Device Sector Thrives on Fair Market Access

28 February 2006 (Last Updated February 28th, 2006 18:30)

Mark Leahey identifies some of the obstacles to a free market in medical devices. These must be eliminated if physician choice, patient care and innovation are to be preserved.

The issue of open and fair market access continues to be a priority for the medical technology industry in 2006. This is not an issue that simply impacts on OEMs; it also affects patients, physicians, venture capitalists and contract manufacturers. All of these groups have a stake in eliminating current marketplace barriers in the USA and elsewhere that serve to exclude innovative technologies, and in preventing any new barriers from being erected.

Unfortunately, some in Washington do not see it this way. While efforts are ongoing to reform the anti-competitive practices of certain Group Purchasing Organisations (GPOs), new programmes are currently being considered that would attempt to legitimise such barriers under the guise that they produce better patient outcomes.

GAINSHARING PROGRAMME

One such programme is known as device contract gainsharing. There is no verifiable way to measure patient outcomes under gainsharing, and, if improperly structured, it can provide physicians with a financial incentive to limit the technology they use, restrict patient care and use the cheapest products.

Most worrying of all, the industry group currently being scrutinized by the US Senate's Judiciary Antitrust Subcommittee for practices that compromise patient care – the GPOs – is the same one offering the most vocal support for gainsharing, a programme that is supposed to improve patient outcomes. Activity in Washington related to gainsharing and the GPO issue now needs to include action on behalf of all parties interested in preserving physician choice, quality patient care and innovation.

Proponents of gainsharing claim that the programme will create greater physician involvement in the delivery of healthcare. Under the theoretical model of gainsharing, physicians would work together with hospital administrators to identify the best products and the best price. However, the practical implementation of gainsharing has had the opposite effect. For example, HCA – the largest for-profit hospital chain in the USA – has implemented an orthopedic gainsharing programme where physicians are prohibited from using any vendor other than the three that are part of the gainsharing arrangement. Yet proponents claim these arrangements are voluntary.

These types of relationships compromise the physician-patient relationship and remain illegal. However, some are seeking to weaken the laws and permit an expansion of these programmes.

DEMONSTRATION PROGRAMME

On 8 February 2006, President George W Bush signed the Deficit Reduction Act into law. This law permits the formation of a limited gainsharing demonstration programme. While this is merely a demonstration programme, proponents of gainsharing have made it clear that they would like to see a broad exemption to current laws and the permitting of gainsharing on a wider basis.

What was most disappointing was the fact that the language in the act permitting the gainsharing demonstration was included at the eleventh hour and was not endorsed by many members of the US Congress, the medical technology industry or patients.

"Proponents of gainsharing claim that the programme will create greater physician involvement in the delivery of healthcare."

Many were surprised that the gainsharing demonstration programme was included in the budget bill because it had not been vetted thoroughly by Congress, and even some within the government had serious concerns about the programme. There was only one congressional hearing on the issue and many witnesses expressed concern with the programme.

At the congressional hearing, Lewis Morris, chief counsel to the Office of the Inspector General (OIG) at the US Department of Health and Human Services expressed concerns about the legalisation of widespread gainsharing. Morris testified that the OIG 'thinks it is a real risk that gainsharing will compromise patient care'. He added that the OIG believes that gainsharing arrangements should be evaluated on a case-by-case basis to ensure that the practice is implemented constructively and with minimal risks to beneficiaries.

Martin Emerson, COE of American Medical Systems, testified during the hearing that relaxing the current laws to legalise gainsharing would be a 'severe impediment' to the development and rapid diffusion of new technology, and that it would have a 'negative impact' on small medical device companies. He went on to say that gainsharing would reduce patient access to new technologies, eliminate important therapeutic and diagnostic choices for doctors, and harm patients as a result.

Andrew Imparato, president and chief executive of the American Association of People with Disabilities, testified that gainsharing would inadvertently harm patients and jeopardise quality care. He quoted a RAND report published last year that said vulnerable and disabled seniors receive only about half the care that would be recommended for people with their health conditions. Imparato also noted that short-term savings could harm long-term outcomes. Gainsharing only rewards physicians for producing short-term savings, and does not take any long-term view of how best to help patients, he said. Imparato also suggested that gainsharing penalises specialist physicians who care for high-risk patients.

