Challenges and Best Practices for Health Systems to Consider When Implementing Risk-Share Contracts for Medical Devices

Article · May 8, 2019

Recognizing the growing prevalence of value-based care, medical device companies are increasingly incorporating risk-sharing programs into their customer agreements. Conceptually, these efforts are a step toward aligning medical device suppliers and hospitals around providing value-based care. New York-Presbyterian’s (NYP) experience has shown that, though they hold promise, these contracts pose unique challenges and can create new costs. As a result, NYP has identified specific obstacles and established best practices that can help other providers begin their own journey into value-based contracting for high-preference medical devices.

NYP’s first cardiology risk-share agreement was proposed by a major device supplier. If a patient was to be readmitted for certain ICD-10/CPT codes within 30 days of initial implant of this manufacturer’s drug eluting stent (DES), NYP would receive a rebate equal to approximately four times the cost of the stent. At first glance, participation seemed like an easy win, as NYP would be compensated for readmissions without taking on any additional financial risk. However, the NYP strategic sourcing team soon identified three main challenges to implementing this agreement: (1) assessing the value of the agreement, (2) ascribing a process owner, and (3) completing the required documentation. In each instance, the team was able to develop best practices for addressing the challenge.

Strategic sourcing’s first challenge was to assess the value of the risk-share contract to determine whether participation was worthwhile. The initial step in that process was to identify how many qualifying DES implant cases NYP had performed in the past year. While this seemed like a simple data pull, the data were stored in multiple databases (depending on the facility) with varying levels of detail around the model and manufacturer of the DES implanted in each case.

As a result, strategic sourcing called upon the data analytics group, which ran multiple queries that ultimately identified 55 cases where the supplier’s DES was implanted and a readmission occurred within 30 days. Those 55 cases were narrowed to 21 by filtering the readmissions against the ICD-10 codes outlined in the rebate contract. While the cases took time to identify, the compensation that would have been paid to NYP for those 21 cases was sufficient to demonstrate that NYP would derive value from the program.

Confirming the financial viability of participation was only the first step; strategic sourcing also had to consider the operational feasibility of the program. The fact that many risk-share rebates put the responsibility on the provider to share specific product and patient information with the supplier in order to claim the rebate led to the second challenge: identifying a process owner for this reporting responsibility.

In this instance, the manufacturer required a wide range of information, including product details (name, lot number, serial number, etc.), patient information (date of birth, medical history, etc.) and procedural information (readmission reason, treatment, final outcome, etc.). Most of this information was clinical (typically under the purview of both the data analytics and operations teams), but some was product related (typically strategic sourcing’s focus). Ultimately, it was decided that strategic sourcing would be the process owner and would draw upon resources in analytics and operations as needed.

Once strategic sourcing moved forward as the process owner for the agreement, the third challenge was quickly identified: managing the paperwork burden. Completing the vendor’s rebate claim form proved to be a tedious and time intensive exercise.  Some fields did not directly pertain to the rebate qualification criteria, such as prior procedures, patient history, and cardiologist name. Other information was scattered across multiple systems, requiring complex queries.

For example, product lot number information was typically stored in the electronic medical record (EMR) in individual patient records, but in some cases this information was missing — meaning that the operations team had to consult other resources to pull this information. Even in cases without missing EMR information, it took about an hour to complete five rebate forms. Assuming $100,000 in salary and benefits for the cath lab manager filling out the form, the ~4x ROI justified the time commitment. This particular rebate was for one specific DES; extrapolating this overhead across multiple vendors and product categories for a hospital of our scale would require adding FTEs — significantly reducing the value of the rebates.

Action Steps for Risk-Share Contracts for Medical Devices

  Click To Enlarge.

This initial foray into risk-share device contracting helped strategic sourcing identify a number of key best practices for any similar future efforts:

  • Assess the value of the opportunity — Before entering into any risk-sharing device contract, providers should fully assess the economic opportunity, including identifying any new compliance costs that would accompany participation. Collecting the data necessary for this analysis will also help the data analytics team understand how much work would be involved in operationalizing the program (and, potentially, plan for participation).
  • Customize contract terms — Suppliers often have internally approved standard rebate terms that they prefer to use, as they can quickly be executed. However, these terms may not be optimal for a specific health system — particularly because each system may have its own operating characteristics and readmission patterns. Strategic sourcing paid particular attention to two areas:
    • Rebate Criteria — Providers should push for the broadest possible inclusion criteria for cases that qualify for rebates under risk-sharing contracts. This includes identifying a wide range of diagnosis codes for readmissions and ensuring that any inclusions or exclusions are consistent and comprehensive (e.g., codes include both left and right vessels).
    • Reporting Requirements — There should be clarity as to who is responsible for collecting what data, what data will be provided by each party to the contract, how quickly the data need to be submitted, and how the data are evaluated. For providers who are still developing data aggregation and reporting capabilities, gathering data to claim rebates on risk-share agreements can be challenging — so these providers should make sure the reporting and timing requirements in contracts are reflective of their own data-reporting limitations.
  • Identify and empower a project lead — Successfully managing a risk-sharing program requires the collaboration of clinical, operational, financial, and analytical stakeholders. Establishing a project manager from the onset with accountability for everything from inception to claim submission puts the responsibility on a single point of contact for overseeing different work streams, monitoring progress, addressing bottlenecks, interfacing with the vendor, and tracking performance.
  • Educate physicians — Standardizing physician preference items is always a challenge, but risk-sharing agreements can help create alignment. To achieve buy-in, it is essential to take the time to educate physicians about the terms of the contract — particularly because accurate documentation will be vitally important. As physicians become more familiar with these types of agreements, their feedback can be used to help negotiate future risk-sharing arrangements. Strategic sourcing identified two particular areas where physicians made a significant contribution to the contracting process:
    • Evaluating Clinical Criteria — Physicians are essential for evaluating clinical criteria for risk-share agreements. For example, physicians can help ensure that the readmission diagnosis codes outlined in the contracts are appropriate and exhaustive.
    • Shifting Product Mix — Risk-sharing contracts enable physicians to evaluate manufacturers’ performance claims in a lower financial risk If physicians are willing to shift utilization of preference items to those products covered under risk-share contracts, manufacturers could begin to offer better risk-share terms to hospitals in an attempt to maintain or gain share. The result is a domino effect, where success in one service line can enable providers to solicit risk-share contracts in other high-preference categories.
  • Create a standardized reporting format — Hospital systems may have different reporting standards and conventions across departments and campuses, which makes implanting a risk-share program difficult. Establishing a standardized reporting format — ideally that feeds a single data repository — can reduce the reporting burden.
  • Engage manufacturer reps — Manufacturers’ sales teams are likely on-site every week, tracking implant data for their own companies’ purposes. Consequently, asking reps to provide the data they gather can reduce the provider’s reporting burden while also enabling suppliers to better understand the obligations of risk-share contracts. Creating such a feedback loop can help encourage suppliers to take a pragmatic approach to the design of future risk-share agreements.

