Hospitals aim to split device savings with doctors

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Hospitals desperate to save money are trying to get doctors to find methods of cutting supply costs and offering to share savings with doctors.

The federal government recently gave approval to its seventh “gain-sharing” contract that allows hospitals to split savings on supply costs with physicians.

Few hospitals have these agreements, but supply costs now are equal to 12 percent to 17 percent of a hospital’s total revenue. Gain-sharing agreements are seen as a means to control the costs.

Some health-care providers had approached the deals with trepidation because they did not want to run afoul of Medicare rules that govern relationships between doctors and hospitals.

HCA Inc., the largest U.S. hospital chain, is seeking approval for a gain-sharing contract that covers orthopedic implants at its hospitals and its outpatient surgery centers, and analysts say this could lead to pricing pressure for medical device makers.

HCA Chief Executive Officer Jack Bovender Jr. told Reuters at a Business Council meeting in Boca Raton, Florida, that he does not have a specific savings number that the company, which operates 190 hospitals and 91 outpatient surgery centers, will generate.

But the savings from focusing its business and having fewer implant vendors could be “substantial,” Bovender said.

Merrill Lynch analysts Katherine Martinelli and Timothy Lee wrote in a research note that HCA spends about $150 million to $200 million annually on orthopedic implants, with costs rising, and that the company hopes to cut that cost by approximately 20 percent. Pricing pressure could increase if HCA receives approval for its plan, the analysts said.

Medical device executives from Johnson & Johnson, Hospira Inc. and Baxter International Inc. told the Reuters Medical Devices Summit that gain sharing deals are not affecting their businesses.

There is still some caution among some hospitals, since they do not want to break laws that govern physician recruiting and how they are compensated.

Triad Hospitals Inc. executives said in a Feb. 18 conference call that the operator of 52 hospitals and 14 outpatient surgery centers is not planning to enter gain-sharing contracts because of the lack of clear regulations, but it is monitoring developments in the industry.

Joane Goodroe, president of Goodroe Healthcare Solutions, said last week on a Merrill Lynch conference call with investors that gain-sharing can lead to at least 10 percent savings in supplies’ costs. Goodroe’s company advises hospitals and physicians how to cut supply costs while maintaining quality care.

Goodroe’s practice is aimed at getting better prices from suppliers or showing doctors different techniques that use fewer supplies.

Goodroe said physician practices typically get 50 percent of the savings, a figure that could range between $600,000 to $4 million depending on the size of the practice and the number of procedures done. Goodroe’s business is focused on cardiology, but the company is adding orthopedics to its specialties.

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