the cost conundrum


05.14.13 the cost conundrum

“I’ve been an AK for 23 years and can only wish that my prosthetic allowed me to be as active as I was prior to losing my limb. It is nowhere near as good as the real deal, and I have [a] $100,000 leg. No kidding. That’s what was billed to my insurance company.”

Cheryl, less is more reader, commenting on “the disconnect

“[A]mputees [ ]would be a lot better served with better products for far lower prices. … [The prosthetic hands I happily use] cost $400 to $700 bucks[.] That concept has certainly not been understood by manufacturers and as long as that is not the case I see no reason why insurances are [not] guilty of [ ] paying for shamelessly overpriced gadgets[.]”

Wolf, less is more reader, commenting on “the disconnect

While the term “prosthetic costs” means different things to the different players in the U.S. health care system, few would describe these devices as “cheap.” Insurance companies pay thousands of dollars even for low-end prostheses, while technologically advanced ones cost tens of thousands, with some breaking the $100,000 barrier.

Why do prosthetics cost so much? It’s a fair question.

*   *   *

the component-part manufacturer

Companies like the one I work for invent (or buy from others), fabricate, and sell a wide range of components, ranging from prosthetic hips, knees and feet for people with lower extremity limb loss to prosthetic fingers, hands and arms for upper extremity amputees. They also make liners, adaptors and pyramids that prosthetists use to assemble the finished prosthesis.

If you ask a component-part manufacturer about the cost of its devices, you’ll get a detailed lesson in the product development and manufacturing process. What starts as a concept “drawn” into a computer eventually makes its way to the marketplace, typically over the course of 18-24 months, and in the case of more complex technologies – think myoelectric, microprocessor, and motor-powered devices – two to three times longer than that.

The manufacturer then has to take into account the costs of manufacturing and assembling these products once they’re market-ready. You have the expense of the raw materials used in the device; the costs of purchasing certain sub-elements – particularly in the case of more sophisticated technology – from other manufacturers; and the expense of operating the factory where a team of people and costly machines make the item.

Next, you have the development of marketing and educational materials, as well as the fixed costs of a sales force that provides both information and support to providers actually fitting the device. Finally, you have the costs associated with maintaining and supporting the product post-launch. This provides a high-level snapshot overview of the expenses associated with a product, and it doesn’t even take into account a myriad of other expenses I’ve left out for the sake of simplicity (e.g., legal/regulatory expenses, etc.)

While you may say this model supports bloat and expense, no viable alternative to it has come to the fore. The Open Prosthetics Project – an open source approach to prosthetic solutions – has close to 600 members, but hasn’t disrupted the traditional approach yet.

the prosthetist

Prosthetists buy most of their prosthetic parts from component-parts manufacturers. In addition, they have to purchase plastics and other materials to custom-fabricate the prosthetic socket that’s fit to the patient’s residual limb.

In addition, prosthetists do not get paid on a “per visit” basis. Payors only reimburse them for delivering a device, an amount that implicitly includes both the time the prosthetist spent fabricating and assembling the prosthesis, and the time associated with all necessary follow-up treatment and training.

So when you talk about prosthetic costs with a prosthetist, he’ll typically take into account the following: (1) all of the costs associated with buying components, plus (2) all of the costs of the raw materials that he crafts into a socket, plus (3) the cost of his time to make the prosthesis, plus (4) the estimated future cost of seeing you multiple times after delivery to both adjust the prosthesis and, if necessary, train you to use it effectively.

the payor

All payors, whether governmental or private, think of prosthetic costs as the amounts billed to them by prosthetists. And payors – especially private insurance companies – have increasingly shifted health care costs towards consumers over the last 8-10 years.

While the stated goal of cost shifting is to encourage patients to make economically-intelligent health care decisions, most data suggest that the primary effect is to discourage patients from seeking any health care at all, which may lead to higher health costs when they finally do seek treatment. Secondarily, cost shifting results in lower expenditures and higher profitability for payors, while purportedly helping employers keep insurance premiums from spiraling out of control.

the patient

That leaves us with the people who need prosthetic care and who increasingly shoulder a higher share of the prosthetic cost burden. We want the prosthesis that’s most comfortable and that gives us the greatest possible mobility. Over the last decade, our wants have often led us to more complex (read: expensive) prosthetic solutions. We wear a prosthesis that brings us closer to a four-limbed individual’s functional level, but it comes at a higher cost, both in terms of raw dollars and the amounts that we’re asked to spend in the form of copays and deductibles.

*   *   *

“[Y]ou act as if prosthetic prices were ‘as is.’”

Wolf, less is more reader, commenting on “the disconnect

The question of whether the economics of this system make sense or treat people with limb loss fairly doesn’t have an easy answer. Like it or not, in the U.S. right now prosthetic prices are ‘as is.’ While alternatives may theoretically exist, implementing them might come with other costs, such as discouraging innovation or encouraging the use of less expensive and less functional materials.

I’m employed by a component-parts manufacturer today. I worked for and co-owned a prosthetic facility before that. I’ve been an amputee since 1996. And I represented payors in the early part of my professional life.

The only thing I know for sure is that there are no easy answers to the cost conundrum.

3 thoughts on “the cost conundrum

  1. I am not sure this is all too revealing. It basically is what everyone says that sells prosthetic components if asked in public.

