Yesterday I wrote about checks and balances in the contracting negotiation between health plans and manufacturers, and asked the question what strengths a health plan can leverage in this process (http://payer-strategies.blogspot.com/2011/10/its-all-in-contract-how-payers-are.html).
For medical devices, this is a complex and difficult question. First: who do we actually negotiate with – providers, manufacturers, or both? Second: what do we negotiate for - reimbursement rates or rebates (or both)?
With whom to negotiate, and what to negotiate for, depends on the money flows, and on the type of device under consideration, and the contracting scenarios can be very different.
In many cases, the provider will purchase the device from the manufacturer and seek reimbursement from the payer. Provider reimbursement is the common model in the hospital setting, and typically includes products like implants or pacemakers. Payers and providers can contract for inclusive payment for certain procedures (i.e. including the cost of the device in a case based lump sum), or separate payments for the device and the intervention.
If the payment is inclusive, it may seem that the payer does not need to worry about the cost of the device too much; this question is then more a concern for the provider’s financial officers, and the contract they have with the manufacturer. However, payers still need to keep close tabs on device costs to make sure that they are not paying too much when the provider uses cost increases as an argument to ask for fee increases. And anyway, it is generally a good idea to understand the individual cost components of the procedure to estimate provider margins and estimate the resulting room for negotiation of reimbursement rates.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.
This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.