Physicians face limited choice in medical device
selection as hospitals push to slash supply-chain costs
Modern Healthcare
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.
Related content
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.
