Medical device companies boost guarantees to hospitals

Medical device companies are reportedly boosting their guarantees to hospital customers, seeking to bolster flagging sales growth and downward price pressure, offering to compensate them if their devices fail to perform.

Medtronic (NYSE:MDT), Johnson & Johnson (NYSE:JNJ) and St. Jude Medical (NYSE:STJ) are among the 1st to provide the newer guarantees, some of which offer to share in the cost of follow-up treatment tied to their heart devices, company executives told Reuters. Orthopedic device companies are also mulling similar guarantees for their hip and knee implants.

But even that may not be enough for some hospital officials, who want medtech companies to cover the cost of revision surgeries. Other healthcare providers see the new guarantees as the beginning of a trend: More financial risk-sharing for medical procedures.

“It’s a big shift,” Premier (NSDQ:PINC) CEO Susan DeVore told Reuters. “Device manufacturers that are responding to that discussion are the most progressive ones, who see the world is changing.”

DeVore’s group purchasing organization represents 3,400 hospitals in negotiating supplier contracts.

Details on the new guarantees are scarce, with medical device makers declining to specify how many hospitals have signed up for the new guarantees or whether they’ve had to pay out on any of them. But the agreements go further than the traditional warranties on medical devices, tying them to trackable outcomes. The additional risk for the medtech companies is offset by the chance to gain an edge in a tight market, according to the news service.

One example is a Medtronic guarantee that hospitals using its Tyrx device will see lower rates of infection than in similar procedures performed without it. The Tyrx envelope is an anti-bacterial mesh pouch used to cover implanted cardiac devices designed to reduce infections at the surgical site by releasing rifampin and minocycline before dissolving roughly 9 weeks after implantation of a pacemaker, ICD or CRT device. Tyrx won 510(k) clearance from the FDA in 2013 and a CE Mark in the European Union in September 2014. Medtronic paid $160 million for Tyrx early last year. If the device does not lower infection rates, Medtronic will cover the cost of treating the infection.

“We are really doing this to promote a technology and a benefit that we know exists, to remove any doubt and to speed up market acceptance,” Medtronic CEO Omar Ishrak said in an interview. “Risk-sharing in our commercial transactions is going to be an increasing component going forward.”

J&J’s Biosense Webster division guarantees a discount on repeat procedures within a year of treatment using its Thermocool catheter ablation for atrial fibrillation. The healthcare giant’s Ethicon business is also planning a risk-sharing program for the Biopatch antimicrobial dressing, spokeswoman Amy Jo Meyer told Reuters.

St. Jude said it will rebate 45% of the price for a Quadra heart rhythm device if revision surgery is needed in the 1st year after implantation if problems surface from its Quartet lead.

HealthTrust Purchasing Group, a GPO representing nearly 1,400 hospitals, expects to finalize risk-sharing agreements in the near future. Negotiations with 1 supplier of spinal fusion implants, for example, involve a guarantee to cover revision surgeries caused by device-related problem within 90 days of implantation.

“They are taking a little bit of ownership with us in getting that operation done and getting that patient successfully through the recovery,” said Dr. Michael Schlosser, a neurosurgeon and chief medical officer at HealthTrust. The company is owned by Parallon, part of No. 1 U.S. hospital operator HCA Holdings (NYSE:HCA).

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