Better management of medical devices can cut hospital costs

The use of better supply management for medical devices can significantly reduce costs at the hospital level, according to a new study in the American Journal of Managed Care.

The study analyzed nearly 9,800 patients treated at 10 hospitals in a single metropolitan area between 2008 and 2010 for joint replacement, spine fusion or cardiac rhythm management. It found costs per procedure could drop by 14.5 percent for joint replacement, 18.8 percent for spine fusion and 29.1 percent for cardiac rhythm management with better device purchasing.

from device purchasing

The authors of the study focused on those three procedures because they are typically high-volume and high-margin procedures for hospitals. Those three areas represented nearly 5 percent of the revenue for the hospitals studied. Spinal fusion tends to be such a cash cow for hospitals that they are sometimes the nexus of healthcare fraud. And joint replacement has been a successful target for payers focused on reference pricing.

Crunching data on medical device prices, the study concluded that potential savings from more efficient device purchasing could be as high as 29.3 percent at some of the hospitals for the costs for joint replacement, 40.5 percent for spine fusion and 21.1 percent for cardiac rhythm management.

The authors were surprisingly blunt as to why they focused on medical device costs, noting that supply management may be the one option hospitals can turn to in order to better control costs in the long term.

"In the past decade, many hospitals have covered rising costs by merging with erstwhile competitors and demanding ever-higher payment rates from insurers. This focus on revenue growth now appears to be of declining value," wrote the authors, who are on the faculty of the University of California, Berkeley School of Health.

"Private insurers are experimenting with narrow networks and consumer cost-sharing incentives that will channel patient volume away from facilities charging the highest prices." That, along with proposed reductions in Medicare payment updates means "many hospitals are thus finding they need to shift to a focus on cost reduction to preserve their operating margins."

To learn more:
- read the AJMC study