Is there proven value in high cost hip/knee implants?

Breaking the chain

Hospitals set supply cost-cutting targets, push physicians to change behavior

By Jaimy Lee  Modern Healthcare     FiDA highlight added

Posted: August 17, 2013 - 12:01 am ET

Tags: Hospitals, Purchasing, Special Feature, Specialty Hospitals, Supply Chain, Systems, Top Stories

Patients with a new cardiac pacemaker have an advantage over patients who have received standard pacemakers: they can undergo MRI scans as a part of their care without the risk of adverse events.

But the new device costs hospitals $1,300 to $3,000 more than a traditional pacemaker and could cut into a hospital's margin because Medicare and other insurers pay the same rate for implanting MRI-compatible pacemakers as they pay for the standard pacemakers. From a clinical perspective, physicians are put in the position of having to predict which patients are likely to need an MRI and should receive the new pacemaker.

It's one of many supply-chain decisions hospital administrators have to make where they must weigh the benefits of a new technology—such as the fact that the new pacemaker doesn't improve immediate outcomes for the patient but may have additional benefits in the long term—against its higher costs.

These executives face similarly difficult decisions to slash millions of dollars in supply expenses each year. In the case of the MRI-compatible pacemaker, one executive says his system likely will pay more for the new pacemaker when appropriate and seek offsetting cost reductions elsewhere in the supply chain.

“It's one of those things where to make the quality of life better for our patients, we're going to incur new costs,” says William Mosser, vice president of materials management at Franciscan Missionaries of Our Lady Health System in Baton Rouge, La.

Facing declining revenue and reimbursement, hospital systems across the U.S. are making it a priority to sharply reduce spending on supplies including gloves, syringes and hip implants. Supplies typically make up hospitals' second-largest expense, after labor costs. Hospitals spent about $255 billion on supplies and nonlabor services in 2011.

Budget pressure has led to increased scrutiny of the costs, clinical outcomes and utilization of products. Many hospitals are setting cost-reduction targets, evaluating the effectiveness of their group purchasing organizations, and pushing for better data and analytics on products to persuade physicians to accept changes to the types of devices or supplies being purchased.

More than 60% of the hospital supply-chain executives who participated in Modern Healthcare's 2013 Survey of Executive Opinions on Purchasing said they were very satisfied or satisfied with their primary GPO. About 40% were somewhat satisfied or not satisfied. Meanwhile, 59% of respondents said their primary GPO was very effective or effective in controlling costs; the remaining 41% said their main GPO was somewhat effective or not effective.

Cost reduction, clinical integration

“Everyone that we deal with at the hospital level today is focused on cost reduction and clinical integration and managing patients to outcomes with a bent toward resource reduction,” says John Bardis, chairman, president and CEO of MedAssets, one of the nation's largest GPOs.

But many hospital executives say there are cultural and operational challenges that can slow these kinds of cost-cutting initiatives.

One major factor is that physicians often have relationships with particular medical device manufacturers or have used certain devices for a long time and are resistant to changing to other devices. Another is that the higher costs of new technologies touted as improving quality of care can set back savings efforts. And in many cases, there is a lack of validated clinical data that can definitively prove whether a particular product yields better results for patients.

“The biggest hurdle we have is there is not a consistent and large enough base of validated evidence,” Mosser says.

Like many other hospitals, Franciscan is undertaking an initiative to cut millions of dollars in annual supply expenses as it faces the prospect of significantly lower reimbursement rates in the coming years. The program, which it calls Healthy 2016, aims to cut $165 million in operating expenses, including $31 million in medical and surgical supplies and purchased services, over the next three years.

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Download the 2013 Modern Healthcare Survey of Executive Opinions on Purchasing charts.

Other hospital systems have implemented cost-cutting initiatives similar to the one at Franciscan. Over five years, Lahey Health, based in Burlington, Mass., plans to cut

$40 million out of the $300 million it spends each year on medical and surgical supplies. BJC HealthCare, a 12-hospital system based in St. Louis, plans to reduce its $850 million in annual supply spending by $54 million this year, and it's seeking to cut out an additional $150 million over the next three years.

