Procured Health gets $4M to find out why an artificial knee can cost $3,500 or $10K

The medical device market is so obtuse that most doctors are completely in the dark about how much it costs to buy a blood pressure monitor or a spinal screw.

A small startup called Procured Health just secured $4 million in series A funding from health care-focused firm FCA Venture Partners. Procured is working with U.S. hospital systems like Hoag Hospital, Asante Health, St. Charles Health, and about two dozen others to bring some much-needed transparency to medical-device pricing.

Editors’ Note: Procured Health was a finalist at the “Grand Rounds Innovation Showdown” at VentureBeat’s inaugural HealthBeat conference.

It’s hardly sexy technology, but Procured is angling for a piece of a huge market. Spending on medical devices reached an estimated $150 billion in 2010. Medical device manufacturers like Medtronic and Stryker have reported gross margins that far outstrip tech behemoths of Silicon Valley, Apple, and Google.

Gross margins are so high, according to Procured’s chief executive Hani Elias, due to the “really high price points” that regularly go unchecked. It’s a common practice for medical-device manufacturers to require that purchasing departments keep prices confidential.

This means that manufacturers can charge some hospitals more than others for the same product. A 2012 Government Accountability Office (GAO) report found that the average cost hospitals paid for knee implants ranged from $3,408 to $10,830, and the average price paid for implantable cardioverter-defibrillators ranged from $19,578 to $35,916.

“Hospitals have not been sophisticated evaluators of medical devices or new technology,” said Procured chief operating officer Eric Meizlish in an interview with VentureBeat.

The company is building subscription-based software for hospital systems to make more informed purchasing decisions and avoid being ripped off. On the Procured Health system, doctors can leave detailed feedback and recommendations about medical devices. Before making a purchasing decision, hospital admins can use the software to pull up a variety of products, which range in quality and price. It’s a timely service, with hospitals under pressure to manage their costs in the wake of the Affordable Care Act.

Procured makes money but charging hospitals a fee. Pricing varies depending on the size of the system and its customer support requirements.

Procured isn’t the only startup bringing transparency to insurance providers and health care systems. HealthSparq is building an online shopping site for health care services, and WellPoint recently announced it will work more closely with health providers to avoid costly problems.

With Castlight Health recently experiencing a soaring IPO, venture capital firms are investing heavily in transparency. A recent report from the financial analysis firm CB Insights estimated that investors have poured $400 million into health care price-transparency companies since 2010.