Contracting News September/October 2007

MedAssets files IPO
MedAssets Inc. filed an initial public offering in August with the U.S. Securities Exchange Commission to publicly trade on the NASDAQ stock exchange, according to Robert Borchert, MedAssets vice president of investor relations. “MedAssets did file an IPO and currently is in a quiet period,” he says. “We have had positive, direct conversations with our customers and suppliers.” The GPO plans to maintain open lines of communication with its hospital members to ensure they are well-informed throughout the process, he adds. MedAssets reportedly hopes to raise $230 million in its initial public stock offering to trade under the symbol MDAS. Underwriters for the IPO include Morgan Stanley; Lehman Brothers; Deutsche Bank Securities; Goldman Sachs & Co.; Piper Jaffray; William Blair & Co.; and Wachovia Securities.

University of Pittsburgh School of Medicine lands $16 million NIH Grant
The University of Pittsburgh School of Medicine (Pittsburgh, Pa.) received a $16 million contract for HIV studies from the Bethesda, Md.-based National Institutes of Health (NIH). The five-year grant will establish the Pittsburgh Center for HIV Protein Interactions and fund investigations into how the AIDS virus interacts with other cells.

Plans underway for new Eastern State Hospital
Frankfort, Ky.-based Kentucky Cabinet for Health and Family Services, and Bluegrass Regional Mental Health Mental Retardation Board, which together operate Lexington, Ky.-based Eastern State Hospital, signed an agreement that calls for a new state-of-the-art psychiatric hospital to be completed in the next three years Bluegrass accepted $1 million and the authority to move ahead with designs and estimates for a new facility. The General Assembly must give its approval before the facility can be built.

Novation awards radiology and cardiology equipment contract to GE
Irving, Texas-based Novation awarded Waukesha, Wis.-based GE Healthcare an agreement to provide VHA Inc., UHC, and Provista members access to its line of advanced radiology and cardiology image and information management technologies equipment. The agreement is effective beginning Oct. 1, 2007.

Doctors Hospital of Dallas sports new moniker
Dallas, Texas-based Doctors Hospital of Dallas changed its name to Doctors Hospital at White Rock Lake after a consumer survey indicated a lack of awareness of the hospital’s close proximity and services.

MD Anderson approved for $293 million expansion
Houston, Texas-based University of Texas MD Anderson Cancer Center plans to begin this fall an expansion to its Alkek patient tower, after receiving approval for the $293 million project from the Austin, Texas-based University of Texas Hospital’s Board of Regents. Plans are to add nine floors to the existing 12-story tower. Eight of the new floors will have patient rooms, space for nursing support, a recovery unit for surgery patients and a pharmacy. The ninth floor will house mechanical services. As part of the project, another 200,000 square feet of existing space and infrastructure will be renovated on the campus of Bates and Bertner. Once complete in 2016, MD Anderson will have 867 beds. The majority of the project will be funded through bonds. Hospital margins will fund the remaining costs.

I would like to support the comments made by Pam Scagliarini, system director, supply chain management, Yale New Haven Health System (“10 People to Watch in Healthcare Contracting,” July/August 2007 JHC), [who was quoted as saying], “Providers and suppliers will have to work more closely toward balancing the price of products with the actual reimbursement to the hospital.”

This has been evident in pharmacy in the outpatient setting since 2000 with the rollout of APCs (Ambulatory Payment Classifications) and again in 2006 for hospitals, with Average Sales Price reimbursement by CMS and private third-party payers. Expensive oncology drugs and other outpatient infusion drug prices are caught up in the ASP reimbursement model. Some hospitals know their profit margins and a more expensive drug, assuming equal efficacy and toxicity (side effects), is reimbursed more in an ASP + 6 percent model. CMS doesn’t pay for drugs $55 or less in 2007 in the Average Sale Price model.

If you know your payment rates for each payer, you can do an ROI or revenue margin calculation for each dose of a drug, for each patient. Most of the drugs in the ASP reimbursement model aren’t contracted for by GPOs either because they are brand-name drugs and utilization is driven by protocols based on the tumor. Reimbursement by CMS occurs quarterly, and sometimes drugs are reimbursed less than acquisition cost, until the ASP reimbursement catches up — usually two quarters.

A similar analogy holds true for capital equipment costs, whether diagnostic or treatment. You know the cost of the equipment, and in order to do an ROI, you need to look at the payer mix and payment rate for each treatment, and estimate the number of procedures. It may be cost- and reimbursement-prohibitive in the future to purchase a piece of equipment, such as proton beam technology, which can run over $100 million.

Manufacturers of devices, equipment, and pharmaceuticals need to work with payers as early as possible in the research-and-development stage to assure reimbursement once the FDA gives its approval, and to demonstrate quality outcomes improvement in patient care. Hospitals need to be aware of changes in reimbursement around quality, such as CMS implementing the Physician Quality Reporting Initiative [which establishes a financial incentive for eligible professionals to participate in a voluntary quality reporting program] on July 1, 2007, and value-based purchasing. Other third-party payers are already looking at quality metrics and pay-for-performance, and at decreasing reimbursement for poor quality of care. Some hospitals are working with local payers around quality and pay-for-performance. Working with third-party payers and local businesses that pay the premiums for their employees is a continuous process and can’t end when a contract starts.

One of my roles is to meet with pharmaceutical manufacturers to discuss 1) the indications for their product, 2) determine the patient treatment environment (hospital inpatient, hospital outpatient or physician office), and 3) the payers for each indication. Drug and non-drug treatments may also be discussed, as well as how the product fits into a quality metric/pay-for-performance model. Healthcare is being faced with many new challenges and we need to assure that the patients are getting the best care possible. The Balanced Scorecard Model of assuring measurement of finances and achieving the best clinical outcomes possible needs to be applied.

Fred J. Pane, R. Ph.D
Senior Director, Pharmacy Affairs
Premier Inc.
Charlotte, N.C.

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