July 8, 2015 / 11:11 AM / 2 years ago

Medical device makers beef up product guarantees to woo U.S. hospitals

CHICAGO (Reuters) - Medical device makers, facing sluggish sales and increasing pressure to prove the value of their products, are beefing up guarantees to compensate U.S. hospitals if a device does not perform as expected.

Medtronic Plc, Johnson & Johnson and St Jude Medical Inc are among the first to provide the newer guarantees, some of which offer to share in the cost of follow-up treatment tied to their heart devices, company executives told Reuters. Orthopedic implant makers are exploring such agreements for hip and knee devices.

Hospital officials, however, are seeking even more robust performance guarantees, including pledges to cover the cost of the surgery when a device needs to be replaced. Some see the new offers as a starting point for manufacturers to begin to share more of the financial risk of procedures.

“It’s a big shift,” said Susan DeVore, chief executive of Premier Inc, which represents 3,400 hospitals in negotiating supplier contracts. “Device manufacturers that are responding to that discussion are the most progressive ones, who see the world is changing.”

The costs of replacing a medical device largely fall on health insurers and patients, who sometimes recoup their expenses in court. In recent years, medical device manufacturers have paid billions of dollars to settle patient lawsuits over faulty products, from hip replacements to lead wires that connect defibrillators to the heart.

But hospitals are increasingly on the hook for unsuccessful procedures as well, with insurers such as the Medicare program for the elderly cutting reimbursement if patients have to be readmitted.

Device makers would not provide details on how many hospital clients have signed up for the new guarantees or whether they have had reason to pay the additional compensation on offer. Hospitals and device manufacturers are still working out the details in many cases.

The agreements also do not specify how an insurer or patient might be compensated for what they have spent to cover a procedure, but company executives expect those details to be clarified once the agreements become more common.

Consumers Union’s Safe Patient Project has pushed hip and knee implant makers to provide warranties directly to patients. Director Lisa McGiffert questioned the value of the new agreements for not addressing the individual patient.

“I would feel a lot better if the company would come right out and say I will pay for the product and the replacement if something goes wrong,” she said.

Legal experts say the presence of a guarantee on a medical device does not change the odds of getting sued by an unhappy patient. 

“The manufacturer can’t limit its liability toward the patient through a contract like this,” said Rick Boothman, executive director of clinical safety and chief risk officer for the University of Michigan Health System.

SPREADING THE RISK

In the past, medical device warranties would have covered the device only. For example, a manufacturer might pay for a patient’s new pacemaker if the battery on the original implant depleted sooner than expected.

Device makers and hospitals say the new agreements under discussion go further by tying a guarantee to trackable health outcomes. The manufacturers, who are struggling with weak demand and falling prices, are more willing to take on the additional risk to gain an edge in the marketplace.

“We are really doing this to promote a technology and a benefit that we know exists, to remove any doubt and to speed up market acceptance,” Medtronic Chief Executive Officer Omar Ishrak said in an interview. “Risk-sharing in our commercial transactions is going to be an increasing component going forward.”

Medtronic, the world’s largest standalone medical device maker, is guaranteeing that a hospital’s infection rate for procedures performed with Tyrx, a mesh sleeve that surrounds a cardiac implant with antibiotics, will be lower than the infection level for similar procedures without it.

If the goal is not achieved, Medtronic will cover the cost of treating the patient’s infection. The company signed its first agreements including the guarantees this year.

J&J’s Biosense Webster unit has introduced risk-sharing for its Thermocool catheter ablation treatment for atrial fibrillation, a form of abnormal heart rhythm. Hospitals are given a discount on Biosense Webster devices used in a repeat procedure if a patient initially treated with those products returns within a year.

J&J’s Ethicon surgical products business also plans a risk-sharing program for its Biopatch antimicrobial dressing applied to the skin to reduce catheter-related infections, spokeswoman Amy Jo Meyer said.

St. Jude Medical will rebate 45 percent of the price paid for a Quadra heart rhythm device if revision surgery is needed in the first year after it is implanted due to problems with the company’s Quartet lead wire.

HealthTrust Purchasing Group, which represents nearly 1,400 hospitals, expects to finalize some risk-sharing agreements in the near future. Negotiations with one supplier of spinal fusion implants, for example, involve a guarantee that if a patient needs a revision surgery within 90 days for a device-related reason, the vendor covers the operation as well.     

”They are taking a little bit of ownership with us in getting that operation done and getting that patient successfully through the recovery,” said Dr. Michael Schlosser, a neurosurgeon and chief medical officer at HealthTrust. The company is owned by Parallon, part of No. 1 U.S. hospital operator HCA Holdings Inc.

Reporting by Susan Kelly in Chicago; Editing by Michele Gershberg, Sue Horton and Bernard Orr

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