The unnecessary cost of technology

June 2, 2008 at 10:51 pm (Uncategorized)

Few professions can be as economically wasteful as medicine. Sure, we all love to bitch about politicians, but medicine really should take the award for financial pissing. We build wonderful technologies that can look at the inside of a person’s heart, check the electrical activity of the brain, read any component in a person’s blood, and even watch a baby move inside of the womb. However, all of these devices are made unnecessarily expensive by using non-standardized equipment and are being produced as new models that do nothing to bring down the cost of older versions.

Let’s take a look at the EKG. Any complaints of chest pain or a sensation like the heart is about to leap out of the chest will instantly be met with the EKG. This machine records the electrical activity through the heart and can be used in the diagnosis of arrhythmias, heart attacks, enlarge areas of the heart, and even certain electrolyte deficiencies. At its core, this device is simply comprised of 10 wires that are connected to an oscilloscope (a fancy voltmeter that you probably saw in college physics). I did some searching online and found that an oscilloscope can be had for about $150. The rest of the equipment needed to build an EKG can be found at Radio Shack for pocket change. In the real world, purchasing a new EKG machine runs about $2,000. What’s worse, this device will only print out the tracings of the heart as a snapshot. Getting a machine that uses a screen to show real-time activity of the heart cost even more. Then, once you have this paper-based tracing, you’ll have to insert it into the patient’s paper chart. The only way to get the same result into an electronic medical record is to buy a more expensive upgrade that can connect to a computer. Currently, the total package runs for about $4,500. The end result is that the physician will carry this charge to the patient for about $100 per EKG ($10 after insurance reimbursement). I imagine that an entrepreneur could build an EKG machine that connects directly into the computer’s USB port-complete with interpretation software-for less than $50. The computer’s monitor would serve as the oscilloscope; and a standard laser printer could print out the tracing on paper if desired.

Another unnecessarily expensive piece of medical equipment is the ultrasound. A solid high-resolution machine runs for almost $100,000. That’s a pretty hefty sum for a computer that merely interprets sound waves. One company has released a USB-based ultrasound probe that connects directly into the computer. According to press releases, it sells for just under $4,000. However, looking over these probes I’m concerned about the quality of the images. But the end result is the same: medical equipment can be produced at a cheap cost. The current system does nothing to reward us for developing innovative, cost-effective devices. Instead, we continue to throw away money on machines that can be produced by hobbyists for 1/100 of the cost.

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6 Comments

  1. EEJ said,

    While I agree that machines could probably be made cheaper, would they be as accurate? be as well-supported? be as tamper proof? be as reliable?

    Let’s also not forget that, much like the Iphone, it’s not about pure production costs. There’s customer service/support, lawsuit protection, patent protection and research, and numerous other costs that you don’t see when you look at the pure costs of manufacture and/or components.

    I’m not arguing with your basic premise, just saying that I’d much rather be hooked up to a machine that’s been thoroughly vetted and tested (for safety/accuracy), rather than Uncle Bob’s DIY EKG machine, even if it saved me quite a bit of dough…..wouldn’t you?

  2. Fidel.MD said,

    By the time you’re done dealing with the FDA and getting your approval to market a medical device, you’ll want $100K for an ultrasound, too.

    The problem is the FDA. They’re out of control. Time to reign in their mandate, to simply don’t do any harm: The market will decide if the products provide any benefit.

  3. shortmatt said,

    You couldn’t have said it better! I work for a company called MEMdata (www.memdata.com). We have built a business on helping hospitals obtain equipment at competitive prices. We act as an equipment-centric, cost-reduction firm and equipment planner.

    From what I’ve seen, department directors within facilities and many end users (including physicians) want to have the latest and greatest technology. The hospital or imaging facility down the street just got the latest wahoo gizmo and thus we need to do the same in order to compete. And it has to be brand X because the sales rep is really nice. Or the technology is infinitesimally better. Or that’s the technology that I’m used to and I will only consider brand X.

