Thanks to Dr. Wes for pointing us to a remarkable video of a 20-year old Belgian soccer player having his life saved by an implantable cardiac defibrillator (ICD). DrRich hopes you will view it.
As it happens, DrRich will be traveling to Europe imminently at the invitation of Dr. Pedro Brugada, whom some call Belgium’s King of Electrophysiology, and for whom the Brugada Syndrome is namesake. (DrRich is deeply honored to be one of the “masters” at Dr. Brugada’s “Meet the Masters” event, which gives him the opportunity to spend two days with a hand-picked group of top European and American electrophysiology fellows. DrRich will undoubtedly learn a lot from them, and will try very hard not to ruin these fine young physicians before they’ve even started out.) In any case, one must suspect that Dr. Brugada (being, after all, Belgium’s King of EP) must have been somehow responsible for placing the ICD in this young soccer player.
DrRich will be sure to ask him how that young man managed to receive an ICD. Because most high-risk patients, in the U.S. and elsewhere, have to do without.
Despite the fact that ICDs are dramatically effective and dramatically life-saving in people who have dangerous cardiac arrhythmias (please do watch the video to see the drama for yourself), they are still used in only a tiny fraction of the identifiable patients who are at risk for sudden cardiac death. Consequently, in the United States alone, almost 1,000 patients each day die suddenly from cardiac arrhythmias who could have been saved by an ICD.
DrRich has written before about the covert rationing of ICDs, which is done so openly that one is tempted to drop the modifier “covert,” and has even written about how a former government official has admitted that he had no choice but to juggle the statistics of a randomized clinical trial (i.e., to bastardize the science) in order to avoid having to pay for ICD therapy in broader categories of patients. That’s old news, and there’s no reason to beat it to death again here.
Instead, DrRich would like to explore another question – Why are ICDs still so damned expensive?
Having worked closely with ICD manufacturers since the early 1980s (which, DrRich knows, makes him a very bad person), he perhaps more than most appreciates the engineering magic that has gone into making and improving these devices over the years. It is a truly remarkable thing that one can build a tiny implantable device that a) houses a computer that runs an extraordinarily sophisticated heart rhythm analyzer that, from beat to beat, accurately diagnoses the heart rhythm in real time; b) can deliver a tiny electrical pacing impulse to the proper cardiac chamber at the proper time, from beat to beat, to coordinate and optimize cardiac function; c) then, if a fatal arrhythmia develops, to deliver a very big shock to the heart within 10 – 15 seconds, to restore the rhythm to normal (please do see the video); d) wirelessly communicate via the Internet to tell the doctor (and anyone else who needs to know) its own condition and the condition of the patient; e) all the while surviving in a hostile, high-temperature, salt-water environment (i.e., the human body), for 5- 7 years, without (for the most part) corroding, leaking, rusting, blowing up, or otherwise malfunctioning.
Try to get your iphone to do that.
At this point, most of DrRich’s regular readers are likely expecting him to say: No wonder these beasts cost $15,000 to $25,000 apiece. Just look at the sophisticated technology that is built into them!
And it is indeed true that over the past 27 years, hundreds of millions of dollars have been invested in making ICDs smaller, more reliable, longer lasting and safer. It is also true that the companies that make these devices ought to be fairly rewarded for their efforts in this regard. And for many years (DrRich estimates that the “right” number of years was about 18) the high cost of ICDs was easily justifiable, given the steady, remarkable, important and meaningful improvements in technology that took place during that time, improvements that were being funded by the cost of the devices.
But DrRich argues that by the turn of the millenium, ICD technology had become largely mature, and that since that time improvements (while still happening) have been merely incremental. “Gingerbread” might be too strong a term, but nonetheless that’s the term that pops into DrRich’s mind. The fact is that by the year 2000, all ICD manufacturers were building reliable, safe devices that were really good at preventing sudden death, and improvements since then have not altered (or materially improved on) that fact.
Here’s a truth that ICD manufacturers would not like us to know: It only costs them a couple of thousand dollars to build an ICD. DrRich does not know the precise dollar amount (very few people even in ICD companies know these precise amounts) but based on his experience he cannot see how it could be much more than about $3000 per unit. Now, lest you think that the roughly $22,000 difference between the cost to manufacture and selling price is pure profit, it’s not. ICD companies continue incurring expenses as long as an ICD remains in service. These “lifetime” expenditures include monitoring of device function; maintaining expensive, rigorous quality and reliability processes; and backing up every implanted device with a large force of highly-trained and expensive field clinical engineers who are available to electrophysiologists 24/7, anywhere and everywhere, for “troubleshooting” and even for routine follow-up. All this “extra” stuff must be fully accounted for in the initial price of the device.
Still, ICD manufacturers make a very, very nice margin on every device they sell. Few businesses in the world enjoy this kind of price margin.
With all that “room” to play with, one might think market forces would by now have brought the price down for a mature technology like this, especially since over the past few years the growth of the ICD market has flattened, and ICD companies now must compete with each other for more market share if they want to grow their businesses.
