How do you save money on implants, stay within legal, ethical boundaries?
$345,000 settlement, national investigation gets managers' attention
In light of a $345,000 out-of-court settlement and a national investigation of implant manufacturers, outpatient surgery managers are looking intensely at spiraling implant costs and their own purchasing agreements and wondering, what exactly is considered illegal or unethical behavior when purchasing implants?
A surgery center and its artificial joint supplier are repaying the Medicare system $345,000 in a whistle-blower case that left both accused of violating the Stark anti-kickback statute.1 Spencer Greendyke, MD, the physician whistle-blower, worked from 1999 to 2004 for the facility that was the surgery center's primary owner and served on its board of directors, according to the U.S. Attorney's office. From 2002 to 2003, the physicians accepted payments from Stryker Corp. as an incentive to use its orthopedic products, according to a court complaint. Stryker listed the payments as rent for space to be used for trade shows and programs, but the space was never used by Stryker, according to the lawsuit. When Greendyke used non-Stryker products in knee replacements, he had to go to a different facility where they weren't banned, the lawsuit says. Stryker's arrangement "led to an inflated price for the products sold by Stryker within the region," according to the lawsuit. Under the False Claims Act, Greendyke can receive up to 25% of the damages.
Additionally, the U.S. Department of Justice is investigating the orthopedic implants industry for possible criminal violations of antitrust and other laws.2
And outpatient surgery managers face another challenge concerning implants. "Implant prices overall have skyrocketed, over a 100% increase over the last 10 years or so," says Judy Schanel, CHE, vice president for the neurosciences, orthopedic, trauma, and rehabilitation services lines at Moses Cone Health System in Greensboro, NC. "Reimbursement hasn't nearly been that high," she adds. Additionally, an increasing number of private payers refuse to reimburse surgery centers for their implant costs because they claim the cost is included in the procedure fee.
All of these legal and financial developments have brought attention to purchasing arrangements for implants. One strategy that has proven successful for many providers is the capping of implant prices. The University of Pittsburgh Medical Center has saved millions on its implant prices, compared with the retail prices, with this approach, says William C. Welch, MD, FACS, chief of neurosurgery and director of neurosurgical spine services at the University of Pittsburgh Medical Center. Welch also is Peter E. Sheptak professor of neurological surgery in the departments of neurological surgery, orthopedic surgery, and rehabilitation science and technology at the University of Pittsburgh School of Medicine.
With this approach, a facility sets maximum prices and informs manufacturers that they will pay only that amount, Welch says. At the University of Pittsburgh, the process started with the physicians meeting as a group with the purchasing department staff and examining costs of the most common surgeries, he says. Purchasing staff suggested prices to the physicians, and they decided what seemed reasonable. "We said, as a group, that an implant for single-level cervical fusion [for example] would be paid at a fixed rate, no matter what implant was used," Welch says.
When using this approach, consider the entire implant system, he advises. "So in the case of an intracervical plate, you need a plate and four screws," Welch says. "Screws can have radically different costs, and plates can have radically different costs."
What was the vendor reaction? "They were displeased," he says. However, they understand that capping prices is the nature of the business, Welch adds.
Downsides of capped prices
When capping prices, keep in mind that there should be exceptions for highly specialized products, Welch says. "This system was not designed to cover every possible scenario, but cover the vast majority of surgical procedures we perform," he says.
The system is not without a downside, he warns. "Once you have a capitation system or a cap in place, there's a strong disincentive for companies to offer the latest technologies," Welch says. "All surgeons like to use the most advanced system, and we don't routinely have access to the most advanced system because of the cost structure." By using an older system, physicians may encounter a slightly increased degree of difficulty or increased time with a procedure, he adds.
Moses Cone Health System also has found success with capping prices, Schanel says. It took a long time to determine fair prices, she recalls. Managers looked at the lowest price that some vendors were charging, Schanel says. "We told the others that if they wanted to keep supplying us, they had to meet those prices." Her strategy had the backing of her CEO, board of trustees, and physicians, Schanel says. "That needs to happen, because physicians and vendors will go everywhere [to perform surgery]," she emphasizes.
Still, the process was difficult, Schanel acknowledges. Surgeons received a significant amount of pressure from vendor representatives to use their implants, she says. "The orthopedic surgeons said, 'Just leave us out of this,'" Schanel says. Neurosurgeons told vendors the same thing, she adds.
The hospital officials set a deadline for the vendors and said that if they hadn't signed a contract, they wouldn't schedule any more cases using that product. "We didn't get much beyond a week of that deadline, and vendors starting realizing that physicians were no longer scheduling cases with them, and they agreed to the price," Schanel says.
Lawmakers and regulators look at gainsharing
The concept of gainsharing in which cost savings on implants and other supplies are shared between physicians and facilities also has gotten a significant amount of attention. A specialty hospital bill (S1002) that is under consideration by the Senate Finance Committee includes a section that would allow gainsharing between providers and doctors through safe harbors under the Stark anti-kickback law. Additionally, the Centers for Medicare & Medicaid Services (CMS) has announced a three-year gainsharing demonstration project that will focus on inpatient hospital resources. (For more information, go to www.cms.hhs.gov.)
The American Academy of Orthopaedic Surgeons has issued a position paper on gainsharing. One foundation of those guidelines is that any vendor relationships should be able to withstand public scrutiny, says E. Anthony Rankin, MD, second vice president of the academy and chief of orthopedic surgery at Providence Hospital in Washington, DC. "All relationships with industry reps should be legitimate and disclosed to patients," he says.
Use conflict of interest forms to have physicians disclose their relationships with manufacturers, such as conducting research or serving on their advisory board, Petersen advises. Those physicians having relationships with vendors should not participate in decision making, she says. Have these forms signed annually, Schanel advises. "You're reminded on an annual basis of your responsibility," she says.
While the concept of gainsharing in general violates fraud and abuse laws, the Office of Inspector General of the Department of Health and Human Services has signaled through several advisory opinions that if the proper safeguards are in place, they will not seek sanctions against providers and physicians for participating in gainsharing, Rankin says. The concept of gainsharing to reduce costs and improve financial performance is good, he says. "But the fact of the matter is, they violate fraud and abuse laws, so when one enters into that, it has to be clearly established that the safe harbors are addressed," he says. (To access the advisory opinions. Go to oig.hhs.gov. Click on "Fraud Prevention and Detection" and then "Advisory Opinions." For the date 02/25/05, click on "Advisory Opinion 05-06" and "Advisory Opinion 05-05." For the date 02/17/05, click on "Advisory Opinion 05-04," "Advisory Opinion 05-03," "Advisory Opinion 05-02," and "Advisory Opinion 05-01.")
Another critical part of the gainsharing guidelines is that any vendor relationship should benefit the patient, Rankin says.
"Patient care is the primary purpose of our profession, so we have to keep the patient as the central focus," he says. "If we keep patients at the center of decision making, and [conflicts of interest] are kept transparent for patients, it is less of an issue."
References
- The Associated Press. Sept. 25, 2006. Accessed at www.ktiv.com.
- Lee VD, Swiatek J. U.S. probe targeting 3 orthopedics firms in state. The Indianapolis Star. Accessed at www.indystar.com.
Source
For more information on implants, contact:
- Judy Schanel, CHE, Vice President for Neurosciences, Orthopedic, Trauma and Rehabilitation Services Lines, Moses Cone Health System, 1200 N. Elm St., Greensboro, NC 27401-1020. Phone: (336) 832-8243.
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