In late July, medical device wholesaler Cardinal Health (Dublin, OH) announced a partnership with Emerge Medical (Denver) to begin offering generic orthopedic devices to hospitals and surgery centers. Cardinal claims it can provide some products at 30–50% savings from the name brand through its Orthopedic Solutions line.
“Based upon our market and customer research, we believe that U.S. healthcare providers are ready to support a simpler, more transparent, fair-priced orthopedic business model,” says Lisa Ashby, president of category management at Cardinal Health. Cardinal surveyed its customers and found similar concerns cropping up over and over again: cost of devices, issues of pricing and reimbursement, and supply chain inefficiencies. “[Some customers] had a significant amount of excess inventory. Some where working on consignment while others were not...the lack of [pricing] transparency is making things difficult,” Ashby says.
The decision by Cardinal Health comes amid reports that companies are being pressured to lower costs as the cost of medical devices continues to rise. A report released in January by the Government Accountability Office (GAO) found substantial variation in the prices hospitals paid for cardiac devices—variance that is accounted for by the difficulty some hospitals have in bargaining with manufacturers and the lack of transparency in medical device pricing. These costs that the hospitals incur are often passed down to patients.
Currently, hospitals purchase implantable medical devices (IMDs) directly from manufacturers or group purchasing organizations (GPOs). However, as reported in the GAO report, “[The] purchasing agreements often contain confidentiality clauses restricting them from revealing to third parties the prices they pay for such devices.” The concern is that this lack of price transparency inhibits competition by limiting the ability for devices to be competitively priced and bargained for, and ultimately leads to increased Medicare spending.
“There has been ongoing inquiry into general practices' distribution practices and conflicts of interest...Distribution through Cardinal Health is different than a GPO and may offer an alternative,” says Laura Ruth, research director for research and consulting firm Fuld & Co.
While generic devices could be negatively perceived as an opportunity for companies to cut into competitor's profits, the offer a potential win-win for device manufacturers and patients, Ruth says. She sees a number of advantages for companies like Cardinal Health that offer generic medical devices. Aside from lowering healthcare costs, generic devices present an opportunity to diversify their product offerings much in the way pharmaceutical companies do.
“This may seem far-fetched right now and could be years away, but it’s possible that large medical device companies will consider selling generic devices the way some brand name pharmaceutical companies can sell generics,” Ruth says. She cites companies such as Novartis, Pfizer, Watson, and Teva, which all have business units devoted to selling generics.
“If the generic device is just one of many from a distributor, then it is another reason for a healthcare provider to purchase from a ‘one-stop-shop,’” Ruth says. “The advantage for a patient is lower medical care cost.”