On Friday, May 17, 2013 at 3:31 PM an email titled

proposed Stilltalking.org article: 'Price Gouging by Australian Medical Suppliers'

was sent from LANSW admin@stilltalking.org
addressed to:
  Antoni.KRASNODEBSKI@deewr.gov.au   "Antoni"
  lansw@bigpond.com   "Carol"
  John.Chaloner@afp.gov.au   "John"
  clareandpete@bigpond.com   "Peter"
  cedwards53@bigpond.com.au   "Peter"
  barpat@optusnet.com.au   "Barry"
  Julia.Maclean@sesiahs.health.nsw.gov.au   "Dr Julia Maclean"
  mpatters@nsccahs.health.nsw.gov.au   "Margaret Patterson"

It is intended that an article titled 'Price Gouging by Australian Medical Suppliers' be published on the LANSW website by inserting a link in the News section of the homepage.
In the meantime, this email makes a preview of the article accessible to you via the link above but it will not yet be publicly accessible (or by Google) as access requires knowledge of the url.
Please review the article and reply with any comments, suggestions or criticisms.
Please feel free to comment at any level ... from principle, content,  through to grammar, spelling and punctuation.
Responses, by say, Thursday of next week, would be appreciated.

Access the central text by clicking here. That will itself link to an extended version which contains a comparison table, pricelist extracts, active links to supporting extracts from websites and other relevant communication.

The term "Price Gouging" is used because it resonates with recent publicity regarding the IT industry which is referred to in the article.


The intent was to make a preview available for discussion/consensus prior to publication by emailing the link directly rather than making it accessible from the stilltalking homepage at this stage. A simple email was inadequate because of the volume of supporting material made accessible on the website.

It is of interest that the first respondents to the email requesting addressees to review the proposed article on 'Price Gouging by Australian Medical Suppliers' were Michael and Rebecca Schaffler of Main Medical even though they were not on the list of addressees.
This will be corrected by adding Michael and Rebecca Schaffler and Eugene Charles of LMA PacMed Pty Ltd to the distribution list. The suppliers had previously been made aware that there was concern regarding price differences between here (Aus) and the USA. Michael Schaffler's email was addressed to admin@stilltalking.org and opened "Dear Brian". Rebecca Schaffler's email was addressed to the author personally in response to his query and essentially containing the same points.

A full listing of Michael Schaffler's email with comments interleaved follows. Michael Schaffler's text is in the original blue and interleaved comments are boxed and in black. An unabridged pdf copy of the email is available via the above link.


Price Gouging of Australian Medical device Suppliers
1 message

michael@mainmed.com.au <michael@mainmed.com.au> Sat, May 18, 2013 at 8:36 AM
To: LANSW <admin@stilltalking.org>

Dear Brian

 

It has come to our attention that an article Titled “Price Gouging of Australian Medical device Suppliers” is planned for publication in the NSW Laryngectomy Newsletter. (I see that you have been copied on the proposed article).

 

The article in its current form is of serious concern as it is defamatory to the reputation of both the key medical device suppliers of Larynegectomies in NSW and in fact implies price collusion. A serious claim which implies a Trade Practices Act infringement. In our view, the article takes a one sided approach with no understanding of the complexities of medical devices, which are not as simple as purchasing a consumer item over the internet internationally.

There is no intention to defame the suppliers, merely to present facts. The practice of differential pricing is facilitated by the fact that both US and Aus prices are made difficult for Australians to access. There is no intended suggestion that the US supplier condones or even has knowledge of the price to Australian laryngectomees.
accc.gov.au: displaying-prices
accc.gov.au: Minimum Advertised Price
"complexities of medical devices"? An electrolarynx speech aid is not considered to be a prosthesis by medical insurers and neither electrolarynxs or foam stoma covers are as "complex" as consumers' phones or computers.

 

It is no secret we need to make a profit. All companies have to or we would be trading as insolvent and forced to close. However, as you know, both Rebecca and I (Main Medical), and the CH2 Customer service team have actively served, rather than merely sold products to the Laryngectomy community for a long period of time. We heavily support training in this country and have done so since we started managing the business. We support relevant research in the area and local Laryngectomy workshops. Additionally, any product we do receive ex gratia from any of our suppliers is passed on to our customers. An example of this was the recent donation of Electro larynxs donated to the LANSW and the other we sent to your Victorian counterparts.

Main Med also subsidise the LANSW newsletter sent each month to the 360 odd members. They should get good value for passing on ex-gratia samples and for their tax-deductible promotions. Many direct marketing firms who would spend a couple of dollars on each brochure delivered even to a well qualified list would be pleased to get a hit rate of one or two percent.
The Health Report's Norman Swan Monday 6 May 2013 8:37AM spoke of the dangers of hidden pricing in chemotherapy. If pharmaceutical companies are "providing hidden services from overly large margins ... should be transparent..."
Even if the Blom Singer EL1000's were purchased at full US retail price, a sale of one at the quoted Aus price would allow the supplier to donate another two and still make a cash profit with considerable tax deductions earnt.