    And we’ve heard this too in support of the favored brand: “After all… these are patient lives we’re talking about!” So the other brands available, all FDA approved, don’t work? Once the sales rep knows you’re hooked, you will pay a premium! We see it all the time.

    Another factor working against you and a competitive price is the non-disclosure of price. Look carefully at your next proposal for that piece of equipment. Most have “Confidential” written all over them, especially in the small print at the bottom.

    And we’ve heard this all too often: “This is a special price, just for you, so don’t tell anybody…” What??? Why can’t my buddy down the street get the same great deal? Or wait, he’s telling me that he can’t disclose his price to me either. So who really got the better deal?

    Yet, I can walk into Wal-Mart, easily see the price of each piece of equipment and make an educated decision. I can walk into the grocery store and compare the cost of Pepsi and Coke, side by side. I can walk onto any new car lot and the price printed right there. And since I know the starting point, I can work from there to negotiate a fair price.

    Not so with equipment. “List” price, as they call it, is very easily subject to change and we’ve seen it quickly fluctuate up and down within the same sales quarter. So you can’t even get a firm grip on the starting point to begin negotiations.

    Each price is uniquely cloaked and haggled. No problem in haggling if you know what a good price is.

    I find it interesting that I can surf the web and see how much people have contributed to political campaigns in my area by zip code. I can see how much my neighbor’s property is worth. And I can see how much my friend wasted on a BMW. But I can’t share or know the price of a piece of medical equipment until a sales person thinks I’m ready to buy. And even then they have to really believe I’m ready to buy or else I get a bloated price (often referred to as the “budgetary quote”), which I can share with no one.

    And now the government wants price transparency in medical procedures (which I favor). But we’re still leaving the prices of the equipment to do the procedure cloaked!

    And don’t even get me started on the GPO prices and the inflation they cause. Their kickbacks, I mean admin fees, are based directly on the price. The higher the price, the more they receive from the vendor.

    The problem is that most hospitals and practitioners don’t know a good price for a piece of equipment. I know this because we’ve built a company helping clients achieve better prices. On average we identify 18% in savings for our clients. It is a crying shame that a 500-bed hospital can pay a premium more for the exact same piece of equipment than a 25-bed hospital. And vice versa, there are plenty of instances when our 25-bed hospitals pay the premium more than the larger institutions.

    And we wonder why healthcare costs are skyrocketing! You are absolutely right! Only in healthcare…

  4. Fidel.MD said,

    I am involved in the decision to purchase, and then to negotiate pricing, for medical appliances in my practice.

    I have had regional sales reps go to the head of my group and ask that I be removed from these responsibilities….on three different occasions.

    Why? Because I figure out what two or three products will do the job for us (there is almost never a ‘one best’ product), and then I ask for a quote on it. The sales person ususally thinks his/her job is done at this point!

    I start negotiating the actual price of the product, at about 40% of the MSRP, or maybe 55% of the quote. Needless to say, I rarely get the price I first offer, but I never pay more than 75% of their offered price, and always get some concessions on top of that: Consumables, warranty extension, etc.

    That reduction in price comes off the sales persons commission. Too bad for them. I learned how to negotiate in a market with 6% gross markups, and I was good at it – before I went to medical school.

    The three companies that asked to have me replaced? Well, they don’t even get to offfer, any more.

  5. Srini said,

    I think people are waking up to the fact that medical instruments cost more than they should. Somebody needs to shake up distribution in this industry like Dell did in the computer industry and start cutting out the middleman and start offering products that are very affordable for the individual user.
    Home health care monitoring is going to require inexpensive, affordable products. Go search for portable 12 lead EKG machines at Amazon.com. I think you’ll be surprised at what you find.
    This should be a precursor of things to come.

  6. Anton said,

    Let’s not forget that first gen medical equipment are built like tanks, often because the manufacturer is attempting to anticipate every failure and every upgrade down the road.

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