ECRI–Boston Scientific Settlement Raises Transparency Issues

When the ECRI Institute (Plymouth Meeting, PA) brought suit against then Guidant Corp., now a wholly owned business unit of Boston Scientific Corp. (Natick, MA), many medtech industry observers saw the case as a potential forum on medical device pricing transparency. At issue was ECRI's right to continue publishing the prices paid by hospitals for a number of medtech products, notably, in the dispute with Guidant, cardiac rhythm management devices such as pacemakers and implantable cardioverter-defibrillators (ICDs).

ECRI had been publishing this information in its PriceGuide without incident since 1996. In May 2004, however, Guidant sent a cease-and-desist letter to ECRI, requesting that all pricing information about its products be removed from the PriceGuide database. Guidant asserted that disclosing such information violated its confidentially agreements with the hospitals that were supplying the information. In attempting to comply with Guidant's requests, ECRI initiated a number of actions, including the removal of sample pricing information and directions to PriceGuide users not to disclose any pricing data protected by confidentiality agreements.

When Guidant persisted and maintained that such actions were insufficient for safeguarding the integrity of its confidential pricing agreements, ECRI filed suit on May 3, 2006, in the U.S. District Court for the Eastern District of Pennsylvania. Guidant countersued, alleging that ECRI had interfered with the contracts between the company and its customers and had also misappropriated its trade secrets by obtaining such confidential pricing information.

The case was scheduled to go to trial on December 3, but several weeks earlier, on November 19, the two parties announced that they had reached a settlement.

Under terms agreed to by ECRI and Boston Scientific, details of the agreement could not be disclosed. However, Jeffrey C. Lerner, PhD, president and CEO of ECRI, said that the firm would continue to publish the PriceGuide, including information about Boston Scientific's Guidant brand of CRM devices.

Lerner says that ECRI will continue to obtain, benchmark, and publish medtech pricing information that is voluntarily supplied, so long as that information does not violate confidentiality agreements between hospitals and medtech manufacturers. Despite the Guidant lawsuit, he says ECRI does not consider its relationship with the medtech manufacturing community to be an adversarial one.

“Nothing could be further from the truth,” he says. “ECRI has excellent relationships with the vast majority of medtech manufacturers. But the issue here is one of public policy, specifically whether the customer—in this case, the hospital—has the right to secure the necessary information to make intelligent purchase decisions that are in the best interest of the healthcare facility, and ultimately, the patient.”

Joyce S. Meyers, an attorney with Montgomery, McCracken, Walker & Rhoads LLP (Philadelphia), who represented ECRI in the settlement, said she could not discuss details of the agreement. During her preparation for the case, however, she encountered a number of hospital administrators and purchasing agents who were unaware of the details of the confidentiality clauses in their contracts with Guidant. “From the beginning, this was a very difficult case with no legal precedent,” says Meyers, who heads up her firm's first amendment and media practice group. She says the case raised “a number of important issues, including whether or not a contractual provision can be enforced on a third-party who has no awareness of it.”

According to Paul Allan Levy, an attorney with Public Citizen (Washington, DC), a nonprofit consumer advocacy organization, enforcement by way of a stand-in defendant isn't an appropriate use of the legal system. “If Boston Scientific or any other device manufacturer has an issue with customers allegedly violating the confidentiality clause of their pricing agreements, then they should take it up with their customers—the hospitals,” he says. “But they don't want to risk offending their customers, so they go after third-party ECRI and make them a substitute defendant.”

The out-of-court settlement, which was largely unexpected, disappointed many medtech analysts, hospital administrators, and healthcare policymakers. Many such stakeholders viewed the prospect of a trial as providing a more definitive venue for exploring the intricacies of the medical device pricing issue, which continues to gain traction on several fronts. Yet, even a casual perusal of news coverage of the settlement invariably includes linkage to the issue.

Asked to comment on the case, Senator Arlen Specter (R–PA) issued a statement that the ECRI–Boston Scientific dispute was not the impetus for the proposed Transparency in Medical Device Pricing Act , which he cointroduced on October 23 with Senator Charles Grassley (R–IA). If the bill becomes law, it would require medtech manufacturers seeking payment under Medicare and related programs to issue quarterly reports on the average and median sales prices for all of their implantable medical devices used in inpatient and outpatient procedures. Manufacturers that fail to report or misrepresent pricing data would be subject to fines up to $100,000.

In introducing the bill, Specter said it would improve the overall quality and efficiency of the healthcare system. “The legislation sends a message to medical device suppliers that if they want to do business with the federal government, they have to show us their prices,” he said. “By making this important information readily available, in collaboration with similar initiatives in the private sector, we can help control government spending on healthcare.”

“Both parties to a transaction need information in order for the free market to properly work,” said Grassley. “If only one party has information, the market does not properly function because you have a one-sided negotiation. The purpose of this legislation is to bring transparency to medical device pricing so that there will be sufficient information available for market forces to truly work.”

Nevertheless, the two leading medtech trade organizations take a dim view of the proposed legislation. Wanda Moebius, vice president for policy communications at AdvaMed (Washington, DC), says that the organization is “extremely concerned with the current proposal. We believe it will not assist patients, interferes with free-market negotiations between device makers and hospitals, and offers no discernible benefit in reducing healthcare costs.”

Mark Leahey, executive director of the Medical Device Manufacturers Association (Washington, DC), says, “Medical devices represent—at most—about 4–6% of healthcare costs. The proposed legislation no doubt has populist appeal, particularly in the upcoming election year, but if the concern is truly about healthcare costs, then we need to look at Medicare and private insurance funding.

“Reimbursement is for procedures—not devices—so we need to take a look at the costs that are being tacked on by the hospitals,” Leahey adds. “To suggest that hospitals do not have enough price information could well be a de facto indictment of some group purchasing organizations that are not adequately representing the best interests of their customers.”

Yet medical technology is often cited as a factor in rising healthcare costs, and calls for more government oversight and regulation of the industry are increasing. ECRI's Lerner suggests that medtech manufacturers might want to consider lifting the veil of secrecy regarding pricing information provided to hospitals. “The industry should take the lead on this issue, which is just not going away,” Lerner says. “Manufacturers need to ask themselves if they believe that adopting a position of pricing secrecy is defensible—either in the court of public opinion, or with healthcare policy makers in Washington.”

© 2007 Canon Communications LLC

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