“This is a primary focus across the system, from the CEO down,” says Nancy LeMaster, BJC's vice president of supply chain. “In the last three years, as the reimbursement pressures have been getting tighter and tighter, people have really started to see how this could impact us. We call (supply chain) a sustainable advantage rather than just a back-office function.”

Hospitals are undertaking a number of strategies, including standardizing the types of products clinicians use, optimizing appropriate utilization by physicians, nurses and other staff, and continuing to negotiate lower prices for supplies. Many but not all hospitals have value-analysis teams in place.

Focus on physician preference

A big area of focus is usually physician preference items, such as hip or knee implants as well as stents and other cardiac rhythm management devices. These are some of the costliest purchases hospitals make.

BJC is focused this year on reducing costs associated with spine implants. “This is an area of focus where the pricing does not appear correlated to the cost to manufacture and sell the product, but rather has historically been based on what the market would bear,” LeMaster says in an e-mail. “The market can no longer bear this level of pricing.”

The system's strategy focuses on first achieving market-competitive pricing with the spine vendors, and then taking on utilization management and possibly standardization.

Franciscan is supporting a clinical variation project led by chief medical officers at its five hospitals in Louisiana that seeks to better align the clinical protocols of spine surgeons. That could reduce the number of vendors of spine surgery products the system works with, from about 20 now.

“Spine surgeons across our health system do things differently,” Mosser says. “Some might overutilize. Some might underutilize. Some might use generic products, and others are using different types of techniques. Our chief medical officers are working down a path of aligning both the protocols and the practices from a clinical perspective that will allow us to minimize (the) number of those vendors.”

GPOs say their core business is still supply contracts, but the other services and technologies they offer to hospitals to help address a number of financial pressures are increasingly becoming of interest to their members.

“You've got to look at best demonstrated practices,” says Ed Jones, president and CEO of HealthTrust, a Brentwood, Tenn.-based GPO that is part of HCA's Parallon Business Solutions. “You've got to look at reducing clinical variability. You've got to look at streamlining your sourcing decisions.”

Nearly half of the hospital supply-chain executives who participated in Modern Healthcare's purchasing survey said they planned to increase their use of GPO contracts in 2013. Only 7.6% said they planned to decrease their use of GPO contracts.

“If a big system feels like their GPO can give them access to scale and aligns that scale to drive better value than they can do on their own, they will tend to work more with the GPO,” Jones says. “If the larger systems are in a position where their GPO is not as effective in that regard, they're probably going to do it on their own.”

Smaller health systems and hospitals are generally more inclined to work with GPOs and increase their spending with them to gain the scale and volume that they provide, Jones says. In other instances, contracts with higher commitment levels also are generating more interest because they often deliver better pricing, he adds.

Lahey Health says it plans to review its current GPO relationships with Novation, a GPO based in Irving, Texas, and MedAssets and then sign a contract in October with a single GPO that will handle at least $180 million of spending.

“It's a partner to help us meet our margin targets as we worry about declining reimbursements,” says Eric Berger, Lahey's vice president of supply chain. “We really need to look at expenses, so having a GPO partner will help us do that.”

Looking at the data

As hospitals dive deeper into the supply chain searching for ways to reduce spending, new areas of focus are emerging. Not only are some hospital systems bringing distribution in-house, but they are also hiring new talent, investing further in data and analytics tools, and some are even forming their own GPOs.

While many hospitals report that they have met cost-reduction targets ahead of schedule, the cost of high-priced implants remains a big barrier. Hospital and GPO executives bemoan that the implantables market has not become more like the markets for other commodities.

“These innovations in total knee and total hip have been around a long time but they've had a strong hold on high prices compared to the rest of the world, in large part because of physician relationships,” MedAssets' Bardis says.

