Hospital group purchasing organizations were watching the launch of a new medical-services company last week that aims to help hospitals finance their purchase of expensive medical devices under a unique business model that doesn't require hospitals to shell out any money for them.
Implant Purchasing Solutions will initially focus on spinal implants, acting as the purchasing agent for hospitals and obtaining payment directly from patients' private insurance companies, said Bill Tella, its president and chief executive officer.
Hospitals will never have to pay either Implant Purchasing or the vendor for a particular device. Instead, the company will assume the hospital's responsibility for manufacturer payments while shielding its hospital customers from the risk of late payment or no payment at all from insurers, Tella said.
The New York-based company will buy the devices that providers specify and then bill patients' insurers using existing hospital contracts with those payers. The process removes not only the financial risk but also the complexities of pre-authorizations and claims submissions, Tella said. The company will earn its keep from the difference in what it pays for the devices and what it receives in reimbursement from payers.
The business model works only with private payers that separately reimburse for medical devices, ruling out Medicare and Medicaid, which under the DRG payment system do not offer such "carve outs," he said.
Like GPOs, Implant Purchasing will negotiate prices with vendors, Tella said, but unlike GPOs, it will assume all the financial risk. GPOs said they generally were reserving judgment until they learned more, but it did not seem to be a significant threat to their business.
"It sounds creative and innovative. I can see where it might be attractive to hospitals, particularly hospitals that feel they can't buy implants at a good enough price," said Bud Bowen, CEO of GPO Amerinet. "On the other hand, it is taking another potential revenue source away from the hospital." Bowen said he wouldn't expect Implant Purchasing to erode much purchasing volume for GPOs as very few spinal implant items are covered under GPO contracts.
"They are obviously very high physician-preference products," he said.
Other GPO sources seemed to find the company's business model confusing.
"Innovation in the healthcare supply chain is good," said Joe Greskoviak, senior vice president of strategic sales at the GPO Broadlane. "I'm just having trouble understanding how predictable the impact of this service will be for hospitals."
At least in the near term, Implant Purchasing is focused on spinal implants-a big, complicated and growing market, Tella said. The various devices can cost more than $20,000 each.
With 30 million Americans suffering from lower back pain, the "lumbar" segment represents more than $1.5 billion annually in business for hospitals, physicians and manufacturers, and it is growing 20% a year, he said.
Tella said the business could expand to other orthopedic market segments, such as artificial disks, as the technologies mature, but there is plenty of business for now in spinal implants. Because it is so narrowly targeted, Implant Purchasing won't really be competing with GPOs, he said.
"This model isn't for all hospitals," Tella said. "GPOs can get perhaps better acquisition costs for implants than hospitals can on their own, but they don't remove the reimbursement risk for the hospital." Hospitals will be asked to sign one-year contracts, he said.
The company has no signed customers yet, but the concept was developed because of requests from both hospitals and vendors that choose to remain anonymous, Tella said. Implant Purchasing is an affiliate of Wescott Holdings, which is wholly owned by the law firm Duane Morris.