Prices paid in the U.S. for medical devices, including those that regulate the heart’s rhythm and replacements for hips and knees, have plunged as much as one-third since 2007 as hospitals clamped down on spending.
The average inflation-adjusted prices for seven of the largest categories of medical devices fell through 2011, according to a study released today from the Advanced Medical Technology Association. Drug-coated stents used to prop open arteries sold by Boston Scientific Corp. (BSX:US), Abbott Laboratories (ABT:US) and Medtronic Inc. (MDT:US) had a 34 percent decline. Artificial knees from Johnson & Johnson (JNJ:US), Zimmer Holdings Inc. (ZMH:US) and Stryker Corp. (SYK:US) fell the least at 17 percent.
The results suggest medical technology isn’t responsible for driving up health-care costs in the U.S., where prices for devices have risen at less than half the pace of goods in the U.S. economy for two decades, said Stephen Ubl, chief executive officer of the industry group known as AdvaMed. The open market works for medical devices, he said.
“It’s an incredible value story to talk about price declines against the backdrop of public health gains,” Ubl said in a telephone interview. “What else in health care can you say is going down in terms of price? At least in this part of health care, good old fashioned competition works well.”
The competition can be fierce. J&J, the world’s biggest seller of health-care products, in 2011 stopped marketing drug-coated stents, an area it pioneered less than a decade earlier. The New Brunswick, New Jersey-based company generated $627 million from stents in 2010 compared with $2.62 billion in 2006 before it lost share to rival products from Natick, Massachusetts-based Boston Scientific and Abbott Park, Illinois-based Abbott.
The pricing pressure is no surprise to medical technology investors. The Standard and Poor’s 500 Health Care Equipment & Services Index fell 11 percent from 2007 to 2011. The index has gained since then, rising 37 percent through Sept. 20, as company executives said plunging prices and demand for their devices have begun to stabilize.
The study presented at AdvaMed’s meeting in Washington, was based on pricing data gathered from almost 300 hospitals by Millennium Research Group, which tracks the industry.
Costs covered the average selling price for devices in seven categories, including pacemakers and joint implants, after taking into account discounts and rebates. The survey didn’t distinguish between more advanced products and simpler versions, nor did it take into account the number used.
Industry leaders and AdvaMed executives may use the findings to lobby for a repeal of the 2.3 percent medical device excise tax that went into effect this year to help pay for the Affordable Care Act. The tax and payment cuts for laboratory tests, imaging services and durable medical equipment, are threatening innovation and job creation in the industry, Ubl said.
The results shouldn’t dissuade investors from putting money into the industry, the group said. Increasing demand for devices from aging populations worldwide, and the rising ability of people in emerging markets to pay for the products, bodes well for the future of the industry, said David Nexon, AdvaMed’s senior executive vice president. The dynamics of the industry will fuel innovation, he said.
“There is tremendous pressure to make money by producing a better product so people are willing to pay for it,” he said in a telephone interview. “In this industry, that advantage doesn’t last very long, which keeps pricing very low. It’s been historically a tremendous engine to improve quality of care.”
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