Leadership

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

Connect

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

Learn More »

More From Leadership
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.

Culture Change Within Health Care Organizations Is Changing for the Better

Leadership Survey: Organizational Culture Is the Key to Better Health Care

Although three-quarters of Insights Council survey respondents say culture change is a high or moderate priority at their organizations, survey results show a lot of work on organizational culture remains to be done.

Metraux01_pullquote - dinners to combat burnout in the health care community

“Breaking Bread” to Combat Burnout

Can a simple dinner create community among health care providers?

IHI HPMS Visual Management Board Example

The Answer to Culture Change: Everyday Management Tactics

Adoption of a clear rhythm-of-performance measurement and communication via huddles and visual management can affect a culture of staff engagement and continuous value improvement.

ajor Themes from Cleveland Clinic Town Halls 2016

Reigniting the Passion to Practice Through a Multi-Pronged Approach

Cleveland Clinic formed the Practice Innovation and Professional Fulfillment Office to create and sustain an environment that allows clinicians and scientists to thrive through barrier removal, culture change, and support for personal well-being.

Percent in Highest Bracket in Patient Satisfaction Scores - Pre-Post Arm Differences for Hospitalists - Duke Coaching Communication Skills Study

Coach, Don’t Just Teach

The effect of one-on-one communication coaching on clinicians’ communication skills and patients’ satisfaction.

Two-Thirds of Organizations Have a Nurse Leader Career Path

Survey Snapshot: Do Nurse Leaders Need Advanced Degrees?

Though NEJM Catalyst Insights Council members acknowledge a lack of advancement opportunities for nurse leaders, two-thirds of their organizations have a nurse leader career path.

Nurse Leaders and Physician Leaders Should Be Considered Equals in Care Delivery - but Views of Nurses and Non-Nurses Differ

Leadership Survey: Nurses as Leaders: Broad Acceptance, Room to Grow

Nurses are traditionally the backbone of patient care. They form the largest percentage of the health care workforce, far outstripping physicians. But are nurses leaders as well as doers?

The CMO Role of the Future - Baptist Health Survey Results

Examining the Continuously Evolving Role of the Chief Medical Officer

Hospital and system leaders need to sharpen the focus of CMO roles to include system-wide considerations beyond the walls of the hospital.

Meyer01_header - Seven Challenges and Seven Potential Solutions for Large-Scale EHR Implementation

Seven Challenges and Seven Solutions for Large-Scale EHR Implementations

Salient lessons learned over multiple electronic health record implementations.

Connect

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

Learn More »

Topics

Physician Burnout

45 Articles

“Breaking Bread” to Combat Burnout

Can a simple dinner create community among health care providers?

Leading Transformation

264 Articles

Finding the Cause of the Crises:…

Until we redesign our health care system to address our patients’ personal determinants of health,…

Leading Teams

164 Articles

Survey Snapshot: Who Should Lead Culture…

NEJM Catalyst Insights Council members feel that culture change at their organizations is heading in…

Insights Council

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

Apply Now