Lawsuit Could Emerge as Forum on Pricing Transparency

As if the marketing practices and pricing policies of medical device manufacturers weren’t already under enough scrutiny—from hospitals, healthcare economists, regulatory agencies, and federal attorneys—now the field is facing new legal challenges on constitutional grounds.

The battle began last month, when Guidant, now a business unit of Boston Scientific Corp. (Natick, MA), sought to prevent the nonprofit medical products testing organization ECRI (Plymouth Meeting, PA) from publishing the prices paid by hospitals for the company’s cardiac rhythm management (CRM) devices. In turn, ECRI filed a lawsuit with a federal district court in Pennsylvania, alleging that Guidant’s action would violate ECRI’s first-amendment rights. Guidant countersued with a court filing in Minnesota.

It’s no secret that prices for certain devices—particularly in the orthopedics and cardiovascular sectors—vary widely from facility to facility even within the same geographic area. To get a better assessment of current prices, many hospitals subscribe to ECRI’s PriceGuide, an online service that publishes the prices paid for specific single-use devices, including disposables, implants, and consumables. The pricing information is provided voluntarily by the hospitals that use the service.

ECRI’s Lerner: The right to know.

“No matter where you sit on the political spectrum, you know that the ability to compare products—whether it is cars or lifesaving technologies—is fundamental to an efficient marketplace,” says ECRI president and CEO Jeffrey C. Lerner, PhD. “Simply put, ECRI believes that patients, along with their implanting physicians, have the right to know the cost of the pacemakers that are implanted in their chests.”

For their part, Boston Scientific officials assert that pricing confidentiality has long been standard practice in the CRM industry. “Our CRM customers overwhelmingly prefer negotiated prices to fixed ones, and our ability to offer negotiated prices depends on confidentiality,” said Paul Donovan, Boston Scientific’s senior vice president of corporate communications.

According to ECRI, Guidant began objecting to the inclusion of its products in the PriceGuide database about two years ago, claiming that its pricing information was subject to confidentiality agreements with the hospitals that purchased the company’s devices. In filing its lawsuit, ECRI is seeking permission from the court to “continue to publish truthful information that hospitals voluntarily provide to it concerning the prices that they pay for medical devices.”

PriceGuide has been available since 1996 and counts more than 400 hospitals as subscribers. The annual cost for a single hospital to use the service is $1895. According to Lerner, no other medical device manufacturer has objected to its products being listed.

In pressing its suit against ECRI, Guidant is apparently banking on the precedent of a favorable summary judgment recently issued in a federal court case in Minnesota. In that case, the judgment stipulated that Aspen Healthcare Metrics, a consulting firm and subsidiary of group purchasing organization MedAssets Inc. (Alpharetta, GA), was not allowed to share Guidant prices it obtained from one hospital client with other institutions. The case was decided last month—the day before the start of a jury trial.

Meyers: A powerful issue.

“Although we do not have access to the summary judgment in the Aspen matter because it is sealed, the two cases are very different,” says Joyce S. Meyers, an attorney with Montgomery, McCracken, Walker & Rhoads LLP (Philadelphia) who is representing ECRI. “Aspen was apparently disclosing detailed confidential information on Guidant’s business practices with hospitals, including pricing, contracts, rebates, and discounts. It would provide this information to its hospital clients who would then use it in an effort to structure a better deal on prices.

“In contrast,” says Meyers, “ECRI provides only raw data on prices. It has no access to contracts, and therefore is not in a position to disclose any sensitive information regarding contractual relationships and negotiations that Guidant has with hospitals.”

Levy: Chilling prospects.

Paul Allan Levy, an attorney with the consumer rights organization Public Citizen (Washington, DC), which is closely monitoring the case, says “The idea that a manufacturer can keep pricing information from the public is chilling. ECRI has not signed any contract with Guidant. It is simply providing information that is voluntarily provided.

“If a Guidant employee divulged potentially damaging information to The New York Times or The Washington Post, could Guidant sue either of these news organizations?” Levy asks. “But Guidant does not want to offend their customers, so it’s going after ECRI.” According to Levy, Public Citizen may file an amicus brief in support of ECRI.

“There’s a powerful first amendment issue here,” says Meyers. “ECRI is a publisher. They are not a commercial organization and they certainly are not a competitor of Guidant, which by its actions is attempting to use the court to censor information that is in the public interest.”

The ECRI and Guidant countersuits are sure to attract a wide-ranging audience, notably including device manufacturers, hospital administrators, governmental agencies, insurance firms, and all those charged with meeting the growing demand for healthcare cost containment. But many industry analysts are already wondering why Boston Scientific would continue to pursue Guidant’s position in this matter while at the same time launching a corporatewide initiative to phase out the Guidant brand. After all, undue concern for corporate secrecy and confidentiality led to many of Guidant’s product woes over the past 18 months.

Going forward, Guidant might well be able to prevail in one or both of the cases now under way. But attempting to block access to information about the pricing of medical devices could still turn out to be a big loser in the court of public opinion—especially among healthcare consumers who are increasingly required to manage and pay for an ever-greater share of their medical care.

The legal proceedings are in the very early stages with no hint of a settlement and no court date set as of yet. ECRI continues to market and promote its PriceGuide without restriction.

© 2006 Canon Communications LLC

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