Dive Brief:
- Following in the footsteps of ACOs, devicemakers are exploring some new risk-based models which indemnify providers against the risk of device failure.
- Boston Scientific, Johnson & Johnson, Medtronic and St. Jude Medical are among the big names ready to take a shot at the emerging business model, prompted in part by the trend toward a reduction in reimbursements from major insurers.
- Each risk-based contract arrangement will likely be different, depending on the type of device being offered. For instance, some agreements may ask the manufacturer to return a percentage of the device's cost if it fails within a certain time period or simply doesn't perform to specs. Others may see hospitals pay a little extra for a device that does the job promised by the manufacturer.
- In one concrete example, St. Jude Medical, in an investor prospectus filed this year, has said it will pay hospitals a rebate that is 45% of the net price for cardiac resynchronization therapies if they have to change a lead within a year of being implanted.
Dive Insight:
Though some in the device manufacturing industry regard the recent downturn in reimbursements as a serious issue, others aren't convinced payment levels constitute a serious threat. Either way, while the fee-for-service model may not be unsustainable, executives need to hedge their bets.
As we reported this past June, the jury is still out on how effective risk-based contracting will become as it is tested by more and more providers. Devicemakers may actually do better than providers at predicting and managing risks, as their model—selling machines—is far less complex than care delivery models which require patient management.
We wouldn't read too much into devicemakers getting into the risk-contracting game, as the idea is still pretty new, though it has potential for helping both providers and manufacturers. It should be a year or two before we have enough data to figure out whether this approach really works.
