Here's 4 Million Reasons Why Pricing Pressure on Device Makers Will Only Increase

device_cost, pricing_transparency

An upstart tech startup determined to bring much-needed price transparency to the hospital purchasing environment just got $4 million in Series A funding.

You can count that every dollar will go toward evening out the playing field when it comes to negotiating hospital purchasing agreements of medical devices.

And rightly so, given that hospital executives all the way to the GAO have found price transparency to be conspicuous by its very absence in such negotiations.

That’s where Procured Health, the Chicago startup, comes in. On Thursday, FCA Venture Partners, the venture capital manager of Clayton Associates, announced that it led the Procured Health’s $4 million Series A funding.

This follows a $1.1 million seed round from the likes of Bessemer Ventures and angels like Jonathan Bush, CEO and co-founder of cloud-based EHR firm AthenaHealth back in 2012. Procured Health is unabased about its mission and what it sees as wrong with the hospital purchasing.

Here’s what the news release announcing the investment said (italics are mine):

Procured’s solutions are designed to aggressively reduce medical product expenditures typically the second largest and fastest growing cost category for hospitals. Medical device manufacturers enjoy gross margins in excess of 70% across the industry, a clear sign of inflated prices. Exorbitant supply costs have driven prices for many procedures to such levels that patients have been forced to seek care outside of the US. However, progressive healthcare providers have demonstrated that effective product analysis and outcomes-driven sourcing can reduce costs by more than 30% across multiple service lines.

Even on its website, Procured Health talks about “demystifying the medical device landscape.”

No arguments about the urgent need for this. Not answering questions about pricing is routine in the industry especially by executives at large device makers.

In a recent interview at an industry conference, two executives with J&J's DePuy Synthes Joint Reconstruction, who were touting new technology capabilities of the Attune total knee implant, declined to specify a price even when confronted with the charge that lack of price transparency is the no. 1 criticism of the industry.

Historically, driven by physician preference and unhampered by reimbursement pressures or penalties by Medicare, hospitals were willing to play along in a scenario where they signed away their right to talk about pricing. As a result, different hospitals paid different amounts for the exact same product.

Here's how Cleveland Clinic’s Toby Cosgrove described it at the JPMorgan Healthcare Conference in San Francisco in January: 

“St. Jude Medical sells heart valves for $3,000K in US, $10,000 in Japan & $300 in Egypt. They are not selling it at a loss for $300.”

Now, largely because of Obamacare/ACA and changes in reimbursement practices by Medicare and private insurers, hospitals seem to be waking up from their stupor and demanding better pricing from device makers to manage their own expenses better.

So how is Procured Health helping in this new dynamic? 

The company has developed web-based software that “enables hospital systems and caregivers to improve both clinical and financial performance by incorporating evidence into their procurement strategy, driving vendor competition where outcome differentiation is unproven, improving utilization and physician compliance, and leveraging scale” the news release noted.

Here’s a condensed version of three products featured of Procured Health’s website:

EvaluationPRO -
Eliminate duplicative product evaluations and improve coordination across your hospital or health system
Survey your clinicians in-process, and compare their preferences to those of other member institutions
Capture analysis and decisions - including product research, trial results, and financial models - with a single platform

IntelligencePRO -
Discover functionally equivalent devices for any category using our proprietary suggestion engine
Access summarized peer-reviewed literature, adverse event and recall information
Increase competitive bidding situations with our side-by-side product comparisons, and share them with your stakeholders via integration with EvaluationPRO

PipelinePRO -
Identify your richest areas for savings by product, category, and service line
Create notifications for costly contract and price inconsistencies
Identify peers evaluating similar categories for potential collaboration

Hani Elias, CEO of Procured Health, could not be be immediately reached. Reportedly Procured Health is working with more than two dozen health systems. They include Hoag, a regional healthcare network in Orange County, NYU Langone Medical Center and Texas Health Presbyterian Hospital - WNJ.

Of course, price transparency in healthcare is not new, and several companies are devoting themselves to it. Foremost amongst them is the appropriately-named CastLight Health which helps employers manage their health expenses by empowering employees to make better decisions through.personalized information on cost of procedure, quality, medical conditions and treatment options. 

Another is SharedClarity, a recent startup, which like Procured Health, is helping hospitals negotiate better prices. Backed by insurance giant UnitedHealth, SharedClarity uses clinical data, and if necessary, claims data to gauge which product in a particular category - say pacemakers - has the best clinical results. Members of SharedClarity then source that product affordably from the device manufacturer. Recently, it announced that Medtronic and Abbott had won contracts for stents

[Photo Credit: iStockphoto.com user MHJ]

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com