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September 23, 2013

2 Min Read
Does a Laryngoscope Have a 4361% Markup?

An informal analysis attempts to argue that medical device markups are higher than those of illegal drugs--at least in the case of GlideScope video laryngoscope. While this wasn't a scientific or peer-reviewed study, it does shed light on how the selling price of a medical device can exceed that of other high-margin products like smartphones.

In the analysis, financial analyst Reggie Middleton, who, in 2007, predicted the crash of the U.S. housing market, says that the markup for cocaine is approximately 200%, representing a profit margin of 66%.

In comparison, the analysis argues that the Glidescope by Verathon, an endoscopic tool, has a price markup of 4361%. The device sells for nearly $10,000 and, according to the post, has a cost of raw materials for the Glidescope was approximately $113.22.
Middleton, who acknowledges that the research was "not exhaustive," offers the following parts list for the Glidescope:

  • camera and assembly $9

  • screen $12

  • connecting wire $1

  • probe $2 (x24 # of probes in a package)

  • battery $8

  • housing $10

  • stand $17.20

  • total parts $105.20

  • assembling / packaging $8

In comparison, the device sells for $9,825. Even assuming a significant margin of error in the original raw-cost estimation, the markup for the Glidescope is significant, Middleton argues. In total, he estimates that the profit margin on the Glidescope is estimated by be 98%. "[H]ow is such a level of profit achievable in a capitalistic society where the forces of free market economics come into play?" he asks.

The author, however, makes no mention of the cost of navigating FDA approval or running clinical trials. He also doesn't mention the cost of training clinicians how to use the device and potential 'marketing expenses' or distribution, sales costs, and the advertising and promotion budget. A commenter on the blog surmises: "Now, even with that, the profit margin is still probably 50%, but it's not quite as simple as a bill of materials analysis would suggest." While the profit margin for medical devices varies wildly, a significant amount of device companies struggle to achieve profitability. Middleton replies: "I've heard this rebuttal many times. There is no excuse for marking up production costs over 4,000%. The medical device approval process may be onerous, but so is the importation of a highly illegal drug such as cocaine, federal, state, city and local bribes in at least two different countries, as well as legal costs, hit men, violent competition, killing judges and cops and the need to do federal time. Despite all of that, cocaine dealers are still limited to only a 50% markup."It is true that some medical devices have traditionally had significant markups relative to other industries, which are often priced a multiple of their manufacturing cost. It remains to be seen, however, if Google Glass can disrupt the industry as Middleton argues in his blog.

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