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May 23

With Health Care, Taxpayers Deserve To Know What They’re Paying For

by Newt Gingrich and Wayne Oliver
Originally published in Forbes.com on April 19, 2011

From coffee shops to bingo halls and wherever seniors gather throughout America, the talk these days is about modern science and how those who have been in pain for years now have routine knee or hip replacements.

Medical devices too such as pacemakers or stents are extending the lives and improving the quality of life for older Americans. As the first of 78 million baby boomers begin to retire this year, they will enroll in Medicare and many will have these procedures.

The problem is the federal government is paying top dollar for anything from a titanium shoulder to a spinal implant. Medical device manufacturers require hospitals to sign confidentiality agreements that make it impossible for hospitals to disclose or document the cost of devices. This makes true price competition in the $153 billion medical device marketplace impossible.

Hospitals bill health insurance companies, including Medicare and Medicaid, for the surgical procedures and medical devices. Hospitals, consumers and the government have no idea whether the devices have been marked up hundreds of percentage points, because there is no ability to compare it with what other hospitals pay for the same products.

This practice is contributing to the insolvency of Medicare and Medicaid and must stop. The American people should be able to see where the majority of their taxpayer dollars are going and which companies are benefiting.

There is price and transparency in everything from medications to bed pans. But the cost of an implant or other medical device is one of the few items in health care that is hidden from the consumer and taxpayer.

A 2009 report by McKinsey Global Institute found that hip implants cost 60% more in the U.S. than in the U.K., Germany, France and Italy; knee implants cost 32% more than in those countries. It is all because of confidentiality agreements and lack of transparent pricing of these devices. And with tens of millions of potential patients utilizing such devices annually, it is an enormous bill adding to our national debt.

Currently the average hip replacement procedure costs about $50,000, which is a bundled price tag for the hospital stay and the device. Medicare and Medicaid traditionally wind up paying 70% of those costs.

Like pharmaceuticals, device manufacturers market their products directly to surgeons and other physicians. But unlike drugs, the prices of medical devices are not published, and neither patients nor hospitals are offered a choice between medical devices when a doctor selects a specific product–nor can they find out the quality or price difference among the various implants on the market.

The only way to bring down costs is to bring transparency to what providers–and taxpayers–are charged. That’s why Congress should pass legislation banning again such exclusivity agreements at hospitals that accept Medicare, Medicaid or other government programs.

In 2007 two U.S. senators, Chuck Grassely of Iowa and Arlen Specter of Pennsylvania, introduced legislation requiring price transparency in medical devices. Unfortunately it never came up for a vote.

States and the federal government are already taking steps to make the cost of health care more transparent. More than 30 states, including Florida, Georgia and Indiana, are publishing health care data online for consumers to access. Health insurers such as UnitedHealth, Aetna and WellPoint are also making health care pricing and quality information available on the Web.

Most of this health care transparency is focused on total price and care quality related to hospitals, physicians and prescription drugs.

Today we can shop–often online–and compare the price of a new car or a month’s supply of blood pressure medication or a pair of blue jeans. We also, as health care consumers, can determine whether a generic drug or a brand name best serves our needs. But we are barred from comparing the quality, medical outcomes or price of an artificial hip or knee.

That isn’t right, especially when we the taxpayers are footing the bill, no matter what the charge.

Newt Gingrich, former speaker of the House, is the founder of the Center for Health Transformation. Wayne Oliver is a vice president at the center.

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