Bringing Device Makers into the Hospital: Good Business or Ethical Risk?

Medical device powerhouse Medtronic is testing the waters of hospital management, having begun operating a cardiac catheterization lab within a major U.S. hospital earlier this year.

UH Cleveland is the first U.S. facility to outsource its cath lab to a device maker – a new business model that's met with some success in Europe, reportedly saving hospitals money while expanding Medtronic's business portfolio.

With hospitals facing pressure to cut costs without sacrificing quality of care, they may be enticed to turn to well-heeled device and drug manufacturers willing to take over certain operations, and perhaps give their own products a boost in the process.

But such arrangements raise questions about how much control hospitals can retain over the operations -- which run in their facilities and under their names -- and how much freedom physicians will have to use devices from rival manufacturers.

Medtronic as Management

Medtronic launched its Hospital Solutions business in 2013, and its first foray into cath lab management came in 2014, when it acquired the Italian firm NGC Medical. It took over several outsourced catheterization labs in Italy, with the expectation of expanding NGC's business outside that country.

Ron ten Hoedt, a Medtronic senior vice president and president for Europe, the Middle East, Africa & Canada, once said in a company meeting that Medtronic "needs to switch from a medical device company to a healthcare company," according to a 2013 PriceWaterhouseCoopers report.

"If we want to be a part of the solution of the delivery of healthcare, then we need to risk-share, and we need to go into this market in a completely different way and with a completely different model," ten Hoedt said.

At that time, "I remember everybody looking at me like I was from a completely different planet," he said.

But now, "insourcing" – bringing in a company to do a job onsite that might otherwise be outsourced completely – is becoming more common across industries, said Eugene Schneller, PhD, a professor of supply chain management at Arizona State University. Healthcare is just late to catch up.

It's "something that a lot of suppliers are starting to do," Schneller told MedPage Today.

In hospital management, its popularity may be growing as more centers are convinced by early results.

Imperial College Healthcare NHS Trust in London brought in Medtronic to refurbish two labs. The device maker also took responsibility for 2,942 stock lines and 12,436 items, implemented a morning preparation meeting for cardiac ward staff, and performed training.

Their ongoing goal: $1.5 million in efficiency savings over 7 years.

Maastricht University Medical Center in the Netherlands was reported to have saved $2.5 million in one year because of several Medtronic-directed initiatives, according to Medtronic marketing materials.

There, the company put into place a new time-out, sign-out procedure; more best practice sharing; and the introduction of staff development and education programs.

These and other initiatives reduced cancelled procedures, cut overtime pay, and increased staff efficiency while boosting patient satisfaction, according to the device maker.

Plans for UH Cleveland

Much of the agreement between Medtronic and UH Cleveland remains confidential, including the length of terms.

Medtronic did confirm to MedPage Today that it expects to have up to 10 employees on the ground managing labs and performing scheduling duties for the hospital. A hospital spokesperson confirmed that the partnership is already in place.

When asked what Medtronic is actually going to do in Cleveland, a company representative told MedPage Today that it "leverages functional expertise, such as inventory management, as well as consulting capabilities in various process improvement and change management methodologies, to identify opportunities to improve system capacity, cost efficiencies, and patient engagement."

"Our hope is that Medtronic's involvement will facilitate improved operational efficiencies aligned to providing patient access and timeliness of care," the Medtronic representative said. "The health system will maintain responsibility for all activities requiring professional licensure and full discretion with respect to medical decision making and patient care, including decisions related to procurement and device selection."

Incentives

Current healthcare economics are favorable for this kind of collaboration, according to Aaron Kaplan, MD, an interventional cardiologist at Dartmouth-Hitchcock Medical Center in Lebanon, N.H., who said several trends are coming together.

"On one hand, there's the "context of the ACA trying to make healthcare more efficient and reduce costs," he said. "Also, with CMS [Centers for Medicare and Medicaid Services] focused on bundled payments, people are going to be seeing more of this in the future."

"As margins for hospitals decrease, the hospitals are looking for new solutions," he continued. "At the same time, medical device manufacturers like Medtronic -- which has a heavy presence in the maturing interventional cardiology market with products that are less differential than they used to be -- are looking to increase their penetrance. This helps share some of the risk with hospitals in terms of managing inventory and the like."

Schneller added that with this kind of partnership, companies like Medtronic get access to performance data they've never had before. That in itself has been difficult as healthcare may be one of the least-trusting industries: in the past, hospitals have been reluctant to share device performance with suppliers, he said.

"This [new transparency] and some changes in management strategies are positive but need to be designed to keep enough tension and competition in the system without over-reliance on one company," he said. "A great deal of learning happens when you work with a company and they use your products."

Physician Concerns

Can doctors really remain unswayed in the hospital while working side by side with device company employees? Interventionalists said that freedom from pressure to use certain devices will be key to an ethical arrangement.

An anonymous source reported initial fears from UH Cleveland's catheterization and electrophysiology lab operators that Medtronic would force them to use its durable goods when the deal was first proposed. They said their fears were assuaged, however, when it was clear that UH Cleveland was not going to push them to use Medtronic devices.

Morton Kern, MD, an interventionist and Chief of Medicine at VA Long Beach Health Care System in California, said doctors who work under this new management "will have to use their best judgment for which equipment to select."

"If the equipment is equivalent, then it shouldn't make a difference," he said. "There is the perception that it could be a conflict, but it depends on who's doing the ordering and the contracting. If it's Medtronic, it doesn't sound so kosher."

"If there is separation between church and state, then there shouldn't be a conflict of interest," he added. "I don't care who runs my lab as long as it works well and the equipment is current. From the doctor's point of view, it should be invisible."

Schneller offered a cautious anecdote: only one supplier had drug-eluting stents during the early days of those devices.

"If you weren't in good standing with that supplier, access to goods became difficult," he said. "If you're known as a 'closed shop,' you're going to be late to another supplier. What does that mean to the rest of the innovation?"

Schneller noted that there needs to be a mutual understanding that innovation will prevail. When insourcing, he said, companies need to develop metrics "to assess that relationship to assure that you mitigate risk."

They should be sure to ask whether products from other companies can be brought in: "That needs to be managed very carefully and built into arrangements to bring innovation into the system," he urged.

There's some reassurance, Schneller said, in the fact that entrusting key services to outside companies is already old news in other industries.

Take automobiles: Manufacturers have outsourced car parts for decades, combining the building blocks of key systems -- engines or security, say -- from various suppliers into one product. This strategy harnesses individual suppliers' expertise and allows the car manufacturer to focus resources on innovation and design, he explained.

"Ford and General Motors bring manufacturers into their plants. They're doing it because there is efficiency associated with that, when you're co-producing and innovating together," Schneller said.

If that's the case in healthcare, will device makers other than Medtronic turn to the business of outsourcing management? Officials at Boston Scientific and Abbott declined to comment.

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