Hospitals have historically lacked the leverage needed to reduce costs on implantable devices, such as heart defibrillators and hip replacements, because individual physicians who are not employed by the facility selected what implants were used, according to the report. Medicare also billed the hospital and the physician separately for these procedures, so the incentive to price shop was lacking.
Provisions set into motion by the new healthcare reform law, the Patient Protection and Affordability Act, may put the power back into the hands of the hospitals, as the legislation calls for more ways to bring the financial interests of physicians in line with that of facilities, according to the report. Initiatives such as bundled payments and accountable care organizations may allow physicians to share in the cost savings passed along to patients.
A pilot program at Baptist Health System in San Antonio, Texas, allowed the hospital to save $2 million over the course of about a year by aligning physician incentives, according to the report. A major part of the cost-savings for Baptist was renegotiating contracts with orthopedics suppliers, and the hospital kept those device makers that could agree to the new terms of lower costs with the trade off of higher volume. The system has also kept an eye on patient outcomes to ensure that the cost savings are not impacting the quality of care. Similar pilot programs may be underway across the country with the passing of the healthcare reform act.
Officials from the medical device industry have played down the potential financial hit the companies could take from this change, but investors fear that companies could lose big and innovation could be affected by price cuts. Some investors have avoided manufacturers of big-ticket items that could be affected by the changing climate, according to the report.
The change would take years, according to the report, but healthcare providers and the medical device industry alike are noting a change in the industry that would force makers to defend the price tag on higher priced implants. Earlier this year, Medtronic CEO Bill Hawkins noted that manufacturers were under increased pressure to demonstrate both clinical and economic effectiveness of their devices.
Increasing competition among device makers has also affected prices, but hospitals and healthcare providers have called the industry “opaque,” as the medical device industry often uses confidentiality agreements to hide prices from other hospitals, according to the report. Analysts noted hospitals’ lack of influence over physicians as their biggest issue in purchasing implants and reducing costs.
Read the WSJ’s report on the changing medical device industry.
