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Medical Device Makers Strengthen Guarantees to Boost Sluggish Sales

Jul 13, 2015

To help boost sluggish sales, medical device makers are beginning to offer guarantees to compensate hospitals if a device does not perform as expected.

Medtronic, Johnson & Johnson, and St Jude Medical are among the first device makers to provide guarantees that may include sharing in the cost of follow-up treatment tied to their heart devices, Reuters reports. Orthopedic implant makers are exploring similar guarantees for hip and knee devices.

Medtronic, for example, is guaranteeing that a hospital's infection rate for procedures performed with Tyrx, a mesh sleeve that surrounds a cardiac implant with antibiotics, will be lower than the infection level for similar procedures without it. If the goal is not achieved, Medtronic will cover the cost of treating the patient's infection.

But hospital officials are looking for even stronger performance guarantees: they want device makers to cover the cost of surgery when a device needs to be replaced. The costs of replacing a medical device largely fall on health insurers and patients, who sometimes go to court to recoup their expenses for a failed device, Reuters reports. In recent years, medical device manufacturers have paid billions of dollars to settle patient lawsuits over faulty products, from hip replacements to lead wires that connect defibrillators to the heart. Hospitals are increasingly on the hook for unsuccessful procedures as well, with insurers such as the Medicare program cutting reimbursement if patients have to be readmitted. Legal experts say the presence of a guarantee on a medical device does not change the odds of getting sued by an unhappy patient. "The manufacturer can't limit its liability toward the patient through a contract like this," said Rick Boothman, executive director of clinical safety and chief risk officer for the University of Michigan Health System.

Device makers would not provide details on how many hospitals have signed up for the new guarantees. The agreements do not specify how an insurer or patient might be compensated for what they have spent to cover a procedure, but company executives expect those details to be clarified once the agreements become more common, according to Reuters.

Consumers Union's Safe Patient Project has pushed hip and knee implant makers to provide warranties directly to patients. Lisa McGiffert, who directs the project, wants the companies to say they "will pay for the product and the replacement if something goes wrong," according to Reuters.

In the past, medical device warranties would have covered the device only. For example, a manufacturer might pay for a patient's new pacemaker if the battery on the original implant depleted sooner than expected. Device makers and hospitals say the new agreements go further by tying a guarantee to trackable health outcomes. The manufacturers, who are struggling with weak demand and falling prices, are more willing to take on the additional risk to gain an edge in the marketplace, Reuters says.

HealthTrust Purchasing Group, which represents nearly 1,400 hospitals, expects to finalize some risk-sharing agreements in the near future. Negotiations with one supplier of spinal fusion implants, for example, involve a guarantee that if a patient needs a revision surgery within 90 days for a device-related reason, the vendor covers the surgery as well.

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