    One really relevant aspect is to demand as price what the market is willing to pay. Pricing typically is a market thing and as it is, what is wrong with saying it. More disturbingly though, why do I have to say it (and why is no prosthetic part manufacturer getting up to say it): if a prosthetic wonder hand only is regarded as superb, unique and really bionic (all bloated sales terms) if it costs 90000 USD plus, then it would be silly to offer it for 7000 USD. Simple as that. From where I am standing, a prosthetic hand such as the ones I use that cost significantly less than 1000 USD cannot be as good BECAUSE OF THAT in the eyes of many people – and as long as that is the case, we are commenting on prices that are made outside any rational range.We are dealing with emotional and market driven prices.

    A second relevant aspect is the personnel being employed. Quite frankly, the interaction I had with Otto Bock employees would (even as their supervisor) lead me to immediately sack them. What an entire waste of bandwidth these people were. One does have to resort to rather extreme measures to enforce useful replies there, a consistent experience that others have. I think, better to have no marketing personnel than such. Even in a moderately agreeable mood I cannot understand at all why anyone would hire anyone that tells customers “if the prosthetic has been construed wrongly we recommend you get physiotherapy”. That these personnel cost add to the total price of any prosthetic component – sky clear to me. And yet, just ever so unnecessary from point of view of a user. So that bloats costs massively.

    A third important aspect is responsibility abandonement. It is extremely rare that individuals or end users directly buy off the manufacturer and if so (I do that quite often as Swiss consumer, as we have laws that make it hard for manufacturers to not sell to me) I actually so far had gotten fairly good prices. However, when regular sales channels are used, prices are extreme also “because no one is responsible” – and that fact is massively exploited by prosthetic component manufacturers just as it is exploited by the whole medical industry generally. Regularly, I would ask the prosthetist to apply for the prosthetic. The prosthetist (not me) types up that sheet (I never see it usually) and sends it to the (my!) insurance that then sends to away to another company that checks it for them. They, unknown to anyone, will then issue a recommendation that may be “out there” or not, and the money that is then being offered to pay does not seem to be anyone´s personal responsibility. The prosthetist will try to construct something slightly cheaper than what insurance pays so they can profit a bit, and I have no idea (normally) what it is they would have paid. Obviously I know the guys that check my insurance applications personally, they know my components from own eye inspections because I offered to go there and perform show and tell, but that is not how the system normally works. Normally, the abandonment of any personal responsibility allows for extreme percentage additions and a product I might get for 400 bucks ends up costing 2000 bucks through normal channels. At any later time, insurance will tell me that they will not re-imburse my direct purchases for adminstrative reasons and not pay the 2000 USD order because that is too expensive. Then telling us that manufacturers have this and that as reasons to demand more does not explain what really bugs the user.

    Fourthly, almost no self respecting prosthetic manufacturer has a clearly visible end user price list, and no prosthetist order price list, that anyone can see and use. Also, hard tech specs are missing wherever the eye looks. Weights in grams, speed, cost for maintenance, all that. – In other words, we are not dealing with an industry that is a bit tricky and sly to deal with – no, we are confronted with a molasses that is so thick we cannot see the hand in front of our eyes in terms of lack fo transparency. If I was trying to make a case for honest pricing, I first would ask of my own and fellow companies to be transparent in at least a minimal way.

    Last but not the least, prosthetic components are consumer products like any other. They compete with consumer products (not necessarily prosthetic products!) like any other – let there be no doubt. Instead of sinking a substantial amount of money into a “”bionic”” hand last year, I bought land for about 200000 USD, and a new car, believing these to be far better investments into my overall well being than what the industries had to offer then in terms of “”bionic”” hands or arms. I increasingsly come to the conclusion that in order for a deal to be a deal, both parties need to have a mutual understanding. So far, I see very very little in terms of “mutual understanding” when it comes to prosthetic part builders to treat customers fairly – not everyone, but big ones and some important ones. Instead, what I see, is an industry whose representatives seem to never have realized that I be missing a hand but not a brain, not a heart and most definitely not my business sense and from that angle, any such attempt to dodge issues also are something that I regard as a bit of an offense. I am handicapped and treating me like that is something I view as offensive, and from there, I may just do the same to them. So I will want to see A LOT of improvement in attitude, in honesty, in fairness to the customer, in transparency for pricing and all, before there will be a “deal” whenever it may come the time when we look at prosthetic costs for something “more expensive”.

  2. I lost my lower limb to a flesh eating disease,I am new to this new way of life,I have had great difficulty in getting a comfortable fit. I Dont understand why so much emphasis is placed on athletes, the manufacturers seem to be happy to kit them out in the latest inventions for their own advertising purposes, all I need is a good fitting reliable prosthetic to allow me to get out and about. earn a living and still be a usefull citizen.What are my options. Joseph Murray

    • Joseph – sorry for the delay in responding. The practical answer to your question is that it’s very easy to MARKET around athletes.

      Moving beyond that issue, you note that you’re having problems with fit. If you’re a relatively new amputee and you’re wearing your first prosthetic socket, your limb will undergo significant shape changes that will compromise your fit. The only way to manage that is to visit your prosthetist regularly so he/she can adjust your socket to fit your changing limb.

      If, on the other hand, you’ve been wearing a socket for more than 6-9 months, you’ve visited your prosthetist regularly and you’re still having significant discomfort, then you may need to ask yourself whether your prosthetist is the right person for you.

      This is a topic that I and Peggy will be discussing in next month’s “Amp’d” podcast, which I’ll give a link to through this blog in June.

      Hope this info helps a little! And thanks so much for reading!

      Dave

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