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Devicemakers explore risk contracts with hospitals

By Jaimy Lee

Tiptoeing into the broader accountability movement, some of the largestmedical-device manufacturers are negotiating experimental deals with hospitals to take on performance-based financial risk for their implants.

While drugmakers have been testing risk-based contracts for several years, devicemakers are just beginning to explore taking on risk for products such as pacemakers and other implantable devices. Experts say cardiac devices are a primary focus of new risk-sharing agreements under discussion, likely because hospitals face potentially lower payment rates for congestive heart failure patients. “They’re aligning risk to the kind of risk that matters to providers,” said Brandi Greenberg, a managing director at the Advisory Board Company.

Experts say each risk-based contract between a hospital and devicemaker is structured differently. Some agreements may stipulate that the manufacturer return a percentage of the device’s price if it doesn’t meet certain performance goals or fails within a set period of time. Under other agreements, a hospital pays more for a device that fulfills a manufacturer’s quality and economic claims.

For years, device manufacturers have been able to charge premium prices for implantable devices. But that is changing as hospital systems get bigger and gain access to a broader pool of data, enabling them to better evaluate device performance. Companies exploring risk-based deals include Boston Scientific,Johnson & Johnson, Medtronic, and St. Jude Medical.

Manufacturers “realize they have to be strategic, they have to play the game,” said Rob Littlefield, a senior analyst at GlobalData.

St. Jude Medical said it will pay hospitals a rebate that is 45% of the net price for cardiac resynchronization therapies (CRT) if a lead revision is required within one year of implantation as the result of four factors determined by the company, according to an investor prospectus filed this year. “This form of risk-sharing… allows providers validation and confirmation of the novel technology being utilized to improve patient outcomes…” the company said.

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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