What’s eating up cardiovascular service line margins: My ‘top 5’ list

Supplier marketing tactics continue to artificially prop up physician and patient demand for high-end products, including some with unintended negative consequences from both a financial and quality standpoint. This has been the situation for decades, but is fast becoming an untenable situation for hospitals—especially those that have failed to calculate the true cost of ownership.

I recently unearthed a reference sheet I penned in 2003, when drug-eluting stents first hit the market, offering steps healthcare providers could take to prepare for the financial impact of the then-new technology. It could just as easily been written about bioresorbable stents now taking hospital finances by storm. My suggestions, in short:

• Do a deep-dive analysis of how supplies are currently being utilized for stent procedures
• Determine the expense of treating patients impacted by the new stent (based on conversion estimates)
• Share the results with your finance team and negotiate carve-outs with payers
• Perform a supply expense projection
• Share the analysis with your physicians
• Combine intelligence gained from physician discussions with expense projection to estimate proportion of patients who will receive the new stent
• Share projections with hospital board of directors
• Develop and implement guidelines for use with medical staff, based on approved uses and clinical studies

But planning for the impact and actually limiting it are two different things entirely. The challenges in preserving cardiovascular service line margins have barely budged over the years, even as the consequences of inaction have grown exponentially. Year after year, a handful of high-end products make headlines with the only certainty being that costs will ramp up 5 to 10 percent. Below are what I see as the five perennial culprits.

1. Supplier marketing tactics. New products are constantly being manufactured that are at best "clinically equivalent" to what's already in use, which is all the U.S. Food and Drug Administration requires for 510(k) marketing approval. Thanks to savvy marketing maneuvers by suppliers, the news gets spun in the lay press—and in conversations between device reps and physicians—as the launch of something that is the "greatest" of its kind despite little to no evidence substantiating claims of superiority. Whatever the product du jour—e.g., heart valve, monitoring device, pacemaker, stent, implantable cardioverter defibrillator (ICD)—it almost always gets categorized for reimbursement with its predecessors. But all the hype surrounding its release leaves the supplier unashamed to ask for a double-digit premium even if that effectively erases margins for hospitals.

2. Physician demand. If you're competing for doctors, the pressure is on to meet their technology demands. If that happens to include transcatheter aortic valve replacement (TAVR) procedures, pull out your calculator. Development of a TAVR program may require a hybrid OR—and ultra-premium 256 slice CT costing a combined $7 million to build out and install. The product cost alone consumes 90 percent of reimbursement before any of the ancillaries are taken into account, roughly double what would be considered customary in orthopedics. Yet hospitals resist having hard conversations with their physicians about "supply chain" issues, even when they have solid cost and quality data available to back their case. Consider the rising number of catheter ablations being performed on patients with atrial fibrillation, even among those aged 80 or older. Burning or freezing away an extra beat in the heart's circuitry requires a mapping system running about $300,000 and catheters priced at $500 to $1,000 each. Physicians likely favor one mapping system and catheter brand over another, so you'll need to start talking to them about both the fiscal and clinical realities of their choices if you hope to influence their preferences.

3. Patient demand. Direct-to-consumer marketing of medical innovations and techniques tend to be major drivers of utilization, especially when it comes to any sort of minimally invasive, catheter-based or robotic-assisted procedure. But a far costlier factor is patient or family demand for heroic, end-of-life care. Approximately 90 percent of healthcare costs are concentrated in the 60 to 90 days preceding death. A cardiac rhythm management device is often warrantied for 10 years and a good use of resources for some, but inserting an ICD in a 90-year-old with Alzheimer's disease may lead to events unforeseen by the family, such as having their loved one endure multiple, painful shocks. Patients of every age have not been well educated about when and why it makes sense to say "no," especially when it comes to the cascading series of events that can unfold in cardiology. Middle-aged men who have a heart attack often receive a stent and, if there is myocardial damage, will progress into heart failure that may lead to implantation of a pacemaker, ICD (if they start having arrhythmias) or a biventricular device (if their heart failure worsens). If congestive heart failure advances, they may be deemed a candidate for a left ventricular assist device—possibly as a bridge to a heart transplant that can easily cost upwards of $150,000.

4. Late-breaking insights. Abbott Vascular's Absorb bioresorbable stent was approved by the FDA earlier this year after being deemed "non-inferior" to a currently used drug-eluting metal stent in clinical trials. But when year three study results were presented at this fall's Transcatheter Cardiovascular Therapeutics conference, clinicians were surprised and concerned to learn that on every clinical outcome parameter examined the bioresorbable stent under-performed its comparator—in most cases, by a disturbing margin. A likely contributing factor is that the stent's bioabsorbable polymer coating had not completely dissolved as expected.

5. Failure to consider total cost of ownership. Aside from the surprise clinical trial results with Absorb, the stent comes with ancillary costs that have to be factored into budgets. Because Absorb is a relatively thick stent, surgeons have to "model" the target vessel before actually implanting the stent; that is, they first need to do vessel measurement and possibly angioplasty, scoring and atherectomy (minimally invasive endovascular surgery). This is a throwback to how stents were deployed a decade ago and can easily add another $1,500 to $2,000 per procedure. Better budget forecasting is why HealthTrust routinely creates calculators that hospitals and health systems can use to prepare for the cost-per-case impact of product utilization shifts, using assumptions about how much business will move in a new direction and the indications for which a new technology might be used. The calculators are for disposable supplies only, before capital equipment costs that in the case of Absorb might include acquisition of intravascular ultrasound or optical coherence tomography that give physicians a needed peek into blood vessels.

These service line market dynamics are all costly, but at least partly remediable. Product discounts are no longer a barometer of anything unless all of the real costs have been factored into the equation—and you understand the advanced sales psychology at play and how much of it your organization may or may not be prepared to take on with physicians and patients.

Mark Dumond is assistant vice president of technology services at HealthTrust in Nashville, Tennessee.

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