Show Me The Money Part II: Risk Sharing and Patient Outcomes

The preference for episodes of care and bundled payments will continue to rise, and reimbursement pressures will increase. The penalties for readmissions and poor outcomes persist and, as a result, providers are starting to demand that device and drug makers provide some guarantee of the effectiveness of their solutions in the treatment of patients.

On the face of it, asking a supplier to guarantee the effectiveness of a FDA approved or cleared drug or device seems redundant. The regulatory hurdles that an approved device has cleared establish that the device is both safe and effective. Determining the safety of a drug or device in the treatment of a patient is no trivial task. Novel therapies and recently researched interventions have theoretical yet unknown risks. If a device or drug is determined by the investigators to to have an acceptable safety profile, it is one step closer to approval. The next hurdle to clear is a determination of effectiveness. Regulators rightly ask that submitters show a substantial equivalency to a current approved device, or in a new category or class of devices, show clinical efficacy; i.e. does the drug or device effect improvement in a patient’s condition compared to doing nothing.

Why then would provider organizations want a drug or device manufacturer to make guarantees beyond what the FDA requires? Furthermore, because of the regulations imposed on approved devices and “off-label” promotion, making claims about the functionality of a device must remain within acceptable pharmaceutical and device promotion guidelines. As a result of these guidelines, companies cannot instruct salespeople or marketers to coax doctors into using an approved solution for something for which the solution is not explicitly approved.

So, why are providers making demands for guarantees from suppliers? There are many reasons that span from the mundane to the exotic. Here are three to consider:

1. New products are introduced to the market in a seemingly never ending stream. The one characteristic that best characterizes a “new and improved” solution is an equal, or usually higher price point. This price point is ostensibly supported by better performance, and increased efficacy. Healthcare systems and leading providers are demanding that manufacturers guarantee better performance, in the Clinical Utility, Operational Efficiency, and Financial Performance of the solution delivered by that supplier.
2. Sometimes a supplier provides a solution for standardization, and because case characteristics and usage conditions vary within the health system, the solution is flexible. To get a good price, the health system has contracted a very large proportion or share of volume in a specific area, e.g. surgery devices, pharmaceuticals, or capital equipment. 
If this supplier runs into logistical, regulatory, quality or any other problem that causes an interruption, the health system is harmed. When this happens, the health system can do very little more than cancel the contact and absorb the business interruption and the switching cost. Providers need more robust assurances that their partner supplier is minimizing their purchase-contingent risks.
3. Sometimes there is an incentive for the supplier to minimize support. Cost pressures have prompted many systems to scale back on expensive service contracts. As devices and equipment become more capable, they also become more complex, and potentially dangerous. Therefore, because of the design of the device, and possible training or proficiency gaps, the use of the solution could cause poor outcomes. Necrosis in the joint because of implant breakdown is one obvious example. Health systems, patients, and the public at large must bear the cost of this kind of issue, unless the manufacturer agrees to guarantee the product. Some orthopedic device companies issue a lifetime guarantee on implants.

In our next installment we will describe risk-sharing best practices for suppliers and manufacturers.