 

Given this situation, we are also feeling it is appropriate to share some of the cost drivers for any medical device company:

 

·         TGA Listing costs and post market surveillance costs. This includes the local listing costs as well as the costs imposed on the international manufactures to comply with Australia’s specific medical device quality requirements.

Main Medical are listed as sponsor of 9 items with the Therapeutic Goods Administration dating from 5/11/2004 to 27/03/2012 including the Servox electrolarynx 18/12/2007 and the Luminaud electrolarynx 22/04/2009. The Blom-singer electrolarynx is not listed as of 13/06/2013.
Clifford Hallam has 4 listed between 26/04/2013 and 3/05/2013 and a further 4 to 13/06/2013.
LMA PacMed has 56 items listed 30/03/2005 <> 17/05/2013

From TGA website:   " Low-value turnover
The annual charge is not payable for low-value turnover products. A sponsor must apply to the TGA providing a declaration that the turnover is of sufficiently low value to obtain an exemption from the annual charge. To be eligible, the turnover in respect of an entry on the ARTG must be, or be estimated to be, no more than 15 times the annual charge for inclusion in the ARTG for a financial year. The turnover of a medical devicemeans gross dollar receipts (excluding GST) from sales of the medical device in Australia for a financial year, including retail and wholesale sales."

This suggests that TGA fees should not exceed one fifteenth (6.7%) of turnover.

·         Inventory holding costs. Because of the high service requirements of medical devices, suppliers need to hold all product sizes and typically 3 months safety stock.

Actual experience has often been that because "suppliers need to hold all product sizes and typically 3 months safety stock", delivery times of 3 to 4 weeks from within Aus is common ... much longer than the delivery time when a purchase is made directly from a US supplier. "Because of the high service requirements of medical devices" ... what does this mean?

·         Importation costs including international freight clearance.

As Servox is made in Germany, US suppliers would face similar importation costs but Servox prices from Main Med are still 80% higher than US prices.

·         Warehousing and customer service add costs which also need to be compliant with GWP (Good Wholesaling Practices – a TGA requirement)

·         Actual costs from international vendor vary. In many cases the “retail price” in the US is much lower than the price offered to medical device supplies in Australia.

Comparision is made with US RETAIL price. US suppliers need to cover their holding costs, warehousing and customer service within the margin included in their retail price. If Australian agents are unable to negotiate better terms that a US consumer, then it is suggested that the relationship with their supplier is questionable. As a last resort they should be able to at least match the terms available to the US consumer.

·         Currency hedging costs. The Australian dollar has moved from 1.04 to 0.98c in the last few weeks, which is a 6% increase in cost. These costs are not passed on to end customers, but born by the medical device importer.

Greater than 325% of Retail price seems like a rather high hedge against a 6% variation in exchange rate. The exchange rate drop which has occured since May 10 would work in favour of a supplier holding stock. The difference between parity and current rate was ingored as being small in comparison with $ markup.

·         The very small Australian market size, means that economies of scale cannot be reached. Eg, Australia has a population of 22 million people and about 250 new laryngectomies performed each year. This is a very small market and makes it very difficult for an Australian importer to leverage better pricing based on volume. Compare Australia with the UK or USA where the population is 60 million and 300 million respectively. These markets are able to negotiate much better volume discounts than a small market like Australia. I would expect that NZ has similar prices to Australia.

Correspondingly, Main Med would seem to be a family company with a Michael and Rebecca Schaffler as directors and a website. It's 'Principal Place Of Busines' would seem to be the family home. Michael Schaffler is Operations Manager for Zimmer, presumeably 'full-time'. It's operations are serviced by Clifford Hallam Healthcare"Australia's largest Pharmaceutical and Medical Healthcare service provider".
It is a question of judgement as to what margin is justifiable to compensate for extra costs incurred in a smaller market. With a NSW domestic market in excess of a thousand laryngectomees forming essentially a captive market, this article questions whether a $450 extra markup on a US$199 device or $570 extra markup on a US$729 device is justified.

 

I hope this explains that medical device suppliers take on a large financial risk and that Global pricing is more complex than simply comparing prices across countries. I would also hope there is some level of trust in our relationship that both sides are operating with integrity and in the best interest of the Australian Laryngectomy community. To this extent, I am requesting the article is withheld from publication in the NSW Laryngectomy newsletter.

A fundamental aspect of trust in a relationship is the need for honesty and transparency. It is difficult to see that hidden pricing and overly large margins are consistent with "operating with integrity and in the best interest of the Australian Laryngectomy community".

 

Regards

 

Michael Schaffler

Main Medical Pty Ltd

Ph 0414288650