By Patrick Flaherty and Joseph Haduch
Last month we discussed, at length, the power and impact that the trade lobbying group MITA has on the diagnostic imaging business and, more broadly, hospital operations inclusive of reimbursement. As we set the stage for this month’s discussion, let’s recall some of the most salient points regarding MITA’s incursions into acute care operations.
A few years back MITA successfully lobbied CMS to drastically reduce reimbursement for general X-ray and computed radiography based on the premise that digital X-ray was compellingly better for patients; please note that no contractual commitments tied to objective clinical outcome improvements were offered by MITA or its members for capital that was exponentially more expensive than viable clinical equipment in place. More recently, and continuing up to today, MITA still persists with the public stance that all “servicers” of equipment should register with the FDA and be required to adopt a Quality Management System along with other requirements; this expectation despite a paucity of data showing any objective national issue with service quality. MITA further continues to make claims that any use on non-OEM parts are synonymous with cutting economic corners that place patient access and safety at risk … let’s explore these last claims from our immediate local experience.
In response to the continued barrage of MITA lobbying, we decided to put the claims to an objective test and asked the four largest diagnostic imaging manufacturers for data (not including price) which we believe is minimally required to support the public claims in front of government officials and agencies. We asked these four manufacturers for the following data:
- OEM estimated PM times by major modality
- OEM actual PM time by major modality based on each year of ownership of a particular modality (example MRI year 3, PM2) as well as the standard deviation for national service to determine a baseline for productivity and operational consistency for PMs which could be used as a comparison with non-OEM service providers
- Part recalibration or replacement data tied to each PM to create a baseline functional performance level from a parts and productivity perspective to determine whether the frequency of the PM was correctly correlated to expected system issues and parts replacement
- Expected functional life of a part (SKU level) as well as the actual manufacturer, the latter of which is critical given the prevalence of sub-contractors to objectively operationalize parts related data within a decision-support process
All-in-all, we believed and continue to believe the information above is the minimally required information to support the claims MITA continues to make; all four OEMs from which the data was requested refused to provide the information, two of whom stated the data was proprietary.
Despite the claims of proprietary data, no pricing information was requested but the suppliers claimed the actual performance of the parts, the productivity and need for the service was proprietary … in this scenario, what is a provider supposed to use for decision-support, the word of the manufacturer? Clearly, through last months and this month’s column, we are publicly standing-up and challenging you to as well but, lets take a look at another party who should be standing up but who currently prefers to sit on the sideline … the large group purchasing organizations (GPOs).
The GPOs currently offer a wide range of contract options for the acquisition of clinical capital with a heavy concentration on diagnostic imaging. GPOs emphasize the larger economic base of their many clients to negotiate lower purchasing costs. A pre-negotiated fee is then paid by the supplier to the GPO based on total customer spend. Though some may think this dances along a legal line, the government has granted GPOs “safe harbor” from the federal government’s anti-kickback statue based on strict reporting rules and full payment transparency required of the GPOs along with what the government sees as a benefit to providers that serves the greater good. However, the GPO’s government authorized group contracting often creates contractual obligations from suppliers connecting their aggregated spend to most favored pricing. This is critical as many suppliers choose to index their “best” price to a GPO contract which they then use as a compliance shield which operationally inhibits a local contract from going lower than the indexed price. This practice, where present, can permit a supplier to lower egregiously high margins applied to smaller GPO members in exchange for not having to negotiate rationale pricing on a cost-plus basis for more objective business-based providers; in these scenarios, both the supplier and the GPO win as the supplier protects an irrational price and the GPO, whose administrative fee is based on actual spend, makes more money based on the higher price.
Higher pricing benefits both the GPO and the supplier. When granting safe harbor, the government mitigated the possibility of both the GPO and the supplier negotiating higher pricing by claiming providers were free to negotiate on their own if they thought GPO pricing wasn’t in their best interest.
However, when suppliers index their best pricing to the GPO it is impossible for providers to improve upon this vendor benchmark, thus obligating hospitals to the pre-negotiated GPO pricing. Given this stage, would you expect GPOs, the ostensible supporters of the provider, whose very business exists entirely on competitive exceptions granted by the government to sustainably lower provider costs, to stand-up in support of providers on the topic of OEM clinical service and parts relative to MITA’s claims? If you thought yes, you would be wrong. Given the GPO’s seated position, lets look a little closer at the GPO and ask some further questions related to clinical equipment and support.
The first important fact is there are not many large GPOs functioning in the U.S. … there are three that currently dominate the medical and surgical landscape … HPG, Premier and Vizient. The second important fact is that large GPOs enjoy commercial-like operating margins. Premier historically delivers 50-plus percent margins. The third fact is that GPOs have built large amounts of surplus capital from the Safe Harbor exemptions which they have judiciously used to acquire and build non-GPO based businesses. The acquired businesses, many of which offer advance technical and analytical applications for providers and many of which, from traditional commercial providers, carry prohibitive prices, have not been priced appreciably differently than market. The point is that GPOs are more, not less, like suppliers to providers than they are not … large portions of their revenue streams are based on suppliers good-will and the GPO is very careful not to disrupt a profit-center. Based on the GPO aggregated buying power, why would a GPO not come out and require its contracted suppliers of diagnostic imaging to provide baseline useful parts life, actual service productivity and variance, and PM efficiency? If they did, it would certainly make it easier to force the supplier-backed efforts of MITA to rely on objective data rather than self-serving and specious claims. The collective silence of the GPOs on the topic screams volumes about their profit-based objectives.
Health care is complex and providers are in a precarious position. HTM done efficiently and correctly can mitigate the 60-plus percent margins commanded by OEMs but only by demanding the availability of transparent and objective data. For as long as GPOs continue to avoid their responsibility to represent their members beyond superficial price-tag management, the effort in this space is harder … harder while the GPOs continue to cash supplier checks based on inflated margins. In an age when the Department of Justice continues to question provider consolidation for anti-competitive reasons, think long and hard about 2-3 GPOs with consolidated power who refuse to act on objective supplier failures … who watches these self-appointed watchmen?
Patrick Flaherty is the vice president of operations for UPMC BioTronics. Joseph Haduch, MBA, MS, is the senior director of clinical engineering for UPMC BioTronics. The views expressed here are those of the authors and do not necessarily represent or reflect the views of TechNation or MD Publishing.