The health care industry for years has been transitioning to an economic model that pays hospitals and doctors based on how well they do, their quality and medical outcomes for patients, rather than volume or how many procedures they perform.
Spectrum Health now looks to apply the value-based contracting model to a new level through a deal with Medtronic plc, a large medical technology company based in Dublin, Ireland. The arrangement applies value-based contracting to the Grand Rapids health system’s supply chain, where Bill Selles hopes the practice in time becomes a regular part of the procurement process to improve quality, reduce costs and drive greater value.
If the initiative with Medtronic generates the results Spectrum Health hopes, the heath system anticipates using value-based contracting with medical suppliers could become the norm — rather than the exception — for procurement.
“I would love for this to be the first of several of these types of announcements we make over the coming years,” said Selles, Spectrum Health’s senior director of procurement. “We will want to make buys with suppliers who can stand by the quality of their product and who are helping us to make sure that the cost of the device does lower the total cost of health care.”
The arrangement with Medtronic “is really the culmination of what’s been a few years of work on trying to bring a supplier into the outcome arrangements with health systems,” Selles said. Medical device suppliers have largely been left out of health systems’ shift to a value-based model and have not been asked to help improve clinical quality, he said.
The arrangement with Medtronic “is a major milestone for us in bringing suppliers more into this type environment with Spectrum Health,” he said.
“When you think about what we’re doing with Medtronic, this is a chance for a supplier to get away from the standard relationship, which is strictly commercial, where we need a product, they want to sell a product, and that’s as far as things go,” Selles said. He added that the supplier can now “be involved in making sure that their product outcomes are what we should expect and that we’re optimizing the patient and the care flow to make sure we get the best possible outcomes.”
In other words, the vendor that sells to a hospital would have some proverbial skin in the game and financial accountability for how well its product works.
Under their arrangement, Spectrum Health and Medtronic will work out a value-based contract for a device known as AdaptivCRT, an implantable defibrillator that’s used to treat patients with heart failure by improving the heart’s pumping efficiency.
“COVID-19 has shed a light on the importance of working together efficiently, and we’ve never had a stronger opportunity to collaborate with our customers as they seek innovative business models that deliver value,” John Liddicoat, executive vice president and president of the Americas Region at Medtronic, said in a recent announcement of the arrangement.
Among the outcomes Spectrum Health hopes to record is a reduction in the 30-day hospital readmission rates for heart failure patients “who are often very sick patients,” according to Selles. Medtronic’s device has been shown to improve a patient’s response to therapy, reduce readmission rates and increase survival rates.
Selles declined to offer details on how the arrangement with Medtronic could work financially, other than to say “it is unique because all of the initiatives are tied to improving the patient outcomes while reducing the cost of care.”
“That’s quite different from a typical contractual arrangement,” he said. “If you think about health care generally, it’s structured such that in a normal fee-for-service model — which Spectrum has largely moved away from — there’s not a penalty for bad quality. There’s certainly never a penalty for the supplier for bad quality.
“This is a time in that relationship where Spectrum and Medtronic are really making sure that we’re taking the full patient outcome involved and having the supplier in the middle of that is quite different.”
Spectrum Health and Medtronic are using near real-time data to monitor the progress of patients who’ve received the device to standardize care, reduce clinical variations in care, and better personalize care for patients. The AdaptivCRT device was used in 200 patients in 2020 and Spectrum Health expects to have outcomes data by the end of 2021, Selles said.
The two companies have been working toward a value-based arrangement for four years. Finally getting there “is absolutely new for Spectrum Health and for our supply chain and this is also something that is very unique from an industry standpoint,” Selles said.
“This is revolutionary for us and this is revolutionary from an industry standpoint.”