Hospitals’ cost-saving efforts affect doctors’ choice of devices
Physicians face limited choice in medical device selection as hospitals push to slash supply-chain costs
Gagged by their supply contracts, some hospitals have devised a simple way to educate physicians about the cost of pricey implants: using color-coded stickers to indicate the level of a device’s price. Many of these hospitals are barred by confidentiality clauses with device manufacturers that limit, in some instances, whether hospitals in the same health system can share pricing data about the devices they purchase. Instead, they mark the devices with colored tags specifying high-, medium- or low-cost options.
The widespread use of confidentiality clauses—which limit price transparency and hospitals’ ability to shop for devices based on price—and longstanding relationships between physicians and device companies are the two major factors driving costs higher on implantable devices such as artificial knees and hips or cardiovascular stents, which are among the most expensive items hospitals buy.
They are frequently called physician preference items because orthopedic and cardiovascular surgeons traditionally make the final decisions as to which devices a hospital will use. Only over the past five years or so have some hospital administrators started to implement strategies to reduce the costs of these items.
However, mounting pressure on hospital margins, the increasing number of physicians employed by hospitals and the shift to new payment models that align the financial priorities of hospitals, physicians and a patient’s cost of care indicate that the concept of a physician’s preference may soon be a thing of the past.
“This will be an area where there is a lot of opportunity for cost containment because it’s an area that has really run rampant in the past and has not been well controlled by many hospitals,” says Dr. Kevin Bozic, vice chairman of orthopedic surgery at the University of California at San Francisco. “There’s not as much flexibility and fat in the system. They’re going to have to be much more efficient and function with the same discipline as other businesses.”
At the same time, the costs of many implantable device procedures continue to rise. Orthopedic procedures accounted for most of the growth in Medicare implantable device procedures from 2004 to 2009, with spending on those procedures increasing 8.1% annually for five years, according to a Government Accountability Office report from January 2012. There is little publicly available data showing the individual prices of implantable devices and whether those prices are rising. But the same report found examples of “substantial price variation,” with one hospital paying $4,500 for a specific primary total hip construct and another paying $8,000 for the same product.
“The cost of joint implant constructs used for knee and hip replacement vary widely and are major contributors to the variation in the cost of care for patients undergoing total joint replacement,” according to a separate study published last year in the Journal of Bone & Joint Surgery.
With hospital margins under pressure, many large health systems and integrated delivery networks have become increasingly aggressive about implementing cost-cutting initiatives that target medical devices. They usually focus on reducing prices and the number of manufacturers— which can lead to better volume discounts—as well as seeking better utilization practices.
Hospitals have introduced gain-sharing programs that allow physicians to share in cost savings. They’re also creating device registries that track performance to help inform purchasing decisions and instituting bundledpayment models that may also reduce costs and improve quality.
However, there are no specific efforts under way to ban the use of confidentiality clauses.
Jeffrey Lerner, president and CEO of the ECRI Institute, an independent health technol-