On the other hand, teaching hospitals and physician-owned hospitals are more likely to continue to allow preference among physicians. “We will tend to give them what they want, regardless of what the cost is, in order for them to want to practice there,” says Bruce Kizzier, director of materials management at seven-bed Lincoln (Neb.) Surgical Hospital, a physician-owned hospital.

He believes his hospital has gotten the best prices, noting that the hospital's physicians have participated in meetings with vendors to ensure that the hospital was receiving competitive pricing.

“More organizations are having these conversations with surgeons,” says Dr. Peggy Naas, an orthopedic surgeon and vice president of physician strategies for VHA, the parent organization of Novation. “More surgeons, seeing the pressure to add value, are asking questions.”

Other supply-chain executives say that while hospitals have done a poor job in the past in educating their physicians about the costs of preference items and keeping supply costs under control, that's changing and doctors increasingly are facing up to the problem.

“They've seen the impact of the sequestration, the federal law changes and reimbursement drops have been very dramatic across the country for every system,” BJC's LeMaster says. “They're really seeing that if we don't get it out of supplies, then we've got to look at labor.”

Read more: Hospitals push docs to change behavior to meet cost-cutting targets | Modern Healthcare http://www.modernhealthcare.com/article/20130817/MAGAZINE/308179905#ixzz2cWhLwahv

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Proprietary Silo for Medical Devices: PCORI Irrelevant?

Where Is the Patient Stakeholder?  FiDA highlight.

By Jaimy Lee  Modern Healthcare

Posted: April 9, 2013 - 8:00 am ET

Health insurer UnitedHealthcare and about 50 hospitals say they will conduct research comparing some of the costliest medical devices on the market and then use that data to inform their purchasing decisions as part of a joint venture.

UnitedHealthcare and Dignity Health, a 37-hospital system based in San Francisco, formed  SharedClarity last year.

Since then, the Phoenix-based venture has added Baylor Health Care System, which operates 11 hospitals in Texas, and Advocate Healthcare, a 10-hosptial system based in Oak Brook, Ill., as its newest members. There are plans to include up to seven other health systems over the next few months.

“Our members have a tremendous thirst for getting independent information about how medical devices perform,” said Mark West, SharedClarity's president and a former vice president of supply chain management for UnitedHealthcare.

Implantable medical devices are among a hospital's most expensive supply costs. The prices of these devices are also rising, making them a concern for hospitals and insurers seeking to better manage the costs of pricey procedures such as hip and knee implants. 

Many hospitals have implemented cost-cutting strategies for devices and other physician-preference items, and some have formed new ventures that aim to address the costs of these products. Earlier this year, the Cleveland Clinic and VHA announced a joint venture that aims to target the costs of physician preference items.

However, SharedClarity is unique in that the venture was formed between an insurer and a health system. SharedClarity said it will identify the best-performing devices in 30 categories by using clinical data gathered from member hospitals and claims information from UnitedHealthcare, West said. The device categories range from stents and defibrillators to pacemakers and knee and hip implants. 

The hospital systems then plan to pool their purchasing volume to negotiate better prices on what they find to be the best-performing devices. In addition, hospitals that are part of UnitedHealthcare's provider networks will have access to those devices at prices negotiated by SharedClarity, although the prices will be less favorable than what the member hospitals receive.

The studies are expected to begin this spring. Richard Roth, Dignity's vice president of strategic innovation, said he expects the first purchasing decisions to be made next fall.

“As Dignity is entering in accountable care organizations and we're doing bundled payments and we're continually demonstrating the tenets of reform, this is going to be a valuable intelligence tool as we're caring for patients,” Roth said.

Both providers and insurers have lamented a lack of independent data about how implants perform, as well as lack of transparency about how they are priced. As more hospitals and insurers are taking on risk-based reimbursement strategies, they say there is a need for better data.

