[Congressional Record Volume 153, Number 161 (Tuesday, October 23, 2007)]
[Senate]
[Pages S13266-S13267]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself and Mr. Specter):
  S. 2221. A bill to amend title XVIII of the Social Security Act to 
provide for the reporting of sales price data for implantable medical 
devices; to the Committee on Finance.
  Mr. GRASSLEY. Mr. President, I am pleased to introduce today with 
Senator Specter the Transparency in Medical Device Pricing Act of 2007.
  As we all know, both parties to a transaction need information in 
order for the free market to properly work. If only one party has 
information, the market does not properly function because you have a 
one-sided negotiation. The purpose of this legislation is to bring 
transparency to medical device pricing so that there will be sufficient 
information available for market forces to truly work.
  In the Medicare program, most hospitals receive a single payment for 
all the health care goods and services provided during a beneficiary's 
stay. This payment structure is designed to give hospitals incentives 
to provide efficient, effective, and economical care. Why? Because when 
a hospital lowers its costs, more of the Medicare payment can go toward 
the hospital's bottom line.
  Hospitals normally have many resources like consultants or reference 
materials to help them when they negotiate prices for things like 
drugs, nursing care, or hospital gowns. Unfortunately, this is not the 
case with implantable medical devices like pacemakers, stents, and 
artificial hips and knees.
  Hospitals have no way of knowing what a fair market price for a 
medical device is, because in this one industry there is a veil of 
secrecy over pricing information. In fact, manufacturers typically 
require hospitals to agree to secrecy or gag clauses in their 
contracts. The device makers actually prohibit hospitals from 
disclosing the price of a medical device to others. So hospitals have 
no idea of what is a fair price. Instead they must engage in one-sided 
negotiations with medical device manufacturers.
  We all know that there must be enough transparency for market forces 
to work. The free market, after all, thrives on complete information 
and open competition--not on gag rules and secrecy clauses.
  As a farmer, when I go out and buy a tractor, I first go out and talk 
to a number of people to help me figure out what is a fair price. 
Having this information puts me on equal footing with the dealer when 
we negotiate the price. After all, I don't want to be taken to the 
cleaners.
  Today, there is no level playing field when hospitals negotiate with 
device manufacturers. It shows. This is a major reason why many 
hospitals pay absurdly more than others for the same medical device. 
The inflated prices many hospitals pay have implications for the health 
care system on multiple levels.
  First, higher medical device costs take up more of the Medicare 
payment. That means hospitals have less to spend on other crucial 
components of care such as staff. And hospitals have less of the 
Medicare payment to devote toward their bottom line. So they have less 
money for activities to improve hospital quality and safety. They have 
less money to spend on health information technology systems. Most 
importantly, they have less money to keep their doors open and provide 
care to Medicare beneficiaries. In rural areas in my state where 
hospitals are barely squeaking by, this is a problem.
  Also, I want to point out how hospitals paying more than the fair 
market price for medical devices adds to skyrocketing entitlement 
spending. Medicare hospital payments are updated every year. The update 
takes into account the increased cost of goods and services used to 
provide care to beneficiaries. Let us say medical device prices are 
higher than they should be. As a result, Medicare hospital payment 
updates and Medicare spending will rise faster than they should.
  Also, let us remember that there are cost-sharing requirements for 
certain hospital services. And so Medicare beneficiaries will be paying 
more out-of-pocket than they should.
  All this adds up to one thing: a need for greater transparency in 
medical device pricing. My good friend and colleague, Senator Specter, 
and I have developed a way to provide greater transparency.
  The Transparency in Medical Device Pricing Act of 2007 would bring 
this needed transparency to medical device pricing by building on 
current initiatives at the Department of Health and Human Services, 
HHS. Under the act, here are some conditions device manufacturers would 
have to receive direct or indirect payments under Medicare, Medicaid, 
or SCHIP. Every quarter they would have to submit to the HHS Secretary 
data on average and median sales prices for all medical devices that 
are implanted during inpatient and outpatient procedures. Manufacturers 
would be subject to civil money penalties from $10,000 to $100,000 for 
failure to report or misrepresentations of price data.
  Collecting such data is not new to HHS. The Secretary has been 
collecting average sales price data for drugs covered under Part B of 
the Medicare program for a number of years now.
  The Secretary would also be required to make the data available to 
the public on the website of the Centers for Medicare & Medicaid 
Services, CMS. CMS would have to update the website on a quarterly 
basis.
  Again, this is nothing new at HHS. It has been promoting transparency 
in Medicare for quite some time. The Secretary already publicly reports 
quality and price data of various Medicare providers. This is so 
beneficiaries can use these resources when selecting a provider.
  Publicly reporting implantable medical device pricing would help 
hospitals negotiate fair prices. For once, they would have a resource 
to consult so negotiations would be fairer.
  Mr. President, let me be clear. I fully support the medical device 
industry making a profit. I just think it should not be at the expense 
of hospitals, beneficiaries and the American taxpayer paying much more 
than they should. We must let the market work, and markets depend on 
information.
  The Transparency in Medical Device Pricing Act of 2007 would go a 
long way toward ensuring that free market forces actually work. The act 
would enable hospitals to obtain medical devices at fair prices.
  Mr. SPECTER. Mr. President, with Senator Grassley, I introduce a bill 
that will help control Medicare spending and will increase transparency 
in our health care system. Medicare spending is a huge component of the 
Federal budget. In 2006, Medicare benefit payments totaled $374 billion 
and accounted for 12 percent of the Federal budget.

