Transparency in Medical Device Pricing Act of 2007

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. 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. President, nearly 4 years have passed since Congress enacted the Medicare Modernization Act. Adding a prescription drug benefit to Medicare was long overdue, and many senior citizens and people with disabilities are relieved to finally have drug coverage.

But the drug benefit was not structured like the rest of Medicare. For all other Medicare benefits, seniors can choose whether to receive benefits directly through Medicare or through a private insurance plan. The overwhelming majority choose the Medicare-run option for their hospital and physician coverage.

No such choice is available for prescription drugs. Medicare beneficiaries must enroll in a private insurance plan to obtain drug coverage.

A report released today by the Medicare Rights Center, with the support of Consumers Union, identifies the problems this decision to rely exclusively on private drug plans has created.

Seniors are having trouble identifying which of the dozens of private drug plans works best for them. Anyone who has visited a senior center or spoken with an elderly relative knows that the complexity of the drug benefit has created much confusion.

Each drug plan has its own premium, cost-sharing requirements, list of covered drugs, and pharmacy network. After you have identified the right drug plan, you have to go through the whole process again at the end of the year because your plan may have changed the drugs it covers or added new restrictions on how to access covered drugs.

Medicare beneficiaries often cannot obtain the drugs they need because they are trapped in an appeals process that the Medicare Rights Center calls ``hopelessly dysfunctional.'' Drug plans often do not tell beneficiaries that they can appeal a drug plan's decision to deny coverage of a drug, even though they are required to do so. Beneficiaries who do appeal soon find that it is a long and difficult process.

The complexity of the Medicare drug benefit also has made beneficiaries more vulnerable to aggressive and deceptive marketing practices. Some insurers try to steer seniors into more profitable Medicare Advantage plans. Some seniors have been signed up for Medicare Advantage plans without their knowledge, and, unfortunately, there have also been unscrupulous insurance agents who have misrepresented what benefits would be covered.

Adding to the frustration with the program so far is accumulating evidence that private drug plans have not been effective negotiators, which means seniors end up paying more than they should.

Drug prices are higher in private Medicare drug plans than drug prices available through the Veterans Administration, Medicaid, and other countries like Canada.

A report by the House Oversight and Government Reform Committee estimated that taxpayers and Medicare beneficiaries would have saved almost $15 billion in 2007 if administrative expenses in the drug program were as low as the traditional government-run Medicare program and if drug prices were the same as Medicaid levels.

It should come as no surprise then that the average beneficiary who stays in their current Medicare drug plan will see their monthly premiums increase 21 percent in 2008.

Today, I am introducing the Medicare Prescription Drug Savings and Choice Act. The bill would create a Medicare-operated drug plan that would compete with private drug plans and would require the Health and Human Services Secretary to negotiate with drug companies to lower drug prices.

This is the kind of drug plan that Medicare beneficiaries are looking for. According to a survey by the Kaiser Family Foundation, \2/3\ of seniors want the option of getting drug coverage directly from Medicare, and over 80 percent favor allowing the government to negotiate with drug companies for lower prices.

The Health and Human Services Secretary would have the tools to negotiate with drug companies, including the use of drug formulary. The best medical evidence would determine which drugs are covered in the formulary, and the formulary would be used to promote safety, appropriate use of drugs, and value.

The bill would establish an appeals process that is efficient, imposes minimal administrative burdens, and ensures timely procurement of nonformulary drugs or nonpreferred drugs when medically necessary.

The Secretary would also develop a system for paying pharmacies that

would include the prompt payment of claims.

Seniors want the ability to choose a Medicare-administered drug plan. Let us give them this option, just as they have this choice with every other benefit covered by Medicare. Many seniors will find direct Medicare coverage to be a simpler, more dependable, and less costly option than private drug plans.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

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.

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.

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.

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.