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Medical Device Makers Woo Hospitals With Beefed-Up Product Guarantees

Manufacturers show willingness to share financial risks of follow-up treatment, readmissions

Medical device makers, facing sluggish sales and increasing pressure to prove the value of their products, are beefing up guarantees to compensate hospitals if a device does not perform as expected, according to a report from Reuters.

Medtronic, Johnson & Johnson, and St. Jude Medical are among the first to provide the newer guarantees, some of which offer to share in the cost of follow-up treatment tied to their heart devices. Orthopedic implant makers are exploring such agreements for hip and knee devices.

Hospital officials, however, are seeking even more robust performance guarantees, including pledges to cover the cost of the surgery when a device needs to be replaced, according to Reuters. Some see the new offers as a starting point for manufacturers to begin to share more of the financial risk of procedures.

The costs of replacing a medical device largely fall on health insurers and patients, who sometimes recoup their expenses in court. In recent years, medical device manufacturers have paid billions of dollars to settle patient lawsuits over faulty products, from hip replacements to lead wires that connect defibrillators to the heart.

But hospitals are increasingly on the hook for unsuccessful procedures as well, with insurers, such as the Medicare program, cutting reimbursement if patients have to be readmitted.

Device makers would not provide Reuters with details on how many hospital clients have signed up for the new guarantees or whether they have had reason to pay the additional compensation on offer. Hospitals and device manufacturers are still working out the details in many cases.

The agreements also do not specify how an insurer or patient might be compensated for what they have spent to cover a procedure, but company executives expect those details to be clarified once the agreements become more common.

In the past, medical-device warranties would have covered the device only. For example, a manufacturer might pay for a patient’s new pacemaker if the battery on the original implant depleted sooner than expected.

Device makers and hospitals say the new agreements under discussion go further by tying a guarantee to trackable health outcomes. The manufacturers, who are struggling with weak demand and falling prices, are more willing to take on the additional risk to gain an edge in the marketplace.

Medtronic, for example, is guaranteeing that a hospital’s infection rate for procedures performed with Tyrx, a mesh sleeve that surrounds a cardiac implant with antibiotics, will be lower than the infection level for similar procedures performed without it. If that goal is not achieved, Medtronic will cover the cost of treating the patient’s infection. The company signed its first agreements that included the guarantees this year.

Source: Reuters; July 8, 2015.


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