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Seven Strategies to Solve Healthcare’s Cost Problem

Lee H. Perlman and Susan D. DeVore, for HealthLeaders Media, August 21, 2009

Removal of price confidentiality contracts
Today, many hospitals are prohibited by contract restrictions from sharing the information on the prices they paid for high-cost medical devices with physicians or other hospitals. Removal of gag clauses in contracts for high-cost medical devices would give hospitals the necessary information to engage with physicians in making informed, evidence-based decisions. Further, disclosure of price points would improve hospitals' ability to negotiate with manufacturers to reduce costs. The power of this type of collaboration is evident in the $36 billion in annual savings already achieved through hospitals and clinicians working with GPOs to aggregate supply purchasing and improve systems and processes that maximize efficiency, labor and expenses.

FDA evidence-based oversight of reprocessing
The Food and Drug Administration (FDA) currently provides oversight and regulates the reprocessing of single-use devices (SUDs).  Despite FDA regulation, many hospitals do not reprocess SUDs because of the single-use label.  FDA could require manufacturers to show evidence that a medical device is unable to be reused, including studies that indicate reuse would render the device unsafe.

Allowing follow-on biologics
Granting manufacturers of biologic products a set number of years of market exclusivity, similar to one that makers of traditional drugs already have, would allow follow-on biologics manufacturers to enter the market and compete to drive down prices. The Congressional Budget Office estimates that follow-on biologics will produce a savings of at least $5.9 billion ($6.6 billion if increased tax revenues are included) over 10 years.

Comparative effectiveness research
Comparative effectiveness will fill a missing evidence gap on what drugs, devices and procedures work best for the average patient with a given clinical condition. Armed with this knowledge, physicians will have more reliable information to guide decision making and purchasers will have better insights as to what new, and old, technologies and drugs to buy. This, too, will stimulate greater evidence-based market competition.

While lawmakers worry that efforts to reign in healthcare spending could be jeopardized by the price tag of expanding health insurance, the hospital community can do its part right now. GPOs, working in conjunction with their member hospitals, have a real opportunity to significantly reduce costs within the healthcare supply chain. Sensible reforms can produce a more transparent, ethical and evidence-based supply chain. The millions of patients we serve every day can't afford to wait any longer.


Lee H. Perlman is chief financial officer and senior vice president, administration, of the Greater New York Hospital Association, and president of GNYHA Ventures, Inc. Susan D. DeVore is president and CEO of the Premier healthcare alliance. They may be reached at Perlman@gynha.org, and susan_devore@premierinc.com, respectively.

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