Stranger Than Fiction

Even Hollywood would pause before trying to sell this scenario. Imagine:

Over twenty years ago someone invented a cheap car gadget that would cut the 30,000 annual US car crash deaths by 75%, and with government help proved it in a randomized experiment fifteen years ago. The car industry was a tight cartel, however, explicitly encouraged by the government and exempted from anti-trust laws, and this cartel didn’t see much profit in adopting the no-more-crash-death innovation. Although the nation just passed a huge car industry reform bill, after a fierce national debate, this subject never came up.

Not very believable, is it. But, turns out, an equivalent scenario has actually played out in medicine. There are 30,000 annual US deaths from blood catheter infections, but the US med equipment industry is a tight government-encouraged cartel, explicitly exempted from anti-trust laws, and it doesn’t see much profit in adopting a cheap innovation proven fifteen years ago to cut infections by 75%:

According to some studies, the rate of bloodstream infections is three times higher with needle-less systems than with their needle-based counterparts. … Shaw’s innovation added only a few pennies to the cost of production. And it seemed to be remarkably effective: A 2007 clinical study funded by Shaw’s company and conducted by the independent SGS Laboratories found the device prevented germs from being transferred to catheters nearly 100 percent of the time. … Shaw had just invented the first retractable syringe, a fact that drew the attention of public health officials. In 1993, the National Institutes of Health gave him a $600,000 grant to shrink it down to the size of an ordinary hypodermic. …

Large companies used their clout to squeeze hospitals on prices. To keep costs in check, in the 1970s many medical facilities began banding together to form group purchasing organizations, or GPOs. … In 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect “fees”—in other industries they might be called kickbacks or bribes—from suppliers in the form of a share of sales revenue. … GPOs’ revenues were now tied to the profits of the suppliers they were supposed to be pressing for lower prices. … In 1996, when the Justice Department and the Federal Trade Commission overhauled antitrust rules and granted the organizations protection from antitrust actions. …

Within a few years, five GPOs controlled purchasing for 90 percent of the nation’s hospitals, … Shaw’s retractable syringe hit just as these trends were converging. In fact, the year his product came onto the market, three of the nation’s largest GPOs merged to form a company called Premier, which managed buying for 1,700 hospitals, or about a third of all hospitals in the United States. … Over the next two years, [Becton Dickinson] landed similar deals with all but one major GPO. As a result, almost everywhere Shaw turned, he found hospital doors were closed to him. …

There was talk of legislation to rein the GPOs in. Spooked by this threat, in 2002, the industry introduced a voluntary code of conduct … When it comes to core business practices, [this code] is vague. …

GPOs maintain that by pooling hospitals’ buying power and getting big medical suppliers to submit to competitive bidding, they are able to negotiate better deals and save hospitals billions of dollars. … But the little information that is available suggests that they may actually drive up the price of supplies. A 2002 pilot study by the Government Accountability Office found, for instance, that hospitals that went through GPOs paid more for safety needles and most models of pacemakers. … MEMdata, a Texas-based company that helps hospitals process their bids for new equipment and captures the quotes in a database. … On average, [MEMdata founder] Yancy says, the GPOs’ prices are 22 percent higher than the ones that hospitals can get on their own. (more; HT Kevin Burke)