Ensuring Fair Market Access Is Key to the Device Sector’s Success in ’06

Ensuring Fair Market Access Is Key to the Device Sector’s Success in ’06

Mark Leahey

The issue of open and fair market access is a priority for the medical device industry in 2006. This issue does not simply impact OEMs; it also affects patients, physicians, venture capitalists and contract manufacturers. All of these groups have a stake in eliminating current marketplace barriers that exclude innovative technologies and preventing any new barriers.

Unfortunately, some in Washington do not share this view. While efforts continue to reform anti-competitive practices of certain group purchasing organizations (GPOs), new programs being considered would attempt to legitimize such barriers under the guise of better patient outcomes. One such program is known as gainsharing. There is no verifiable way to measure patient outcomes under gainsharing, and it could provide physicians a financial incentive to limit their access to technology, limit care or use the least expensive products.  

What is most concerning is that the industry currently being scrutinized by the Senate Judiciary Antitrust Subcommittee for practices that compromise patient care—the GPOs—is the same group offering the most vocal support of gainsharing, a program that ostensibly is intended to improve patient outcomes.

The background of the GPO and gainsharing issues has been provided in this column before. However, recent events have brought the two issues closer together, and activity on Capitol Hill now requires action on behalf of all parties interested in preserving physician choice, quality patient care and innovation.  

As you may recall, proponents of gainsharing claim the program 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 best price.

However, the practical implementation of gainsharing has had the opposite effect. For example, HCA—the country’s largest for-profit hospital chain—implemented an orthopedic gainsharing program. Beginning in January, six months after the program’s inception, physicians were 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 should not be permitted. Luckily, they remain illegal for all parties. However, some in Washington are seeking ways to weaken the laws and permit expansion of these programs.

Last-Minute Gainsharing Demo On February 8, 2006, President George W. Bush signed the Deficit Reduction Act into law, which permits the formation of a limited gainsharing demonstration program. While this is merely a demo, proponents of gainsharing have made it clear they would like to see a broad exemption to current laws, which would permit gainsharing on a wider scope.

What was most disappointing was that the gainsharing demo language was included at the eleventh hour of the process and was not endorsed by many members of Congress, the medical technology industry or patients. However, parliamentary rules prohibited lawmakers from eliminating the provision from the final package.

Many were surprised that the demonstration program was included in the bill because it had not been vetted thoroughly by Congress; even some within the government had serious concerns about the program. Only one congressional hearing had been held, in October, and many witnesses expressed concern about the program.

Lewis Morris, chief counsel to the Office of the Inspector General (OIG) at the Department of Health and Human Services, expressed concerns regarding legalizing widespread gainsharing, stating that the OIG “thinks it’s a real risk that gainsharing will compromise patient care.” He also said “it would be dangerous to codify OIG gainsharing advisory opinions” and that OIG believes gainsharing arrangements should be evaluated on a case-by-case basis to ensure the practice is implemented constructively and with minimal risks to beneficiaries. Morris indicated that the safeguards in place for the favorable gainsharing advisory opinions could not be standardized to allow for a nationwide gainsharing program.

Martin Emerson, CEO of American Medical Systems, said during the hearing that relaxing the current laws to legalize gainsharing would be a severe impediment to the development and rapid diffusion of new technology, and that small medical device companies would be negatively impacted. He further noted that gainsharing would reduce patient access to new technologies, eliminate important therapeutic and diagnostic choices for doctors and harm patients.  

Andrew Imparato, president and CEO of the American Association of People with Disabilities, testified that gainsharing inadvertently would harm patients and jeopardize quality care. He quoted a RAND report issued 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 it doesn’t take into account a long-term view of how best to help patients. In addition, gainsharing penalizes specialist physicians who care for high-risk patients.

The hearing testimony from gainsharing supporters included Joane Goodroe, a consultant who stands to benefit the most if gainsharing were legalized. Goodroe’s consulting firm has proprietary software that purports to measure patient outcomes. However, many physicians and patients question the ability of the software to truly measure patient outcomes.

Goodroe also is an important link between the proponents of gainsharing and the GPO industry. In October 2005, VHA, a national alliance of 2,400 non-profit healthcare organizations, purchased Goodroe Consulting. Some trade publications speculated a sale price of approximately $15 million.

Equally troubling is that Goodroe Consulting’s chief operating officer is also the senior vice president of research and business development at VHA. This alliance also is the primary owner of Novation, the largest GPO, which, as reported in the New York Times, often excluded better products at a better price because of close financial ties to a select group of dominant suppliers. In addition, the Times reported that Novation is being investigated by the 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 demos. The agency’s goal is to ensure that the healthcare system is operating effectively and efficiently. CMS Administrator Mark McClellan often stresses the importance of promoting personalized patient care, which will increase quality of care and ultimately decrease costs. Patients, physicians and the device industry agree. That is why gainsharing demos must be structured to reward physicians for better outcomes and not provide incentives to limit physician choice or limit care. It is imperative that all parties express their position to CMS to ensure that the program is developed and implemented in the best interest of patient care and innovation.

The Flawed GPO Model

With GPOs endorsing gainsharing programs that limit physician choice or limit 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. These examples have been covered in a series of articles by the New York Times, the Los Angeles Times and other publications. In addition, the Senate Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee has held three hearings on this issue, with a fourth coming up this spring 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.

Based on numerous reports from many medical technology companies, examples of GPOs requiring substantial fees in exchange for a GPO contract continue to exist. In addition, certain innovative companies continue to be at a disadvantage because the GPO or the select dominant supplier they are doing business with continues to bundle unrelated products together and condition significant “discounts” on the purchase of the entire bundle. This sets up a scenario in which 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.

All these behaviors decrease the quality of care while increasing costs. The OIG is also reviewing 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 $2.3 billion in fees ($1.6 billion in excess of operations), the OIG has included a further review of the GPO industry in its 2006 Work Plan.

While the cost of healthcare is certainly escalating, the blame does not rest with the medical device industry. The increasing costs of some technologies must be weighed against the tremendous advancements in patient care that occur as a result of their use.

However, there are ways to make the healthcare system more efficient. The most direct and effective way to do so is to promote policies that create open market access, increasing competition. This will enhance outcomes and reduce costs. Device contract gainsharing does not address the larger issue of competition and, as a result, will do little, if anything, to create efficiencies in the healthcare market.

Medical Device Companies Must Get Involved

Open and fair market access is essential to ensure that patient care is not compromised and that innovation flourishes. In addition, from a business perspective, if the OEM is prevented from accessing the hospital marketplace, it substantially minimizes the ability to compete and succeed. As a result, many innovative companies will likely go out of business, and an existing or potential customer of a contract manufacturer will be gone as well. Some contract manufacturers may say that there will always be another customer to do business with, but if these policies of restricting access to the market continue to occur, there will be an even greater concentration of business with a select few OEMs and, as a result, a select group of contract manufacturers.  

In the best interest of patient care, innovation and your own business interests, get engaged in the process in Washington and support efforts to create an open, free and competitive market.

Mark B. Leahey, Esq., is the executive director of the Medical Device Manufacturers Association (MDMA). MDMA is a national trade association based in Washington, DC that represents more than 160 dues-paying members consisting of manufacturers of medical devices, diagnostic products and healthcare information systems.