New Relationship between Buyers and Sellers in Healthcare

Recent regulatory decisions by the Centers for Medicare and Medicaid Services solidify the move from payment for volume to payment for value. The final rule on access to Medicaid benefits aims to use better-informed, data-driven decisions to guide healthcare delivery for beneficiaries. Additionally, Medicare has launched a demonstration program to provide bundled payments to hospitals for hip and knee replacements, but only skilled nursing facilities that have a quality rating of three stars or higher will qualify for waivers to receive patients discharged after a shortened hospital stay.

These are two examples among many that illustrate how healthcare delivery is changing. Regardless of ongoing political and legal disputes surrounding the Affordable Care Act, the shift to a new healthcare ecosystem that revolves around patient outcomes is permanent. Providers will no longer get paid solely on a per-procedure basis. As a result, they are both consolidating ownership and sharing risk. But what tools will the broader healthcare system use?

I’ve discussed how new technology and an influx of patient data have combined to make healthcare increasingly measurable. This ability to match healthcare inputs to patient outcomes creates an unparalleled opportunity to foster a new relationship between buyers and sellers in the healthcare industry. Sharing outcomes data and then producing the highest quality product both encourages more transparency in the relationships between manufacturers and providers, and demands collaboration.

Lee H. Perlman, President, GNYHA Ventures, discusses product innovation

Ultimately, what providers – and the GPOs they work with – want is to pay the right vendor the right price for the right outcome. On the provider side, hospitals and health systems have adopted value analysis committees to review purchasing decisions and lead product conversions when they identify products that result in better outcomes. For example, New York City Health+ Hospitals overhauled its procurement system to extensively incorporate clinical data and outcomes into decisions that govern a $500 million annual purchasing budget.

This value-based approach to procurement encourages medical suppliers to embrace the use of data and provide evidence for value assessment. Within the medical device industry, calls for manufacturers to address hospital value analysis suggest objectively measuring the real-world performance of products, collecting data on outcomes from a cost-efficiency perspective, quantifying cost reductions, and making an ongoing effort to generate and share outcomes data. Suppliers that use data in this manner to respond to the needs identified through value analysis will have a market advantage; however, those seeking a greater competitive edge in the new healthcare ecosystem need to go a step further.

Suppliers that truly embrace the new realities of an outcomes-based healthcare system are redefining their relationships with providers by embarking on risk-based contracting.  For example, St. Jude Medical, a device manufacturer, said it will pay hospitals a rebate that is 45% of the net price for cardiac resynchronization therapies (CRT) if the CRT doesn’t perform as expected in the first 12 months. This is a huge change in how hospitals and GPOs do business with suppliers. Other companies, like Medtronic, are creating analytics programs to help customers improve clinical outcomes and streamline product use. We at GNYHA Ventures wholeheartedly embrace the shift from volume to value and want to do more work with vendors that adopt a cost, quality, outcomes (or CQO) approach to performance optimization.

Lee H. Perlman, President, GNYHA Ventures, discusses differentiated value

In healthcare, innovation is a necessity. To flourish, providers and suppliers must stay ahead of the curve, or at the very least, adapt to industry changes and improve. As providers increasingly embrace cost and quality data in purchasing decisions, and suppliers increasingly share outcomes and take on risk, the new relationships will produce real changes in healthcare delivery that ultimately benefit the patient.

Lee H. Perlman

To hear more about the changing dynamic between buyers and sellers in healthcare, register for the Modern Healthcare Supplier Strategies Summit on April 5 in Atlanta, Georgia. Mr. Perlman will deliver the opening keynote in this daylong event that brings together industry-leading providers, insurers, suppliers, innovators, and entrepreneurs.