De­vice­mak­ers ex­plore risk-based con­tracts with hos­pi­tals

Modern Healthcare - - NEWS - By Jaimy Lee

Tip­toe­ing into the broader ac­count­abil­ity move­ment, some of the largest med­i­cal-de­vice man­u­fac­tur­ers are ne­go­ti­at­ing ex­per­i­men­tal deals with hos­pi­tals to take on per­for­mance­based fi­nan­cial risk for their im­plants.

While drug­mak­ers have been test­ing risk-based con­tracts for sev­eral years, de­vice­mak­ers are just be­gin­ning to ex­plore tak­ing on risk for prod­ucts such as pacemakers and other im­plantable de­vices.

Ex­perts say car­diac de­vices are a pri­mary fo­cus of new risk-shar­ing agree­ments un­der dis­cus­sion, likely be­cause hos­pi­tals face po­ten­tially lower pay­ment rates for con­ges­tive heart-fail­ure pa­tients.

“They’re align­ing risk to the kind of risk that mat­ters to providers,” said Brandi Green­berg, a man­ag­ing di­rec­tor at the Ad­vi­sory Board Co.

Ex­perts say each risk-based con­tract be­tween a hos­pi­tal and de­vice­maker is struc­tured dif­fer­ently. Some agree­ments may stip­u­late that the man­u­fac­turer re­turn a per­cent­age of the de­vice’s price if it doesn’t meet cer­tain per­for­mance goals or fails within a set pe­riod of time.

Un­der other types of agree­ments, a hos­pi­tal pays more for a de­vice that ful­fills a man­u­fac­turer’s qual­ity and eco­nomic claims.

For years, de­vice man­u­fac­tur­ers have been able to charge pre­mium prices for im­plantable de­vices. But that is chang­ing as hos­pi­tal sys­tems get big­ger and gain ac­cess to a broader pool of data, en­abling them to bet­ter eval­u­ate de­vice per­for­mance. Com­pa­nies ex­plor­ing risk-based deals in­clude Bos­ton Sci­en­tific Corp., John­son & John­son, Medtronic and St. Jude Med­i­cal.

Man­u­fac­tur­ers “re­al­ize they have to be strate­gic, they have to play the game,” said Rob Lit­tle­field, a se­nior an­a­lyst at Glob­alData.

St. Jude Med­i­cal said it will pay hos­pi­tals a re­bate that is 45% of the net price for car­diac resyn­chro­niza­tion ther­a­pies if a lead re­vi­sion is re­quired within one year of im­plan­ta­tion as the re­sult of four fac­tors de­ter­mined by the company, ac­cord­ing to an in­vestor prospec­tus filed this year.

“This form of risk-shar­ing … al­lows providers val­i­da­tion and con­fir­ma­tion of the novel tech­nol­ogy be­ing uti­lized to im­prove pa­tient out­comes,” the company said.

“There’s a recog­ni­tion that it’s a much more com­pet­i­tive land­scape with fi­nan­cial pres­sures on both sides. Sup­pli­ers are ask­ing, ‘How else can we dif­fer­en­ti­ate our­selves?’ ”

Brandi Green­berg Man­ag­ing di­rec­tor Ad­vi­sory Board Co.

Other man­u­fac­tur­ers are con­sid­er­ing as­sum­ing a por­tion of Medi­care’s hos­pi­tal read­mis­sion penalty if a pa­tient who re­ceives a car­diac de­vice is read­mit­ted for heart fail­ure.

Medtronic is “work­ing with hos­pi­tals to track data, de­fine out­come mea­sures and track against those base­line mea­sures,” a company spokes­woman said. “When there are cost sav­ings as a re­sult, Medtronic and the hos­pi­tal share in that ben­e­fit. Same if the out­come mea­sures are not met.”

Medtronic is talk­ing with sev­eral hos­pi­tal sys­tems to es­tab­lish riskbased con­tracts based on out­comes for pa­tients who re­ceive one of the company’s car­diac or vas­cu­lar de­vice im­plants, said Sheri Dodd, a Medtron­ics vice pres­i­dent. She de­clined to pro­vide de­tails, not­ing that no con­tracts have been signed yet.

At a con­fer­ence in Oc­to­ber, Michel Paul, a John­son & John­son group chair­man, said his company is con­sid­er­ing risk-shar­ing and limited war­ranties on some prod­ucts.

One chal­lenge is how that ap­proach af­fects the tra­di­tional sales model, which re­wards sales staff based on vol­ume, he said. A spokes­woman for Bos­ton Sci­en­tific said her company has also started to en­gage in riskshar­ing con­tracts.

“There’s a recog­ni­tion that it’s a much more com­pet­i­tive land­scape with fi­nan­cial pres­sures on both sides,” the Ad­vi­sory Board’s Green­berg said. “Sup­pli­ers are ask­ing, ‘How else can we dif­fer­en­ti­ate our­selves?’ ”

Man­u­fac­tur­ers and hos­pi­tals char­ac­ter­ize the con­tracts as a way to es­tab­lish long-term part­ner­ships. That may ex­plain why the ne­go­ti­a­tion process is slow and man­u­fac­tur­ers are test­ing con­tracts on a hos­pi­tal-by-hos­pi­tal ba­sis.

“What we are hear­ing and see­ing is that man­u­fac­tur­ers are ex­per­i­ment­ing with risk-based con­tracts on their own first, (work­ing) one-on-one with ad­vanced health sys­tems and/or pay­ers,” said Blair Childs, a se­nior vice pres­i­dent at group pur­chas­ing or­ga­ni­za­tion Premier.

“Their plan is to bring their suc­cess­ful prac­tices to scale through GPOs,” Childs said.

Man­u­fac­tur­ers are ex­per­i­ment­ing with a num­ber of sales and mar­ket­ing tac­tics to off­set on­go­ing pric­ing pres­sure from providers, and de­velop data to bet­ter prove the value of their de­vices.

That pres­sure is one fac­tor driv­ing bil­lions of dol­lars in deals in the med­i­cal-de­vice sec­tor this year.

“That is cre­at­ing a very dif­fer­ent mind­set in the mar­ket­place,” the Ad­vi­sory Board’s Green­berg said. “What does it mean to be ac­count­able for a prod­uct or a ser­vice?”

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