What Implant Manufacturers Need To Know About Their Hospital Customers

Section 1: Significant Reimbursement Changes For Providers
 

The reimbursement model for providers (hospitals, physicians, post acute care professionals, etc) is changing. There is no more additional money flowing into the reimbursement side of the financial equation for providers. The traditional fee-for-service reimbursement model is being challenged by public and private payers across the country. Under the fee-for-service model, a provider is reimbursed for every service provided to a patient during an episode of care. Regardless if the service (such as an MRI) is provided once or multiple times the provider would be reimbursed each time. From the perspective of the payers, this model increases costs and does not properly incentivize hospitals, physicians, and post-acute care providers to collaborate to increase quality and reduce costs.

Reform of provider reimbursement has been discussed among public payers, private payers, and providers for years. However, the Patient Protection and Affordable Care Act of 2010 (Healthcare Reform) has moved it from industry debate to a national topic of discussion. Two goals of healthcare reform are to increase quality and lower the cost of healthcare in the United States. Payers (both public and private) believe moving away from fee-for-service is a good step in achieving that goal. In the mind of the payers, fee-for-service rewards volume rather than enhancing quality and controlling costs. Several alternative reimbursement methodologies have been examined. One plan, Value Based Purchasing, holds back a portion of Medicare payments providing the hospital the opportunity to earn the money via achievement of quality benchmarks.

A second plan, Accountable Care Organizations, allows for hospitals and physicians to partner to earn bonus payments for enhanced quality and/or share in any savings they achieve for Medicare. The two programs have the potential to bend the cost and quality curves in the right direction but ultimately they are leading to a bundled payment methodology under both public and private payers. Under a bundled payment program, providers will receive a lump sum (bundled) payment for a specific episode of care. It is then up to the providers (hospital and physicians) to work together to best manage the care and costs of the patient - and distribute the payment amongst themselves. Medicare and private payers are piloting bundled payment programs. Medicare's Bundled Payment for Care Improvement (BPCI) initiative is in the planning stages now with nearly 500 hospitals. The risk bearing stage (bundled payment) will begin July 2013. According to Managed Care Magazine, private health plans in Arkansas, Tennessee, North Carolina, and Wisconsin are piloting bundled payment programs as well. To varying degrees, these reimbursement models move away from fee-for-service thus driving hospitals and physicians to deliver more tightly integrated patient care and manage financial risk. One outcome of the changing reimbursement structure and greater hospital - physician alignment, is that the physician is no longer the sole decision maker for medical devices and diagnostic equipment. By contrast with the past, hospital staff now occupy many seats at the negotiating table.

Section 2: Knowing Your Hospital Customers
 

Hospital executives generally evaluate their organization's financial statements on a consolidated basis. Very few will look at the financial statements of a specific department or service line. A hospital executive views their organization as a comprehensive destination of care for the community it serves. This includes Intensive Care, Emergency Room, Labor & Delivery, Inpatient Nursing Units, Physical Rehab, Behavioral Health, Surgery, etc. A hospital executive's primary financial focus is the overall profitability of the facility or health system as whole - not just orthopedics or spine or cardiology. Combine this with the knowledge that the prevalence of fee-for-service is likely to diminish, hospital executives are looking for every dollar they can save in devices and equipment so it may be allocated elsewhere. Understanding this mindset is critical to the success of any partnership a device or equipment company hopes to forge.

Hospital executives monitor the finances of the hospital very closely, their top priority is to deliver the highest quality of care possible at the most competitive cost. They look to a mutli-disciplinary team to guide the clinical quality / finance discussion. One team is frequently referred to as the Value Analysis Team (VAT). The VAT usually is composed of clinical and financial managers. This team typically includes the Director of Supply Chain Management, Director of Surgery, Operating Room Business Analyst, Imaging Director, Biomed Manager, Finance Director, and several nurse leaders. Physicians are invited and encouraged to attend but their attendance can be sporadic. The guiding principal for VAT is if the clinical acceptability of a device or equipment is the same, price will be the deciding factor. This team will make buying decisions or, if the dollar amount is large enough, the team will produce recommendations to the executive administration. If the vendor's only meaningful relationship is with a physician the vendor is at distinct disadvantage. Instead of the historical model with the physician driving buying decisions, those decisions are now being managed by multiple staff, many who the vendor may have no relationship.

Section 3: Creating a True Partnership With Your Hospital Clients
 

Developing a good relationship with the hospital will distance the successful device and equipment companies from the rest in this new healthcare environment. Be aware there is some work to do on this front. The hospital often feels device and equipment companies have exclusively focused on the physician and have ignored the hospital. From the hospital's perspective they have been getting large invoices for devices and equipment without any meaningful engagement from the manufacturer. It is a certainty that many hospitals feel this way. As a consequence, hospitals have been more recently severely restricting device and equipment representative's access to their physicians and the procedural areas due to a lack of trust. As a result, retaining and growing market share at a hospital has become much more difficult. This has often led to frustration and animosity between the two parties. A short term goal for any device or equipment company should be to rebuild a high level of trust with hospital customers immediately. Any long term strategic vendor initiative is doomed to fail unless the basic building blocks of a successful relationship are built first.

Hospitals are increasingly requiring transparency and value in their device and equipment contracts. For example, hospitals would like to have some idea on where they stand with their peers in terms of price. Knowing what spending level they need to achieve to receive higher discount levels would be enthusiastically embraced. Another option to explore is offering discounts on existing device utilization in exchange for increased access to hospital physicians and procedural areas to demonstrate new products. The hospital understands how innovative products can positively impact patient's lives. Thus the hospitals would prefer to keep physician choice intact in the operating room, however, it can't consistently be to the financial detriment of the hospital. Most hospitals would be open to giving a manufacturer increased access to their surgeons for new products when the manufacturer makes an equal organizational commitment in the form of up front discounts on current products.

A major complaint for hospitals on the equipment side is service. It builds a significant amount of frustration on the part of the hospital. When a hospital's 20 month old CT Scanner is not covered for the latest software release or each "hard down" incident is a billable event, it creates a scenario where a hospital feels compelled to pay for the software upgrade or each service incident to get the equipment functioning. The willingness of the equipment manufacturer to renegotiate the service components of a contract will help close the trust gap. One factor the hospital will use to judge the reliability of the equipment - and the company - is through the lens of the service contract.

The healthcare landscape has shifted beneath our feet. Device and equipment companies who recognize and embrace this shift, proactively build new relationships and value-based programs with their hospital, and continue developing their physician relationships will ultimately become viewed as a trusted partner with the providers in increasing quality and lowing costs for patient care. Only through developing this partner status and level of collaboration with the provider community will a device or equipment company grow and thrive in the new healthcare landscape.

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