Tips for controlling medical device costs

As cost control initiatives take on increasing weight at hospitals and health systems, organizations must focus more intently on stemming the costs of medical device procurement.

Sales of medical devices have grown at an annual rate of 9 percent for the last decade according to a recent HRI MD&D report. Hospitals have increasingly utilized GPOs to assist in controlling supply chain expenses, but medical device costs can be a difficult spend category to control.

According to Rachel Hall of Ernst & Young, the costs of Class Three devices and physician preference items are particularly hard to control, since they are typically expensive and constantly changing with prices driven by manufacturers.

[See also: Tips for reducing hospital pharma costs.]

Todd Nelson, director of healthcare finance policy at the Healthcare Financial Management Association, said some hospitals have created contracts with medical device companies based on a fixed fee arrangement, such that any company can provide the medical devices, as long as the quality standards and price are met.

“Other hospitals have partnered in a gain-sharing or shared savings arrangement with medical device companies, clinicians and payers to drive down costs and improve quality,” Nelson said.

“Standardization is one way for hospitals to control medical device costs,” said Keith Hanchey, managing director in the healthcare consulting practice at Navigant. “Other tactics include setting a maximum contract price for all devices within a category and implementing physician standardization based on peer reviews.”

For physician preference items, Hall said hospitals have a few methods they can employ to address potential spend leakage:

1. Negotiate contracts with a key few manufacturers to address the most prevalent procedures;
2. Institute policies that incentivize physicians to utilize items on the item master;
3. Establish metrics that demonstrate outcomes results for the devices being used and continuously measure new technologies against existing technologies to evaluate improved outcomes;
4. Establish a spend analytics group that includes physicians, so physicians understand costs as well as outcomes and influence contract negotiations;
5. Automate the process of point of use capture in the OR and reconciliation.

Hall suggested hospitals might consider technology and automation as a way to considerably impact their supply chain costs. “New technologies are emerging that focus on reducing waste from the system,” Hall said. “The challenge with these solutions is that they require a tremendous amount of integration to be successful and they’re also expensive.”