The higher failure rates of metal-on-metal hip implants, which led to revision surgeries and thousands of lawsuits against Johnson & Johnson, would have been caught sooner if data about the performance of those devices had been captured, according to West. 

SharedClarity will not only compare types of device and how they perform, it will also research how some devices fare when compared to different types of treatments or therapies.

“Our goal is to shed a light on this and create transparency,” Roth said.

Patient/public access to implant data still missing!

Losing preferential treatment

Physicians face limited choice in medical device selection as hospitals push to slash supply-chain costs

 Modern Healthcare

By Jaimy Lee   FiDA highlight  

Posted: February 15, 2013 - 12:01 am ET

 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 bundled-payment 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 technology assessment organization, says that increased awareness of the clauses, as well as the ongoing cost pressures and market changes, could lead to increased pricing transparency.

But there's more to reducing a health system's supply costs than just addressing price, says Brent Johnson, vice president of supply chain and imaging services and chief purchasing officer for Intermountain Healthcare, Salt Lake City. There is greater financial benefit when Intermountain better manages utilization and standardizes practices rather than solely focusing on price, he says.

“In this industry, we tend to tiptoe around physicians. That they are allowed preference is a huge conflict of interest most of the time,” Johnson says. “When the physician has a choice between keeping his loyalty and whatever benefit he gets from the vendor and keeping his salary whole, he'll abandon the preference in a minute.”

Many physicians develop preference for specific devices or manufacturers early in their careers. In a fee-for-service model, physicians have little incentive to choose less-expensive devices and more often than not their interests are closely aligned with those of the manufacturer rather than the hospital. This is changing.

“There have been more attempts to align the interests, financial or otherwise, of hospitals and physicians,” UCSF's Bozic says. “More physicians are employed by hospitals; more physicians are entering into joint ventures or co-management agreements with hospitals; and newer payment methodologies such as bundled payments are effectively putting both the hospital and the physicians at risk for the cost of care, (which) aligns their incentives around improving quality and reducing costs.”

The Affordable Care Act is at the center of many of these changes. Along with the introduction of new payment models, such as accountable care organizations and patient-centered medical homes, the inclusion of the Physician Payments Sunshine Act is expected to make the financial relationships between physicians and manufacturers more transparent.

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Under the Sunshine Act, device companies are required to collect data about the payments, gifts and other “transfers of value” they give to physicians. That data will be posted online beginning in September 2014, which might give hospitals and physicians an incentive to reduce the appearance or prevalence of certain relationships.

“That level of disclosure may be operating to weaken the bond between the implanting surgeon and the company,” ECRI's Lerner says.

In fact, physicians are increasingly getting involved with supply chain-led initiatives to reduce costs. Dr. Richard Parker, chairman of orthopedic surgery at the Cleveland Clinic, has been working closely with the 11-hospital system's supply-chain staff since 2008. Parker, a sports medicine surgeon, was named chair of orthopedic surgery in 2009. “When I moved into that leadership role, I became much more acutely aware of costs,” he says.

With the move toward what Parker calls “value-based medicine,” physicians are becoming more engaged in supply decisions, especially in the cases where a change in device can affect patient care or when the price of a device makes up a large percentage of certain DRGs. He says there is little pushback from other physicians who may question some standardization efforts.

“We attract individuals who, quite frankly, value the brand of the organization more than their individual brand,” Parker says. “They realize that in order for this to continue we have to get our arms around these things.”

At Intermountain, the doctors who are members of physician preference committees for orthopedics, cardiovascular, neurology, trauma and surgical services items are “already more engaged, accepting of change and know this is where we're headed,” Johnson says.

The first time the supply-chain team tackled the costs of orthopedic devices was in 2007, when the 21-hospital system was spending about $32 million annually on that device category alone.

That same year, Johnson received approval from the system's administrators to share up to 30% of documented first-year savings on the costs of orthopedic devices with the system's orthopedic surgeons. By supporting Intermountain's strategy to implement standard pricing policies—physician support pressured suppliers to comply—the physicians could use the savings to purchase other equipment, supplies or training.

