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PROLOGUEMedical DevicesEconomist Uwe Reinhardt once likened the payment system for U.S. health care to a fictional employer-sponsored "clothes benefit program." Companies would reimburse workers for 80 percent of the "reasonable cost" of attire that was "necessary and appropriate" for the job. The catch: although employees could choose whatever they wanted from the racks of any department store, they’d have to wear a blindfold while selecting their attire. That way they’d have no idea what they were picking, no notion of whether the clothes were "necessary and appropriate," and not a clue as to what prices they and their employers would pay. Reinhardt’s analogy is useful in understanding much else in U.S. health care that is characterized by an absence of quality information and price transparency. The medical device industry, as the papers in this section make clear, is a case in point. Mark Pauly and Lawton Burns describe device manufacturers’ nondisclosure policies, whereby purchasers are forbidden from sharing transaction prices with other purchasers and even with the physicians who place the devices into patients. Manufacturers are thus able to maintain a high degree of market control through price discrimination—charging Peter one price, Pauline another, and forbidding one to tell the other that she got a far better deal. It’s hard to fathom how anybody beyond device makers could benefit from this anticompetitive price secrecy. Thus, Republican Senators Charles Grassley of Iowa and Arlen Specter of Pennsylvania introduced a bill in 2007—not yet passed by the Senate or introduced in the House—that would compel manufacturers to report average and median sales prices for implantable devices. But not everyone agrees that price secrecy is necessarily a problem. In a Perspective, Robert Hahn and colleagues explore the conditions under which mandatory price disclosure is likely to generate societal benefits in excess of costs. In the case of implantable devices, they believe that these conditions would not be met, arguing that the structure of the market would likely lead to price coordination and collusion in the industry that would result in significant costs to society but only marginal benefits. They thus conclude that disclosure for these devices is unlikely to pass a benefit-cost test for society as a whole. Price secrecy is but one of the factors standing in the way of a well-functioning device market. As Jamie Robinson writes, paying fair prices for devices would require "overcoming data gaps, conflicts of interest, perverse payment incentives, opaque quality outcomes, and fragmented service lines." Would that be all?
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