Research firm, Guidant settle legal battle over device pricing

A legal battle between a Plymouth Meeting research firm and a medical device maker over whether hospitals can be required to keep price information confidential has ended in a truce.

Details of the settlement reached Saturday night are, you guessed it, confidential.

A lawsuit filed by ECRI Institute, a nonprofit organization that collects health-care information, and a countersuit by Guidant Corp., a medical device maker, were scheduled to go to trial Dec. 3.

The broader public policy issue - whether the prices hospitals pay suppliers are a trade secret or information that should be publicly disclosed to hold down medical costs - remains unresolved.

That question is also at the heart of a bill introduced last month by U.S. Sens. Arlen Specter and Charles Grassley. It would require companies that make implantable medical devices, including heart defibrillators and artificial joints, to report prices to the government each quarter. That information would then be made public.

In the lawsuits, Guidant argued that its deals with hospitals are confidential, precluding the sharing of price information with anyone. ECRI sued for the right to gather price information from hospitals and then share average and low prices. "We think we have a right to benchmark data and publish it," said Jeffrey Lerner, ECRI's president.

He declined to discuss the settlement but said his organization plans to continue collecting and sharing information about heart device prices, including Guidant's. Member hospitals provide the price data voluntarily, he said, and will need to make sure they are not violating contracts. "Hospitals have to be very alert to whatever they've signed off on," Lerner said.

Specter and Grassley argue that high device prices are passed on to the government and other payers and that price negotiations are currently one-sided because hospitals can't get enough information.

"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," Specter said when the bill was introduced. "This bill says that if you want to do business with the federal government, you have got to show us your prices."

Specter's office said the ECRI suit was not the impetus for the bill.

A spokesman for Boston Scientific, the parent company of Guidant, did not return repeated phone calls. A spokeswoman for the company's law firm declined to comment.

The Hospital and Health System Association of Pennsylvania (HAP) and its local chapter, the Delaware Valley Heathcare Council, also declined to comment.

Dom Panacio, director of materials management for Doylestown Hospital, said his hospital spends $8 million to $9 million a year on implantable heart devices, which he described as the most expensive "single-use" items he buys. Confidentiality clauses are rare outside of this category, he said.

"You're not going to see a lot of it because everybody knows what everybody's paying," he said.

His hospital agreed to such a clause with Medtronic Inc., a Guidant competitor, because it offered an especially good deal. As a general rule, though, he thinks hospitals would be better off without such limitations. "It should be more competitive," he said.

Robert Burns, professor of health care systems at the Wharton School, said the Bush administration has pushed for more public price information about doctors and hospitals. Requiring data on device prices is part of a general trend toward transparency. "I think you may actually see this expand to other sectors," he said.

Burns, who said he was on the ECRI witness list, said implantable devices differ from other medical supplies, such as uniforms, because they are "physician preference items." Doctors often pick these devices and companies market directly to them even though hospitals do the buying. Burns described the relationship between the doctors, hospitals and supply manufacturers as a "love triangle."

Because the doctors have strong preferences, hospitals have less latitude to consider competitors' products, Burns said, and the lack of information about the desired devices hampers negotiations. "A lot of these places aren't even sure what's a good price unless they have access to benchmarking information," he said.

Lerner said prices for a defibrillator can range from $18,000 to $30,000.

Panacio agreed doctors are courted heavily by device manufacturers. "It's a constant, constant battle for market," he said.

Confidentiality agreements are used in other hospital deals, notably contracts with health insurers. Some have gone so far as to tell care providers they can no longer print what the insurer pays - as opposed to what the provider charges - on bills, said Gerald Katz, a health-care consultant with Kurt Salmon Associates in Plymouth Meeting.

"It's more prevalent than one would suspect," he said of confidentiality clauses.

More price disclosure could give insurers more information about true hospital costs, which might work against hospitals in those contracts, he said. But it also would make it easier for small hospitals to negotiate with suppliers and would likely lower prices.

"Oh, there's no question," he said. "It would level the playing field."