[[Page S13267]]

  Over the past several months I have received many letters from 
hospitals, consumer groups, employers, health and welfare funds, and 
health care journalists about the secrecy that the medical device 
industry is trying to impose around pricing for implantable medical 
devices, pacemakers, hip and knee replacements, which hospitals 
purchase. Hospitals are being told they can't share pricing information 
with any ``third parties,'' that would include patients, physicians, 
auditors, and consultants. The hospitals are not the ultimate payers. 
The payers are patients and those who provide health insurance 
coverage, which includes small businesses, large employers, and local, 
State, and Federal Government programs. But the hospitals are the ones 
who have the role of negotiating fair pricing on behalf of the patients 
and other payers.
  A New York hospital stated in a letter to me that many hospitals, 
patients, communities and Federal agencies are ``prevented from 
participating in an open and fair marketplace--culminating in inflated 
pricing and less than optimal cost effective health care.'' This 
hospital said that it has an annual health care supplies spend of 
approximately $300 million, and although the implantable items such as 
cardiac pacemakers and orthopedic implants represent only 3 percent of 
the total items the hospital buys, the expenditures are close to 40 
percent of the total spend. Moreover, these devices are characterized 
by annual cost increases of from 8 percent to 15 percent. Since 
national sales of implant
able devices are approximately $65 billion annually, with an expected 
growth in utilization of close to 20 percent, the potential of adding 8 
to 15 percent annual price increases to the expenditures clearly 
demands attention.
  A smaller health system in Jackson, MS, reports savings in 2006 of 
more than $10 million because it was able to get detailed objective and 
measurable information that neutralized the arguments from the vendors 
who were telling them that they were getting the best price. The 
National Partnership for Women and Families told me that consumers can 
learn more about the quality and price of a car than they can about 
these medical devices that are implanted in the body. The Pacific 
Business Group on Health, a collection of 50 of the Nation's largest 
purchasers of health care who spend billions of dollars annually to 
provide health care coverage to more than 3 million employees, retirees 
and dependents, also wrote to me that the critical strategy for 
improving the quality of our Nation's health care system is increasing 
its transparency.

  The Transparency in Medical Device Pricing Act of 2007 would require 
medical device manufacturers, as a condition of receiving direct or 
indirect payments under Medicare, Medicaid, and SCHIP, to submit to the 
Secretary of Health and Human Services, on a quarterly basis, data on 
average and median sales prices for all implantable medical devices 
used in inpatient and outpatient procedures. Manufacturers would be 
subject to civil monetary penalties from $10,000 to $100,000 for 
failure to report or for misrepresentation of price data. The data 
would be available to the public on the website of the centers for 
Medicare and Medicaid Services.
  Senator Grassley and I believe this bill will improve the overall 
quality and efficiency of our health care system and will help ensure 
that health care programs administered or sponsored by the Federal 
Government, in particular, promote quality and efficient delivery of 
health care through 1. the use of health information technology; 2. 
transparency regarding health care quality and price; and 3. better 
incentives for those involved in these programs--physicians, hospitals, 
and beneficiaries. By making important information available in a 
readily useable manner and in collaboration with similar initiatives in 
the private sector and nonfederal public sector, we can help control 
government spending on health care. The rising cost of health care and 
health insurance is a problem for consumers, small business owners, 
large employers and union health and welfare funds. This bill says that 
if you want to do business with the Federal Government, you have got to 
show us your prices.

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