The approach worked, and Intermountain now re-evaluates the cost of physician preference device categories every two years. The average savings for every category assessment is about 20% each time, Johnson says.

However, he views many of the pending payment reforms as the potential forces in driving the concept of “preference” out of the industry. If a physician has to take a 20% deduction on the cost of a procedure or agree to use a limited number of suppliers, the physician will be more likely to support standardization, Johnson says.

“Healthcare reform isn't just about cost. We've got to manage utilization,” he says. “We need physicians and surgeons to not just be loyal to one supplier, we need them on board to help us manage utilization and standardization and value beyond just price.”

So while market and regulatory change may be coming, it may not be occurring as quickly as some hospitals would like. Physician preference items are usually among a hospital's most expensive supply costs. With few organizations willing to make further cuts to labor costs—an organization's highest expense—they are instead focusing on reducing their second-largest expense—supplies—with physician preference items being a key target.

“Nonlabor (cost) is now getting a lot of attention because we squeezed everything we can out of the labor side,” says Ed Hardin, vice president of supply chain management for Christus Health in Texas. “We can't afford to make those kinds of cuts, so we've got to get more efficient and more effective about how we run our supply chain.”

Physician preference items account for about 57% of total supply costs for Christus Health, Hardin says, a percentage that has increased 10% since 2008. “It's rising as a percentage of total supply expense, whereas commodity spend has gone down,” he says.

As the cost of physician preference items continues to make up a larger percentage of total supply costs, some hospital systems have looked outside of their networks in an effort to better address the costs of these devices.

Cleveland Clinic and Dignity Health, both large health systems, have formed separate joint ventures that specifically aim to address the costs of physician preference items.

San Francisco-based Dignity Health developed a for-profit company called SharedClarity with UnitedHealthcare and up to 10 additional and unnamed health systems.

“These organizations are combining data to help inform healthcare organizations about the best-performing medical devices through comparative effectiveness studies,” according to SharedClarity's website. “For the first time, these exclusive studies will enable doctors and administrators to make informed decisions based on clinical proof rather than manufacturer influence.”

When the Cleveland Clinic announced its joint venture with VHA this month, it stressed that it will focus on how it can reduce the costs of physician preference items for its hospitals. However, there are also plans to bring in VHA members, Cleveland Clinic affiliates and other organizations.

The Greater New York Hospital Association recently received approval from the U.S. Justice Department to establish a voluntary gain-sharing program for its member hospitals. UCSF's Bozic says the university is looking into the possibility of developing a similar program.

ECRI's Lerner says more hospital systems will form partnerships or other ventures to help them rein in the costs of these devices. “Change brings a lot of experimentation,” he says. “We have to see how it actually plays out.”

One of the largest concerns for executives who manage supply-chain purchasing at hospitals is how to obtain and use clinical data that allow them to choose between competing devices. The goal: improving patient outcomes and avoiding repeat operations known as revisions. As payers turn toward bundled payments, avoiding revisions can also lower costs. Kaiser Permanente and the Cleveland Clinic have each maintained system device registries that can better track how a device performs after implantation.

Government registries in Australia and the United Kingdom were the first to discover that metal-on-metal hip implants were failing at a faster rate than other hip devices. More than 93,000 metal-on-metal hip implants sold by Johnson & Johnson's DePuy Orthopaedics unit were later recalled, which led not only to revisions but also to thousands of lawsuits.

In addition, the number of recalls in recent years may have caused a splinter in the relationships between physicians and manufacturers.

“There have been disappointments for physicians,” Lerner says. “We've had high-profile recalls. You have this gigantic problem with metal-on-metal implants, which makes a huge impact. That's massive, and I think it undermines that complete trust bond between the surgeons and the companies.”

TAKEAWAY: Reducing the number of vendors and developing new ventures are among the ways hospitals are targeting supply-chain costs.