices used for tubes for applications and irradiation devices, including the following:

  • Medical diagnostic
  • Medical therapeutic
  • Industrial research
  • Scientific evaluation

Irradiation may also include ionizing radiation devices, beta-rays, X-rays, and gamma-rays.

Medical and surgical instruments - 339112

The United States industry report includes organizations that are mostly engaged in the production of veterinary, ophthalmic, medical and surgical devices and equipment, with the exception of irradiation and electromedical devices. Examples made by these companies include the following:

  • Syringes
  • Hypodermic needles
  • Anesthesia apparatus
  • Blood transfusion equipment
  • Catheters
  • Medical thermometers
  • Surgical clamps

Surgical supplies and devices - 339113

The United States industry report includes organizations that are mostly engaged in the production of surgical supplies and devices, such as:

  • Orthopedic devices
  • Prosthetic appliances
  • Surgical dressings
  • Crutches
  • Surgical sutures
  • Personal industrial safety devices (with the exception of protective eyewear)
  • Hospital beds
  • Operating room tables

Ophthalmic goods - 339115

The United States industry report includes organizations that are mostly engaged in the production of ophthalmic goods, including agencies that make the following:

  • Prescription eyeglasses (with the exception of those made in a retail setting)
  • Contact lenses
  • Sunglasses
  • Eyeglass frames
  • Reading glasses made to standard powers
  • Protective eyewear

Study’s Major Findings Could Have Big Impact On Medtech Prices

The study revealed that two major findings were important. The first was that medical devices make up a relatively small and constant part of the national healthcare expenditures. Medical device spending totaled 5.9 percent of the national health expenditures in 2011, totaling $2.7 trillion. Additionally, the study indicated that during the 23 year time frame, medical device spending rose slightly. Since 1992, the medical device spending trends have varied somewhat, but have remained right around six percent of NHE.

The second significant finding was that medical device prices have been consistently lower during this time period with an average increase of 1 percent. Other health sectors saw steeper price hikes, including 2.7 percent for the Consumer Price Index, 4.6 percent for the Medical Care Consumer Price Index, and 4.9 percent for the Medical Care Services Consumer Price Index.

These results could potentially cause the medical device industry to struggle with price hikes, especially during the current COVID-19 pandemic when many companies have fallen victim to price gouging. Medical companies would benefit from a better understanding of price trends if hospitals and other healthcare centers would reveal their prices. However, even the knowledge of this information may not be enough to stop redirect price trends of the medical industry that are being influenced by the pandemic. More research is necessary to determine fair pricing for necessary equipment and devices needed to treat patients in the future.