There's a link in the next paragraph to
http://washingtonmonthly.com/magazine/julyaugust-2010/dirty-... which tells more of the story. Claim is that rule change allowed hospitals to join group purchasing organiations (GPOs) which could get their fees from vendors rather than buyers, essentially creating a system of kickbacks from dominant vendors, which could be large enough for GPOs and thus hospitals and thus patients and thus taxpayers to purchase from the dominant vendors even if their products were not as good as those from medical device startups.
I also found interesting the only two brief mentions of patents in the article. One, a dominant vendor historically using patents to quash startups. Two, the startup the article focuses on has patents that would expire soon (maybe have, the article is from 2010), so other companies would benefit from their innovation (the article mentions a Chinese manufacturer, where the startup eventually took their product).
If the startup's product was really better, why didn't they license their patents to the big vendors? Was the startup simply greedy? The startup's research was largely paid for by taxpayers, why did they need a patent at all? It seems odd to expect inventors will also be good entrepreneurs and litigators: this seems a situation in which grants or prizes without patents would be superior. Alternatively, it points to some market failure in licensing patents that maybe could be solved by some kind of compulsory licensing, eliminating the problem of too greedy startups holding out. How am I wrong?
Finally, with articles like this about the health care industry, I'm always struck by intense focus on bringing innovations to market in the US, and the huge barriers to doing so. I realize that the US is the largest market, but still. Maybe BRIC and other companies should get better at delivering innovations stalled in the US, or maybe the innovations aren't actually so great?