Testimony from gainsharing supporters included a submission from Joane Goodroe, a consultant who stands to benefit if gainsharing is legalised. Goodroe's consulting firm has proprietary software that purports to measure patient outcomes. However, many physicians and patients question the effectiveness of the software.

Goodroe is also an important link between the proponents of gainsharing and the GPO industry. VHA, a national alliance of 2,400 not-for-profit healthcare organisations in the USA, recently purchased Goodroe Consulting. What is also troubling is the fact that Goodroe Consulting's chief operating officer is also senior vice-president of research and business development at VHA.

Furthermore, VHA is the primary owner of Novation, the largest GPO, which, as reported in the New York Times, has often excluded superior products at a better price because of its close financial ties to a select group of dominant suppliers. The New York Times has also reported that Novation is under investigation by the US Department of Justice for potential Medicare fraud violations. Given these developments, many question the assurances given by Goodroe and her business partner, VHA.

However, all is not lost. The Centers for Medicare & Medicaid Services (CMS) is charged with overseeing the creation and implementation of the gainsharing demonstrations. The agency's goal is to ensure that the healthcare system is operating effectively and efficiently. CMS administrator Dr Mark McClellan often stresses the importance of promoting personalised patient care, which will increase the quality of care and ultimately decrease costs. Patients, physicians and the device industry agree. That is why the gainsharing demonstrations must be structured in such a way that physicians are rewarded for better outcomes and not given an incentive to limit their choices or restrict patient care. It is imperative that all parties express their position to CMS to ensure that the programme is developed and implemented in the best interests of patient care and innovation.

FLAWED GPO MODEL

With GPOs endorsing gainsharing programmes that limit physician choice or restrict care, the need to reform the industry has never been greater. For years, GPOs have been shown to exclude better, more cost-effective technologies from the hospital marketplace as a result of receiving billions of dollars in fees from suppliers. All this has been covered at length in the New York Times, the Los Angeles Times and other publications.

"Open and fair market access is essential to ensure that patient care is not compromised and that innovation flourishes."

The US Senate's Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee has held three hearings on this issue, with a fourth coming up in spring 2006. The focus of the hearing will be to determine if self-policing codes by the GPO industry have been effective in reforming the industry or whether legislation is required to ensure comprehensive, verifiable and lasting reforms.

Judging by numerous reports from medical technology companies, instances of GPOs requiring substantial fees in exchange for a GPO contract continue to occur. In addition, certain companies continue to be at a disadvantage because the GPO or the select dominant supplier they are doing business with continue to bundle unrelated products together and make significant 'discounts' conditional on the purchase of the entire bundle. This sets up a scenario where an equally efficient smaller supplier with an improved product at a better price is unable to compete against a dominant supplier that leverages its scope of products and not the quality or cost of the product.

This kind of behaviour reduces the quality of care while increasing its cost. The OIG is reviewing the GPOs and the billions of dollars the industry receives in 'administration fees' from suppliers. In addition to the two audits issued in 2005, which found that six GPOs collected $2.3bn in fees ($1.6bn in excess of operations), the OIG has included a further review of the GPO industry in its 2006 work plan.

A FREE AND COMPETITIVE MARKET

While the cost of healthcare is escalating, the blame does not rest with the medical device industry. The increasing costs of some technologies must be weighed against the tremendous advances in patient care that result from their use. However, there are ways to make the healthcare system more efficient. The most direct and effective way is to promote policies that create open market access, thus increasing competition. This will enhance outcomes and reduce costs. Device contract gainsharing does not address the larger issue of competition, and as a result it will do little, if anything, to create efficiencies in the healthcare market.

Open and fair market access is essential to ensure that patient care is not compromised and that innovation flourishes. It is in companies' best interests to get engaged in the process and support efforts to create an open, free and competitive market.