Imperatives for Restoring Balance to Medical Device Contracting

If medical device costs have become unmanageable at your facility, you’re not alone. Physicians are understandably eager to get their hands on the “latest and greatest” technology in their specialty field—and their Internet-savvy patients might well demand it. But how are busy physicians and hospital leaders to know if the newest medical device offers meaningful improvement over an existing, less exorbitant alternative? FDA approval guarantees neither added clinical value vis-à-vis predecessor products nor a reasonable sticker price—and most organizations have market benchmarks for neither.

Here are some hard and indisputable facts: The cost of physician preference items are rising across the board and continue to outpace hospital net revenue growth. Implant costs alone have skyrocketed 128 percent over the last decade, according to the Orthopedic News Network. The cost of metal currently consumes close to 60 percent of reimbursement and, if osteobiologics are added in, that figure can jump to 100 percent.

Demographics suggest the situation will not reverse itself anytime soon. Demand for medical devices will explode as baby boomers age and growing numbers of active Americans in their 40s and 50s sign up for hips and knee replacements that promise to last a lifetime.

So what are budget-squeezed hospitals to do? If they have the time and resources, they could more carefully vet new technology and renegotiate more favorable contract terms with suppliers. Three years of data from HealthTrust members suggest going it alone will attain savings of something less than 10 percent. But the savings are invariably short-lived, eroding completely inside of a year as successive rounds of high-tech products hit the promotional trail. In terms of spine hardware alone, FDA approvals numbered more than 240 in 2012.

Experience has shown that achieving sustainable savings on medical devices requires a three-step interventional approach, not the least of which is physician engagement and education on the necessary balance between clinical choice and financial reality. Second, providers need benchmarks to intelligently negotiate pricing, identify legitimate savings opportunities and track progress. Lastly, they must have the wherewithal to interpret supplier behaviors, monitor compliance with contract terms and review new technology.

Sound overwhelming? SourceTrust has the deep expertise, proven results and dedicated support of more than 30 clinical, analytical and contractual experts to help restore balance to the costly business of acquiring medical devices—for acute care hospitals as well as physician practices and surgery centers. Take a few minutes to review a SourceTrust case study that details the savings we uncovered for Hospital Sisters Health System with custom contracting for spine, biologics, hips and knees.

Author Information

Doug Jones

Doug Jones

Doug Jones joined the SourceTrust team in 2008 after 20 years of experience with a major orthopedic company. His experience includes a number of positions in sales and national accounts where he was responsible for creating and implementing the sales and price strategy for GPOs, IDNs and the government. At HealthTrust, Doug leads the business development activity for SourceTrust, where he is responsible for managing customer relationships, building the sales and marketing activity and liaising with HealthTrust member services teams in support of HealthTrust stakeholders. More Articles by This Author »

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