Following the settlement of a key case, the issue of price transparency continues to cause a stir among suppliers and vendors.
Whether or not it is ethical for medical device companies to include confidentiality clauses in their contracts with hospitals is up for discussion. Whether or not it is prudent for providers to agree to such clauses is another question.
Some argue that price transparency exists in other industries, so why not in healthcare? Others say confidentiality clauses are nothing new, but that the Guidant-Aspen lawsuit has drawn a lot of attention to this issue. In August 2004, Guidant Sales Corp., a company that sells implantable cardiac rhythm management (CRM) devices, filed a lawsuit against Aspen Healthcare Metrics, which enters consulting contracts with hospitals in which the hospitals disclose purchasing data for CRM devices and their vendor contracts. In its lawsuit, Guidant argued that prices paid by hospitals for cardiac rhythm devices are confidential, and that hospitals do not own this data.
The company asserted that Aspen interfered with Guidant’s confidentiality agreement contracts, prospective contract relations and trade secrets. In response, Aspen made several assertions, including the following:
- Guidant’s pricing information is readily available.
- Guidant’s CRM device pricing is readily available within the industry.
- Guidant pricing is available in certain industry publications.
- Physicians can obtain Guidant CRM pricing, even when they are not employed by the hospital or subject to confidentiality agreements with Guidant.
In May 2006, the two companies agreed to settle their court issues and reached mutually acceptable settlement terms, which remain confidential.
Many individuals, buyers in particular, are concerned about the implications of the lawsuit. They believe uninformed providers end up paying higher prices for products, leading to increased healthcare rates. But some onlookers maintain that distinct differences exist between healthcare and other industries. Price sharing may be “a go” when it comes to buying cars; but in the highly political healthcare arena, where vendors often position themselves between physicians and providers, it’s a “no-go.”
Right or not, confidentiality clauses have long existed in healthcare and most likely will continue to do so, according to Dan Sweeney, VP of contract and program services at Novation (Irving, Texas). “Every manufacturer in the medical device and pharmaceutical industry has a confidentiality clause in its agreement,” he says. “These clauses have existed for a long, long time. The Guidant-Aspen lawsuit has drawn attention to this issue, so some suppliers may be emphasizing confidentiality clauses now. But, this is nothing new.”
“I think many medical device companies have included confidentiality clauses in their contracts for awhile,” says Bill McIlhargey, an independent consultant for suppliers and buyers in the area of physician preference contracting, who spent 12 years developing national accounts strategies for DePuy and Smith & Nephew. “But, we never really had a vehicle to police this.” Years ago, much of the contracting for such physician preference items as orthopedic implants was done at a local level, not a GPO level, he adds. “We assumed hospitals were sharing price information,” notes McIlhargey. “But there was no way to show it.”
Aspen put the issue on the industry’s radar screen, McIlhargey points out. Whereas price sharing at one time was conducted by word of mouth at meetings and conferences, Aspen collected and disseminated data to enable providers to make choices.
In fact, the terms of the settlement of the Aspen-Guidant lawsuit are restricted to the state of Minnesota. As such, the case probably has few or no implications for most healthcare providers, suggests Sweeney. “The ruling only pertained to Aspen and Guidant,” he says. “The remainder of the complaint was settled out of court. None of us will ever know the outcome, and this case [should not] have any legal implications for anyone else.”
“The fear [has been] that the court could rule that these confidentiality clauses could legally have a broad, sweeping impact and [result in] restrictions,” says Sweeney. “But, the court did not rule that way.”
And, to date, device contracts should be pretty clear, Sweeney suggests. “At Novation, we believe that a hospital has the right to [choose how to] use its own data,” he says. “But, all truly confidential information such as contract documents should remain confidential between the two parties involved. However, we do not feel resulting transaction data or purchasing system data falls into this category.”
In most cases, if the GPO and supplier agree to confidentiality within a contract, that clause does not extend to the GPO’s members, according to Sweeney. “Sometimes, [however], suppliers’ language is broader than we would like it to be, and sometimes it can extend to a member,” he says.
Responsibility to be educated
For some, confidentiality clauses are much more than standard contract jargon. “From my perspective, there are big public policy issues here,” says Dr. Jeffrey Lerner, president and CEO of The Emergency Care Research Institute (ECRI), a Plymouth Meeting, Pa.-based nonprofit organization that publishes prices hospitals pay for many medical devices, including Guidant’s.
ECRI has published its “PriceGuide” since 1996, according to Lerner. At press time, the organization was moving ahead with a lawsuit it filed against Guidant in May 2006, in which it is seeking permission to continue publishing pricing data collected from hospitals. “This is a First Amendment suit,” says Lerner. “In healthcare, people want to compare cost, safety and performance of products.” Comparing prices is an understandable issue for anyone who makes purchases, he adds. “I think we would be increasingly hard-pressed to find markets where price sharing is not the norm.”
Confidentiality clauses put providers in an interesting position, according to Lerner. They are buying products on behalf of the public. Given this, they have a responsibility to be educated on the issues at hand and respond in a way they believe is best. “Hospitals are not necessarily caught in the middle [of device companies and patients],” he says. “But, they do play a central role. It’s their responsibility to be educated on the issues.”
Attention to details
Not only must providers be aware of price sharing issues, now more than ever they must be able to interpret contracts they sign with device manufacturers. “Hospitals need to ensure they have acceptable contract language in vendor contracts by working with their legal counsel to protect the hospitals’ latitude to manage procurement practices in ways that work for [them],” say John Bardis, CEO, MedAssets (Alpharetta, Ga.). “This is not about Guidant or Aspen or MedAssets. Other manufacturers include similar clauses in their contracts. [This] is truly an industry-wide issue.”
Bardis echoes Lerner’s belief that buyers must be able to compare prices in order to make wise buying choices. “Without transparency, it is impossible for us to maximize the efficiency of any market in healthcare,” he says. “Access to pricing information is necessary to help consumers make sound purchasing decisions and ensure [that] the healthcare industry has healthy price competition.”
Other industry experts, however, do not consider price-sharing to be the most effective cost-cutting tool. While price sharing or benchmarking can give providers a perspective for gauging the cost of products, this information won’t necessarily help them reduce costs, according to Sweeney. “Price negotiation is a temporary solution,” he says. “The rapid rate of technology adoption is the key driver in the growing cost of medical devices. There are many consultants who have made a fine living pointing out temporary price reductions on old technology.”
“However, there are other activities that will help reduce the cost of products,” he continues. “These include standardization and utilization initiatives, physician education, better use of clinical information systems and maximization of price discounts for new technology from their GPO contracts.”
Regardless of whether confidentiality clauses are here to stay, they probably won’t be deal breakers for providers, McIlhargey points out. “Suppliers will probably continue to include these clauses in their contracts,” he says.
Still, providers can draw attention to high costs of medical devices and low reimbursement rates in the court of public opinion, McIlhargey continues. After the cost of devices, capital and labor, the amount a hospital brings in is probably substantially lower than what the general public is aware of, he adds.
After all, the general taxpaying public rarely permits issues to slide when its dollars are at stake. “In my opinion, it’s unfathomable that an American hospital system could spend $40 million on cardiovascular rhythm management products and not be able to share the very pricing … they’ve paid with the consultants they choose to engage,” says Bardis. “As a taxpayer, it’s unfathomable to me that I’m paying enormous taxes, both as a head of household and a business owner, and I can’t know the price I’m paying for products that are implanted in my own body.”
“At the end of the day, it’s only fair that those of us who are actually paying for healthcare are in a position to know how much money is going where.”