Like many of us, physicians have a tendency to fall in love with their gadgets. Not that there's anything wrong with that, as comedian Jerry Seinfeld might say, but then again, maybe there is.
Especially if they grow too fond of the gadget makers.
I'm not talking about personal technology like smartphones or iPads. I'm talking about expensive medical devices, particularly implantable ones used in cardiology and orthopedic procedures, and the companies that manufacture them. A single cardioverter defibrillator implant, for instance, can cost as much as $19,000.
Physicians might be smitten by what the device can do, even if they don't know the price tag. And sometimes they have relationships with manufacturers.
Sometimes, there might be nothing wrong with that. But physicians play a key role in procuring those devices.
A little-noticed General Accountability Office report released last month points out potential problems of the physician-device maker connection, noting that "strong" physician relationships with manufacturers or doctors' preferences on different models of implantable medical devices (IMDs) may undermine the ability of hospitals to make prudent purchasing decisions.
"The influence of physicians on hospitals' IMD purchasing decisions is a particular factor to the IMD market that affects prices hospitals' pay," the GAO report states. "While physicians are generally not involved in price negotiations, they often oversee strong preferences for certain manufacturers and modes of IMDs."
As a result, individual hospitals or hospital systems may have less bargaining power relative to the few cardiac and orthopedic IMD manufacturers, the report adds. It could become an extremely costly proposition.
Physicians rely on manufacturer representatives to provide technical support during procedures. In essence, physicians may be loyal to certain manufacturers with whom they have a consulting or professional relationship. Higher costs can result from these affiliations, the GAO notes.
(Of course, some of those relationships raise other questions. A U.S. Senate committee has been investigating physician ties to a medical device company amid questions of covering up potential problems with a spinal implant device.)
Implantable medical devices, including cardiac and orthopedic devices, represent a significant share of hospitals' supply costs, with a wide variation of costs for each item. From 2004 through 2009, expenditures for hospital IMD procedures jumped from $16.1 billion to $198 billion, an increase of 4.3% per year, and a rate equal to that of Medicare spending for other hospital procedures, the GAO report states.
According to the report, one hospital paid 83% more than another for the exact same knee implant.
Orthopedic and cardiac procedures accounted for nearly all IMD-related Medicare expenditures from 2004 through 2009. That is only expected to continue to grow. A recent HealthLeaders Media Industry 2012 survey (PDF )shows that 23% of physician leaders say that has a revenue growth potential of 6% or more over the next 3 to 5 years for orthopedic programs; with 16% saying heart programs will have similar growth. Some 46% say they anticipate growth in both service lines at least 1% to 5%.
There is a way to begin fighting the explosion of costs: If the physician-hospital relationship is strong, hospitals can consider evaluating purchases from many IMD suppliers, and using this competitive information to gain leverage for lower prices, the GAO suggests.
One of the systems that has been successful in reducing implant costs, for instance, has been the University of California San Francisco Medical Center, which established a protocol involving physicians and administrators in purchasing arrangements, says Eula Mckinney, MsHA, director of the general surgery, orthopedics, pain management and spine service lines for USMC.
UCSMC began tackling the problem of expenses a few years ago after it projected millions of dollars of losses in spinal implant costs. In response, the medical center established a committee implant purchasing structure involving administrators and physicians that enabled them to work "in harmony," Mckinney says.
Using that committee structure, which included a physician champion designated for purchasing, the hospital system has reversed its losses and has a notched a competitive price index better than 83% of hospitals with implant costs, she says. The overarching plan was to "have accountability and manage costs, delivering high quality without compromising clinical care," she tells HealthLeaders Media. "The high quality component is required."
The administration and physician teamwork is essential, she adds. The message from administrators to physicians: We need your help to improve cash flow and manage our costs. Their cooperation led to a "trusting relationship" between the two groups, she says.
"The vendors know because of the relationship I have with physicians, they just don't get everything they want at this hospital," Mckinney told me recently. "They know they have to go through the protocols that have been established."
The physicians help establish the protocols; the docs helped draft them. "That makes a significant difference because (physicians) are at the table making decisions," she says.
Too often, hospital systems don't carry out such a coordinated program. And physicians' relationship alone with device manufacturers has a significant impact on hospitals' expenditures related to devices.
If manufacturers determine that a physician is unwilling to switch device models, they can be more aggressive in negotiations, which could result in higher prices for hospitals. There are other concerns, according to the GAO report. In some instances, it says, device manufacturers have been able to leverage "gag clauses" that have allowed them to keep prices secret.
"Confidentiality clauses barring hospitals from sharing price information make it difficult to inform physicians about device costs and thereby influence their preferences," the GAO report states.
Those secrecy provisions are working to drive up costs, with physicians left in the dark over prices, says Curtis Rooney, president of the Healthcare Supply Chain Association, which represents 15 group purchasing organizations for hospitals, including those of hospital systems and healthcare provider alliances.
"The doc gets trained on the product and the doc never sees the price of the product, but the hospital buys it because it feels the need to keep the physician happy," Rooney tells HealthLeaders Media. "With the confidentiality clauses, the hospital is wearing the blinders, and the hospital can't share the price information with their own physicians."
Sen. Max Baucus, (D-MT) who chairs the Senate Finance Committee, asked for the GAO report, and says he's pushing for increased transparency in the medical device industry because there is too little information available about costs of the implantable devices.
"The more people know about the actual costs of these goods and the options they have, the better they are able to incorporate them into clinical care," Rooney says. "A lot of efficiency is to be had there. If you can't talk about prices, then you are in the dark."
There is something most definitely wrong with that.
Joe Cantlupe is a senior editor with HealthLeaders Media Online.
