In an effort to achieve lower-cost, quality care, providers throughout the U.S. have scoured through their administrative costs and processes. But when considering major procedures such as joint replacements, they're turning to devicemakers for help.
Some health systems have pressured devicemakers to eye their own expenses related to sales representatives and logistics. Few manufacturers have addressed those costs in significant ways, but some have turned the tables back on hospitals, showing providers how to cut costs.
The relatively new consulting businesses—launched by devicemakers such as Medtronic, Stryker, Royal Philips and Zimmer Biomet—show hospitals how to cut costs while allowing manufacturers to avoid lowering the prices of their own products.
Medtronic expanded its consulting offerings this year, launching an orthopedics advisory service in November and a broader consulting business that focuses on perioperative costs—or costs related to activity before, during and after a surgical operation, regardless of the specialty.
The company's orthopedic consultants devise strategies that reduce readmissions and create more efficient, standardized care. The business also offers a care-management service in which patients are asked about their recovery progress via an app. In Medtronic's case, that sometimes prompts follow-up from a nurse who can help with pain or other issues.
The orthopedic consulting business took shape after the company entered the knee and hip replacement market in May 2016 with the acquisition of Responsive Orthopedics. The Minneapolis-based startup markets a knee replacement product and reportedly plans to launch a hip product.
Todd Smalley, vice president and general manager of the orthopedic solutions business, said the company recognized that it could bring more value to its product offerings by helping providers respond to bundled-payment requirements from the CMS' Comprehensive Care for Joint Replacement model, or CJR.
“We think that because we have not had a legacy business there, because we don't have a legacy business to protect, to gain a lot of share, there's a lot of things we can do differently to match where the business is going as opposed to where it's been in the past,” Smalley said.
Medtronic shares in the risk of the bundled payments for joint replacements, and doesn't get paid if providers aren't seeing positive results. As payment for the consulting, the company charges a percentage of the bonuses given by the CMS to hospitals that receive high scores on quality and cost efficiency, but Smalley declined to disclose the exact amount.
Hospitals that perform poorly may have to repay Medicare for a portion of the bundled payment. Medtronic doesn't reimburse hospitals for that penalty.
Medtronic's Perioperative Performance Improvement service, launched in January, also is based on patient outcomes. The program's goal is to standardize surgical procedures.
Medtronic's consultants analyze electronic health records, billings, claims and supply chain data and benchmark provider outcomes and interview staff in order to diagnose and resolve physician differences. That can mean adjusting any number of factors, including narrowing the brands of products used during a procedure, finding ways to get patients out of the recovery bed more quickly, or even standardizing the number of incisions made during a procedure.
Dr. Michael Tarnoff, chief medical officer for Medtronic's minimally invasive therapies group, said devices tend to account for 15% of a procedure's cost, while 85% comes from decisions made by physicians, which Medtronic has historically had little to no control over.
“If we want to help hospitals become more successful, we need to migrate from being a vendor to being a partner,” Tarnoff said.
Still, hospitals have asked devicemakers to lower costs related to inefficient shipping of medical devices and the presence of sales representatives in the operating room. Only a few organizations have taken significant steps toward lowering costs in this area.
Smalley, the orthopedic solutions head, said Medtronic is looking to decrease shipping costs, but the company isn't yet ready to share any details. For assistance during surgery, the company is offering less expensive non-salesperson technicians for some orthopedic procedures.
The consulting businesses likely aren't providing medical-device makers significant additional revenue, but rather are a way to secure relationships with providers in an increasingly competitive market, said Bob Kirby, a Fitch Ratings analyst who covers device and drug manufacturers.
It's an effort "to tighten and deepen the relationship they have with these providers so that their relationship is stickier, and that way price is not the only issue they're negotiating on when they go to the C-suite,” Kirby said.