Devices & Diagnostics

Here’s four types of value-based contracting with providers that companies can pursue

At the MedTech conference hosted by industry association AdvaMed, an expert explains the different kinds of value-based contracting vendors can negotiate with health systems.

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Getting paid for novel products is the ultimate objective for all life science companies, but the goal post has shifted somewhat as the industry moves to value-based care from a fee-for-service world.

In that context, it would be useful to know what kind of contracting approaches can be taken when working with health systems.

For that, turn to Myla Maloney, vice president, strategic accounts, applied science at Premier, a group purchasing organization and an alliance of health systems. Speaking on a panel during the first day of the annual MedTech Conference hosted by medtech industry association AdvaMed in Philadelphia on Monday, Maloney said there are a few different types of risk-based contracts.

“We identified four ways that we believe providers and suppliers can engage in value-based contracting or as some say risk share [though] at this point, we call it more value-based contracting,” Maloney explained.

Evidence-based Care Discount
Maloney said this is a discount for a healthcare system to do some kind of evidence-based clinical intervention. And is a type of value-based contracting that is popular among pharmaceutical companies.

She also noted that some companies want to tackle larger problems like the length of stay, or hospital readmissions and end up skipping over this kind of contracting entirely. But those problems while important are also hard to tackle. Further, it’s difficult to point to one particular product or service that can solve those problems. These problems are also much harder to measure.

Instead, “if there is something along the way, some sort of intervention or measure that would be an indicator of success towards that outcome, why not incent around that?” Maloney said. “It’s easier to do, it can be done in a shorter amount of time and it’s also easier to manage.”

As an example, she pointed to a perioperative nutritional supplement that costs $150 a day.

“It has been proven to dramatically reduce surgical site infections,” she said.

However, no one was really using it prior to surgery and the company realized that in the checklist of things to do prior to surgery, the discussion around nutrition wasn’t taking place.

Using Premier’s help, the company “implemented a way to measure, outside of the EHR, if a discussion is had around the importance of perioperative nutrition and if it happens at an appropriate rate, then that system will get a discount on all of those products,” she said. “In this example, you are improving quality of care; you are going to improve outcomes but you are doing it in a way that’s a little bit unique and different.”

Product or Service Guarantee and Risk Share by Product
In both the above types of value-based contracting with providers, there is a common theme: your product has to work as advertised, but there is a difference too.

There are several examples of this type of contracting in the device world today.

Stryker has gone at-risk with its SurgiCount product that eliminates the potential for sponges to be left behind in a patient’s body after surgery. In 2016, The Kalamazoo, Michigan company announced that hospitals who used the company’s SurgiCount product would get their money back if the product failed. In fact, the orthopedics company offered to pay up to $5 million in product liability indemnification to hospitals and an additional guarantee to refund the incremental cost hospitals bear to invest in the SurgiCount program compared with the hospital’s previous sponge spending for up to three years.

Maloney gave an example of an interventional device to reduce pressure ulcers that looks at the current pressure ulcer rate and commits to reducing it by a certain percentage. If that percentage commitment is not met, then the company will provide a rebate back to the company based on the “nonperformance.”

“Let’s say they had a 10 percent reduction rate over a 12-month period …and let’s pretend that they have a 7 percent reduction in pressure ulcers – that’s actually fantastic. You’ve made a real impact on patient care. You’ve also saved the hospitals tens of thousands of dollars, but it’s not what you committed to,” Maloney explained.

So then the company would look at total cost of how much the hospital buys from the vendor to prevent pressure ulcers over a 12-month period and offer a 30 percent rebate back to the health system.

“The good news in that example is that the hospital is probably going to continue using the product; they just need to reset what the expected rate is going to be,” she said.

However, how risk share by product is different from a product or service guarantee is that the rebate is tied to “another cost in the system, not the actual cost of the product,” she explained.

An example of this could be the Tyrx antibacterial sleeve from Medtronic that is designed to work in concert with a cardiac implant such as a pacemaker or ICD to prevent surgical site infections. Medtronic has promised to pay hospitals for the cost of treating an infection, should an infection occur within a certain time period after the product has been used.

Risk Share by Alternative Payment Model
The fourth and final way of engaging in value-based contracting with a provider is through a process where both the hospital and the vendor wins by going at risk

“It’s completely aspirational at this point,” Maloney said, noting that she hasn’t come across any concrete examples of this kind of value-based contracting so far. “This is where we want to go. True shared upside and downside risk.”

While Maloney described the four kinds of value-based contracting with providers, she explained that the process of negotiating such contracts could be slow. She polled the audience to see how many had engaged in a value-based contracting with a provider and how long it took.

One woman raised her hand and answered, “Nine months.”

Photo:  Hong Li, Getty Images

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