But classic market forces usually do not work in healthcare, and that is especially true when it comes to ICDs.
It all begins with Medicare reimbursement, which sets the price for ICDs, and consequently the cost of ICDs is likely to remain at $15,000 – $25,000 forever.
Now, to be sure, the government does not directly determine what companies get paid for ICDs. Rather, they indirectly determine the price by deciding what hospitals and physicians will be reimbursed for implanting ICDs. Those reimbursement rates apparently vary substantially from region to region and hospital to hospital (who knows how the government determines these things?), and the rates are not publicly available to DrRich’s knowledge. But ICD manufacturers, at worst, can impute the reimbursement rates by figuring out the top price specific hospitals are willing to pay for ICDs (hence the range in prices).
Having determined the top price they can possibly get paid for ICDs, the only logical strategy for manufacturers is to figure out how they can always get paid that top price for every device they sell. They do this by making ICDs specifically aimed at keeping the decision makers happy. And the decision makers, by and large, are the electrophysiologists.
Electrophysiologists decide who gets ICDs, and they decide which ICDs to implant. So, to keep prices at the highest possible level, ICD companies must cater to the wants and needs of electrophysiologists (their true customers), and so must produce a steady stream of new, improved ICDs whose novel features are requested by these very high-end, high-maintenance physicians.
Electrophysiologists have a clear agenda in this regard. Their “demands” on ICD companies, expressed in rigorously conducted marketing surveys and focus groups, inexorably lead to ever more complex devices. This complexity helps electrophysiologists (a small community whose growth is tightly controlled) to maintain a professional stranglehold over the implantation and management of ICDs.
It’s a matter of turf protection.
Since ICDs are already exceedingly complex devices, and grow more complex with each succeeding generation, then “obviously” one must be a high-end specialist like an electrophysiologist to understand and manage all their nuances. (In real life, ICDs have become so complex that not even a majority of electrophysiologists can keep up with them any more, thus necessitating armies of “clinical engineers” in the employ of ICD companies who can do troubleshooting in the field.)
All the ICD manufacturer needs (and wants) to know is: what gingerbread do I need to add to my next generation of ICDs to make them even more stupefyingly complex, so as to maintain the loyalty of my electrophysiologist customers? If they can answer this question manufacturers will continue to be paid top dollar for their product (again, as determined by regional reimbursement rates set by the government).
And this is why, despite the fact that ICD technology has been fully mature (says DrRich) for most of a decade now, which in a functional market would cause the price to plummet, the cost of ICDs remains so high. Whatever has developed in the complex interplay between ICD manufacturers, electrophysiologists, hospitals and the government, it’s not a functional market.
Among other things, this dysfunctional economic model (if that’s what it is) utterly precludes ICDs ever becoming available to a large proportion of individuals whose lives could be saved by them. They’re simply too expensive and complex for widespread usage.
Covert rationing, of course, thrives on opacity, obfuscation, confusion, inefficiency and complexity, and the convoluted ICD “business model” provides many, many avenues for covert rationing. So while the price remains high, relatively few ICDs actually end up being implanted (compared to the number of patients who have clear, FDA-approved indications for ICDs). In fact, the growth curve for ICD implantation has been successfully flattened for almost five years now (despite projections earlier this decade for 20% annual growth for years and years) – and it is likely to stay flat.
If we were to have a system of fully transparent, open rationing, then the ICD business model would rapidly be seen as the travesty of confusion that it is. Furthermore, a system of open rationing would quickly goad ICD manufacturers away from catering to the turf-based requests for more complexity by electrophysiologists. They would quickly develop ICDs that are simple, reliable, effective, easy to implant, long-lasting and cheap, and which could be safely implanted and managed by non-electrophysiologists.
The technology to do that exists today.
This is an example, DrRich believes, where open rationing would ultimately lead to more usage of a life-saving technology, by driving industry to put their development efforts into reducing the cost and increasing the simplicity and reliability of their products, and thus making them more cost effective, rather than striving to make them more attractive to high-end-physician decision makers. If they did this, then videos like the one Dr. Wes has shown us would no longer merit mention on blogs or on any other form of media, as ICD rescues would become very common.
DrRich has been telling all this to ICD companies for many years to no measurable effect. Of course, it has been well documented that DrRich is more than willing to tell his clients stuff they may not particularly want to hear. (It’s truly amazing that he can still make a living as a consultant.)
In any case, here’s DrRich’s investment advice for this week: The growth of the ICD market is destined to remain flat as long as high-priced, gingerbread-laden ICDs that only an electrophysiologist can love remain the norm. Avoid companies whose growth depends on these devices. On the other hand, the ICD market is ripe for a major disruption, if one of these outfits ever figures it out.
DrRich will now fade into quietude here for a week or so, as he entertains those nice people in Europe with his crazy ideas about healthcare.
*This blog post was originally published at The Covert Rationing Blog*