Are medical devices to blame for rising health care costs?
October 25, 2012
by Brendon Nafziger, DOTmed News Associate Editor
Spending on medical devices has held steady for the past two decades as a proportion of U.S. health care expenditures, and the price of devices has risen slower than consumer inflation, according to a new industry-funded study.
The Advanced Medical Technology Association, or AdvaMed, a trade lobby of device manufacturers that financed the research, said the report shows that the medical device industry is highly competitive and not a "major driver" of the nation's health care costs.
"Medical care device spending has not increased as a percent of national health expenditures, and is not one of the drivers for increases," in national expenditures, Guy King, former chief actuary of Medicare and the study's co-author, told reporters Wednesday in a press conference unveiling the findings.
Total expenditures on medical devices in 2010, the most recent year included in the study, were $156.3 billion, or about 6 percent of the $2.6 trillion the country spends on health care.
The amount spent on devices fluctuated slightly over the years but only grew less than 1 percent since 1989, when devices accounted for about 5.3 percent of the country's health costs, the study said. In essence, King said medical devices reached 6 percent of the NHE in 1992 and have basically stayed there ever since.
Price control
According to King and his co-author, Gerald Donahoe, an economist who once worked with the Department of Commerce, medical device prices kept below consumer inflation levels, inching up an average of 1 percent per year in the 22-year period covered by the study. Meanwhile, the consumer price index, a common measure of inflation of consumer goods, averaged 2.7 percent, the CPI for medical care averaged 4.7 percent and the CPI for medical care services averaged 5 percent per year, King said.
Although the study found device prices growing at a steady pace, it did not take into account other costs associated with medical equipment, such as utilization of imaging devices or other products, which have been blamed for rising medical costs.
The authors said those outside costs were beyond the scope of their research.
"We wanted to do a relatively straightforward study," King explained.
"As you know, there are theories that medical devices, at least some medical devices, have the tendency to increase spending, and then there are theories that some medical devices have a tendency to make the medical care system more efficient and therefore decrease expenditures," he added.
Tax and spend
Although AdvaMed has released versions of this report in previous years, the 2012 edition comes at a critical time for the medical device industry. Device companies are bracing for a 2.3 percent excise tax on device sales. The tax, part of the Affordable Care Act, is scheduled to take effect in January if aggressive lobbying efforts to kill it fail.
AdvaMed officials said in a call with reporters that they thought the report would help with their efforts to fight the tax.
"We do think it has a very significant bearing on the medical device tax," David Nexon, senior executive vice president, said during the call.
"If you apply the tax in our very competitive industry, companies will have to find the money somewhere," he said, arguing that firms could cut back on research spending or lay off workers.
How the study was done
The study, titled "Estimates of medical device spending in the United States", relied on a mixture of sources to pull the data on medical device prices and expenditures.
The authors said they used the North American Industry Classification System data to find codes indicating medical device types. They then tried to calculate shipments of devices consumed in the U.S.; this includes goods produced by manufacturers, plus imports and minus exports, or what's known as a "commodity-flow" procedure, they said. The researchers also took into account the margins, or the difference between the manufacturers' price and the purchasers' price, and which factors in transportation costs, taxes and the retailers' or wholesalers' services. Data on shipments and imports were taken from censuses carried out by the U.S. Census Bureau. Price data came from the Producer Price Index maintained by the U.S. Bureau of Labor Statistics.
The authors did end with some caveats. Although they said the census data was "high quality," errors, both of the sampling and non-sampling variety, could sneak through. Also, they said blending different sources of data together, as they did, can always introduce errors.
The Advanced Medical Technology Association, or AdvaMed, a trade lobby of device manufacturers that financed the research, said the report shows that the medical device industry is highly competitive and not a "major driver" of the nation's health care costs.
"Medical care device spending has not increased as a percent of national health expenditures, and is not one of the drivers for increases," in national expenditures, Guy King, former chief actuary of Medicare and the study's co-author, told reporters Wednesday in a press conference unveiling the findings.
Total expenditures on medical devices in 2010, the most recent year included in the study, were $156.3 billion, or about 6 percent of the $2.6 trillion the country spends on health care.
The amount spent on devices fluctuated slightly over the years but only grew less than 1 percent since 1989, when devices accounted for about 5.3 percent of the country's health costs, the study said. In essence, King said medical devices reached 6 percent of the NHE in 1992 and have basically stayed there ever since.
Price control
According to King and his co-author, Gerald Donahoe, an economist who once worked with the Department of Commerce, medical device prices kept below consumer inflation levels, inching up an average of 1 percent per year in the 22-year period covered by the study. Meanwhile, the consumer price index, a common measure of inflation of consumer goods, averaged 2.7 percent, the CPI for medical care averaged 4.7 percent and the CPI for medical care services averaged 5 percent per year, King said.
Although the study found device prices growing at a steady pace, it did not take into account other costs associated with medical equipment, such as utilization of imaging devices or other products, which have been blamed for rising medical costs.
The authors said those outside costs were beyond the scope of their research.
"We wanted to do a relatively straightforward study," King explained.
"As you know, there are theories that medical devices, at least some medical devices, have the tendency to increase spending, and then there are theories that some medical devices have a tendency to make the medical care system more efficient and therefore decrease expenditures," he added.
Tax and spend
Although AdvaMed has released versions of this report in previous years, the 2012 edition comes at a critical time for the medical device industry. Device companies are bracing for a 2.3 percent excise tax on device sales. The tax, part of the Affordable Care Act, is scheduled to take effect in January if aggressive lobbying efforts to kill it fail.
AdvaMed officials said in a call with reporters that they thought the report would help with their efforts to fight the tax.
"We do think it has a very significant bearing on the medical device tax," David Nexon, senior executive vice president, said during the call.
"If you apply the tax in our very competitive industry, companies will have to find the money somewhere," he said, arguing that firms could cut back on research spending or lay off workers.
How the study was done
The study, titled "Estimates of medical device spending in the United States", relied on a mixture of sources to pull the data on medical device prices and expenditures.
The authors said they used the North American Industry Classification System data to find codes indicating medical device types. They then tried to calculate shipments of devices consumed in the U.S.; this includes goods produced by manufacturers, plus imports and minus exports, or what's known as a "commodity-flow" procedure, they said. The researchers also took into account the margins, or the difference between the manufacturers' price and the purchasers' price, and which factors in transportation costs, taxes and the retailers' or wholesalers' services. Data on shipments and imports were taken from censuses carried out by the U.S. Census Bureau. Price data came from the Producer Price Index maintained by the U.S. Bureau of Labor Statistics.
The authors did end with some caveats. Although they said the census data was "high quality," errors, both of the sampling and non-sampling variety, could sneak through. Also, they said blending different sources of data together, as they did, can always introduce errors.