While manufacturers and health systems are just beginning to adopt risk-sharing agreements, it is not too early for providers to understand the opportunities and challenges associated with implementing these agreements. Thinking through the operational and data analytics requirements can not only help providers understand the overhead involved with implementing such an agreement, but it can also put them in a better negotiating position. In the context of shrinking margins and a shift toward value-based care, risk-sharing contracts with manufacturers hold significant promise for systems — but only if they are fully informed before entering into these arrangements.

Call for submissions:

Now inviting expert articles, longform articles, and case studies for peer review


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »

More From Leadership

From the Commonwealth to Obamacare: Reflections on 10+ Years of Expanding Health Insurance Coverage

The former Executive Director of the Commonwealth Health Insurance Connector — a model for the Affordable Care Act and other state marketplaces — reflects on what worked, what didn’t, and what could be done differently in both Massachusetts and at the federal level.

Time Spent Engaging Directly with 16 Camden RESET Participants or Coordinating Care on Their Behalf

“Putting All the Pieces Back”: Lessons from a Health Care–Led Jail Reentry Pilot

The Camden Coalition’s jail-based reentry program illuminated the necessity and challenges of engaging people with complex health and social needs and helping to transform the systems that serve them.

Sands01_pullquote clinical research partnership for learning health care

Real-World Advice for Generating Real-World Evidence

If envisioned and implemented properly, a partnership between clinical delivery systems and clinical research programs can get us closer to the goal of achieving learning within the care continuum and discovering evidence that is available when it is needed.

The Largest Share of Organizations Do Not Have a Formal Strategy for Clinician Engagement

Leadership Survey: Why Clinicians Are Not Engaged, and What Leaders Must Do About It

Clinician engagement is vital for improving clinical quality and patient satisfaction, as well as the job satisfaction of clinicians themselves. Yet nearly half of health care organizations are not very effective or not at all effective at clinician engagement.

Rowe01_pullquote - clinician well-being - fighting clinician burnout and creating culture of wellness takes all stakeholders

Defending the Term “Burnout”: A Useful Tool in the Quest to Ease Clinician Suffering

Health care leaders must take a preemptive approach to clinician well-being that is supported by all stakeholders and prioritized on an equal footing with essential clinical and financial measures.

Screenshot from the NewYork Quality Care Chronic Condition Dashboard

Success in a Hospital-Integrated Accountable Care Organization

How NewYork Quality Care achieved shared savings — by strengthening collaboration, enhancing care management with telehealth, and transparently sharing performance data.

Miller03_pullquote social determinants whole-person

How a State Advances Whole-Person Health Care

Pennsylvania addresses social determinants of health by bringing together managed care and social services organizations to expand access to vital resources.

Abigail Geisinger Scholars Program for Medical Students -Ryu02_pullquote

Why a Teaching Hospital Offers an Employment-Based Tuition Waiver Program

Geisinger Commonwealth School of Medicine subsidizes medical students’ education in exchange for their willingness to practice at Geisinger Health System.

Michael Dowling and Charles Kenney headshots

Rebooting Health Care: An Optimistic Outlook

The U.S. health care system may seem broken, but it’s on its way to greatness, according to the authors of Health Care Reboot. They discuss their optimism for U.S. health care reform, particularly on the social determinants of health, payment, consumerism, and technology.

Health Care Organizational Culture Emphasizes Patient Care Only Slightly More Than the Bottom Line

Survey Snapshot: Who Should Lead Culture Change?

NEJM Catalyst Insights Council members feel that culture change at their organizations is heading in the right direction, but differ on who it should come from, and reveal too much balance between emphasis on bottom line and emphasis on patient care.


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »


Leading Transformation

284 Articles

From the Commonwealth to Obamacare: Reflections…

The former Executive Director of the Commonwealth Health Insurance Connector — a model for the…

Physician Burnout

52 Articles

Survey Snapshot: How Do You Know…

The NEJM Catalyst Insights Council discusses strategies for clinical engagement.

From the Commonwealth to Obamacare: Reflections…

The former Executive Director of the Commonwealth Health Insurance Connector — a model for the…

Insights Council

Have a voice. Join other health care leaders effecting change, shaping tomorrow.

Apply Now