More healthcare suppliers engage in 'risky business': 8 things to know about risk-based contracting

The shift to value-based healthcare is transforming business relationships across the care continuum. One evolving phenomenon: risk-sharing agreements between providers and healthcare suppliers, including pharmaceutical, medical device and equipment manufacturers.

 Here are eight things to know about risk-based contracting in the supply chain.

1. About 83 percent health system executives said it is important for their supply chain management teams to explore risk-based contracting with suppliers in the next three years, according to a 2016 survey by national group purchasing organization Premier.  

2. Risk-based contracts can feature a variety of terms. Generally, these contracts are built around guaranteed performance by a drug or device based on specific outcomes from clinical trials. Supplier payment is contingent upon meeting those measures. If a product fails to meet standards, the manufacturer typically offers providers a lower price, rebate or, in the case of implantables, covers the cost of a replacement.

3. For years, device manufacturers charged premium prices for implantable devices. But that is changing as hospital systems get larger and gain access to more data, enabling them to better evaluate device performance across manufacturers.

4. Some of the largest medical device manufacturers negotiated contracts with hospitals in the last few years to take on performance-based financial risk for their implants. Chief among them is Medtronic, which signed nearly 1,000 contracts. Under those agreements, the device company is liable if its product Tyrx, an antibacterial sleeve, fails to protect against infections in patients receiving cardiac implants.

5. Other notable risk-sharing deals include Michigan-based orthopedics device maker Stryker. In 2016, the company announced a program called the SurgiCount Promise, in which Stryker's specialized bar code system for tracking surgical sponges during procedures is backed up by a promise of $5 million in product liability indemnification if a sponge is left in a patient.

6. Manufacturers are also striking risk-based deals with payers. In fact, one of the earliest value-based manufacturer-payer agreements was in 2009, when Cigna and Merck penned a deal for type 2 diabetes treatment.

7. Insurers are particularly interested in risk-sharing contracts with pharmaceuticals as a way to reduce the cost of certain drugs for members and improve outcomes for various metrics under the Medicare Shared Savings Program.

8. As procedures continue migrating from inpatient to outpatient settings, supply chain stakeholders expect some ambulatory surgery centers to begin participating in risk-sharing agreements with device manufacturers and other suppliers.

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