Value-in/Costs-out: How New Start-ups Will Drive Hospital Buying and Transparency

April 28, 2013 — 2 Comments

Physician and Nurse Pushing GurneyAcute care hospital supply chains purchase over $55 Billion annually in medical-surgical supplies (1).   This includes items such as implants, disposables, and other general medical and surgical supplies.  It excludes capital items, services, food, and pharmaceuticals.  For such a large amount of healthcare spending, the area has historically suffered from opaque pricing and relatively little comparative data on the performance of technologies.  Many argue that these factors have contributed to the increased costs of delivering healthcare.

As consumers, most of us are well aware of the online resources to assess quality, value, and price of potential purchases.  Whether you are buying a new car or a book, there are numerous resources to help understand what a good price is as well as the expected performance and quality of the purchase.  These often include “peer-reviews” on websites like Edmunds.com for cars and Amazon.com for books.  There’s usually a wealth of information available to help the buyer make an informed purchasing decision.

For hospital supply chains, there have been relatively few robust resources to assess quality, performance, and price of supplies.  There have also been few resources to facilitate buying online.  Much of this is just now starting to change.

Just in the past year or so, there have been a number of new start-ups launched to help hospital supply chains make more informed buying decisions, and to make the buying process more efficient.   Each of these new entities has a different business model, and often a different way of attacking the problem.  However, they all have a common focus of trying to drive costs out and bring value into the purchasing decision.

Novation recently announced that it has started a new entity, called Aptitude.  This is an online exchange aimed at helping hospitals and medical suppliers directly negotiate prices and buy and sell products.  This new entity is billed as an online marketplace, where hospitals and medical suppliers will now be able to directly negotiate prices, buy and sell products, and track purchasing commitments online.  This exchange is billed as a resource to save time and money.  In market testing, the system has been shown to shorten the contracting cycle from an average of 10 months to 33 days (2).

Another example is Procured Health, which recently announced that it raised seed funding (3).  This is a healthcare start-up that aims to help hospitals better discover, evaluate, and adopt quality medical devices. This company sees the opportunity in helping hospitals drive down spending on medical supplies.

A recent clever start-up is MedPassage.  MedPassage has a game-changing procurement platform that allows medical centers to access quality medical technologies for substantial cost savings (4).  It aims to disrupt those procedures where the surgical technique and technology have matured to the point where technical sales support is no longer needed or can be performed by hospital personnel.

Finally, another type of business model is SharedClarity.  This is a joint venture between Dallas-based Baylor Health Care System, San Francisco-based Dignity Health, and Illinois-based Advocate Health Care, along with UnitedHealthcare.  The goal of SharedClarity is to improve patient outcomes by identifying the best-performing devices in a number of categories, including stents, defibrillators, pacemakers, knee and hip implants, and heart valves.  SharedClarity will use the results of the studies to select the best devices for patients and negotiate affordable purchasing agreements with manufacturers (5).

All four of these new start-ups are aimed at solving the same problem – take costs-out and bring value-into the purchasing process for hospitals.  Each has a different business model and way of solving the problem.  U.S. hospitals now have many reimbursement incentives in place, which align their behavior to value as opposed to volume-based medicine.  Therefore, there should be significant incentives to harness the insights from these start-ups to make more informed buying decisions that ultimately help patients, payers, and taxpayers.  For unprepared suppliers, this growing transparency is sure to create trouble.

Notes and References: 

(1)   Hospitals Embrace E-Procurement for Supply Chain Management – Enterprise Integration Is the Next Challenge.  http://www.himssanalytics.org/.  Accessed April 25, 2013.

(2)   An ebay for medical devices?  Brian Johnson.  MassDevice.com. Accessed April 25, 2013.

(3)   Empson, R., “Procured Health Nabs $1.1M From Bessemer, Athena Health Founder To Help Reduce Health Costs.”  Techcrunch.com.  Aug 8, 2012

(4)   See MedPassage.com

(5)   Three Large Health Systems and UnitedHealthcare Launch SharedClarity, a New Venture to Study Long-Term Effectiveness of Medical Devices.  April 9, 2013.  Accessed April 27, 2013.

2 responses to Value-in/Costs-out: How New Start-ups Will Drive Hospital Buying and Transparency

  1. 

    As an Independent Distributor of Specialty Medical products we are often excluded from bringinng the best value to large hospital systems and are often not considered due to “opaque pricing” that includes rebates, edcuational seminars, Center of Excellence desginations for payment to physicians to train other facilites on the use of the products and tying related items into the contract to support these high margin products.
    For instance we distribute a product that has a cost per use of less than 1/3 of the largest competitor’s product and is superior in every aspect including patient safety, documentation, programmability and the ability to qualify for reimbursement when used on an out-patient.
    There may be as much as 800% to 1000%+ gross margin in the competative disposable product that has been re-purposed from an antibiotic and chemo infusion focus at $3.33 – $18.00 per each device to one for post surgical acute pain management that ranges from $150 – $375 – $550 depending on options and if used for surgical site or regional anesthesia & analgesia.
    Transparency will not result when the GPO is involved in the on-line conspiracy to shirnk the options in the market to the fewest suppliers rather than opening the process to the market.
    Our manufacturers accept AMEX, VISA & MC which is the fair way to use “points” to incentivise purchasing transactions rather than a 3% rebate through the GPO.
    These rebates should be audited under the Affordable Care Act and the hospitals should be required to return the portion of the rebates that reflects their payer mix of CMS (Medicare Medicaid) patients to reduce tax payers cost of ACA.
    The precendent has been set for years for the Medicare and Medicaid patient who receive rebates on items such as blood glucose meters. Rebates are invalid for federal and state health insurance programs.

    • 

      Thanks for your comments and feedback. Given the cost and value pressure that providers will be under in the future and the improving capability of hospital supply chains, my guess is that they (hospitals) will eventually find these opportunities to drive lower costs. Low cost manufacturers should have a big advantage as all of this comes together.

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