Biomet CEO Jeff Binder tells MassDevice.com why gain sharing is bad for the medical device business and how the best is yet to come for the orthopedics sector.
[Gainsharing is the mechanism by which hospitals share supply savings with doctors. The idea is to align doctors and hospitals in reducing the cost of treatments that require high technology medical devices.]
Two decades after he jumped ship from the Boston Consulting Group into the orthopedic world, the business of bones and joints still fascinates Jeff Binder, despite some of the headwinds the industry has faced over the past 5 years.
Maybe that's because the CEO of Warsaw, Ind.-based Biomet, a privately held orthopedic medical device company, is experienced enough to know the industry has been counted out before.
"Twenty years ago, people told me that there was no room for innovation and that basically everything that could be invented had already been invented," he told MassDevice. "Twenty years later, people are saying the same things. But when you look at the progress we've made over the last 20 years, it's extraordinary."
We caught up with Binder to discuss the state of the ortho business in 2013. In this 2nd installment of our conversation, we touched on gain-sharing, 1 of the issues that has him particularly frustrated. Gain-sharing is a type of incentive that allots a portion of some healthcare savings to doctors who help drive those costs down.
"I find it ironic that we're disclosing the cost of snacks provided to surgeons, but gain-sharing incentives that could be worth 100s of 1,000s of dollars to surgeons do not need to be disclosed," Binder told us.
MassDevice: In your Connections blog, you wrote that gain-sharing is akin to "state-sponsored gambling" and a form of "legal kickbacks." Why you think it's so detrimental to the industry?
Jeff Binder: These bundling and gain-sharing programs reward physicians for reducing costs and, on the face of it to a lot of people, that sounds like it makes sense. But we think there are things we should watch out for. We're in favor of improving efficiency and quality care, and we think our products and services do that over the long term. But we should be wary when anyone provides large financial incentives to healthcare professionals to influence the course of treatment, whether they're coming from the private sector or the public sector. These incentives are referred to as kickbacks when they come from the private sector, and the anti-kickback statutes were waived specifically for gain-sharing.
The rewards under gain-sharing can be really, really high. Under the bundling program, physicians can gain as much as 50% of their reimbursement as shared savings, and it's really hard to re-engineer a care pathway to save money. It's much easier to switch to a lesser technology to get that bonus.
There have been gain-sharing pilots in the past and we've not seen data on the patient outcomes, nor have we seen the economic outcomes yet. It's not been revealed whether those pilot programs were effective across the spectrum of cost, quality of care, etc. Yet the model is being expanded. There are more than 190 hospitals in what is called the "model 2" bundling initiative and more than 75 in the "model 4." There's really no disclosure required to patients about gain-sharing payments in the way that [technology companies] are being asked to disclose payments under the Sunshine Act. My view is that we need to be proceeding more slowly, with appropriate oversight, until the results of the earlier [gain-sharing] demonstrations are available to be reviewed.
Second, there should be full financial disclosure, similar to what we're forced to do with the Sunshine Act. I find it ironic that we're disclosing the cost of snacks provided to surgeons, but gain-sharing incentives that could be worth 100s of 1,000s of dollars to surgeons do not need to be disclosed.
Third, there should be a mechanism that allows for adjustments to payments to avoid penalizing early adopters of new technologies.
Finally, there needs to be some accommodation of instances where advanced therapies aren't yet reflected in the quality measures and therefore there may be a further disincentive for people to adapt advanced technologies.
JB: If you look at the database to see what areas of therapies people are proposing in these gain-sharing models, I would say orthopedics is the most prevalent. Orthopedic implants are definitely a target of the program and a target of participating hospitals, I think because the spend is large. It's interesting, because the prices of orthopedic implants have come down considerably over the past several years.
At the end of the day, I think our success has led to there being more cases being done over the years. If you multiply a lot of cases by the price of the procedure, it's become a very visible part of the bill for Medicare and for private insurers as well. I think in some ways our success has led to a lot of adoption, and that has led to a high overall spend. The high spend has gotten a lot of people's attention. Creating a lean, efficient orthopedic service is a long-term commitment and requires a lot of hard work, so it's easier to single out the cost of the implants themselves.
I wouldn't want anyone to take my comments to mean that, because it's been a highly successful procedure, the procedure is in any way over-utilized. Most of the evidence has been quite to the contrary, and there have been interesting studies that have shown that a distinct minority of the patients that could benefit from total joint replacements actually receive them.
MassDevice: How much do you think public perception about the orthopedic industry is influencing this? Do you think there's a negative perception of the industry in general?
JB: I think there may be among some analysts, journalists and policy-makers. As an industry, we can certainly do a better job of getting some of the facts out about issues like utilization and cost effectiveness. We need to do some more work on that.
I'm so proud to be in this business, because of the impact that we have on patients' lives, and I do think some people are questioning what we've always taken to be a fundamental and obvious truth: That what we do is cost-effective and that it's a medical miracle for the patients whose lives we help improve. We probably took it for granted for too long that everyone understood that.
That doesn't mean that we're never going to have issues, or that products aren't sometimes not going to work out the way we want them to. We're always trying to improve the state of technology and I would say that the vast majority of the time we've been successful at that. But I know a lot of people in this industry and I know that all of the companies are trying to take care of patients. That's our number 1 priority.
MassDevice: As you said, there have been studies showing that total joint procedures are under-utilized. But as the procedure becomes less invasive as technology improves, do you foresee more younger patients undergoing total joint replacement?
JB: When I first came into this business, when you asked a doctor when they operated on a patient, they would say, "I tell them, 'Wait until you're in excruciating pain and then wait a little bit longer and finally when you can't take it anymore we'll do your surgery.'"
As the technology got better, the approaches got better and doctors got more confident that the implants would last for a longer period of time. They started saying, "Why should you be so uncomfortable? I think we have a solution for you and we should do it."
That's 1 of the reasons we saw the volume increases, because they were confident in providing earlier treatment to that patient population. There's always the opportunity that we can do that more, with further advances in technology, but I think at the same time we're interested in doing a couple of things. We're interested in joint replacements that last longer and are more appropriate for active patients, and at the same time we're looking for non-surgical options that can truly delay the need for joint replacement, not by making the patient wait but by staving off the need for joint replacement by addressing the disease state at an earlier age.
JB: I would imagine that the real issue there has more to do with patients and their conversation with doctors. Perhaps the less-certain patient, who is going back and forth about a joint replacement, may be less likely to ask for it, or may be more likely to be concerned about doing it. On the margin, it might make some people more reluctant to have surgery, but when their doctor explains the results that they get with the products that they use and explains the benefits of the procedure for the patients whom they serve, hopefully people will understand that the vast majority of patients do extremely well with hip replacement and joint replacement in general.
MassDevice: You're one of the most active CEOs in the industry, in terms of blogging and getting your views out there. Do you see this as part of your role in the industry?
JB: I've been in this industry for the better part of 20 years and I'm very passionate about it. For me, the blog itself is another way to engage with our customers. I've gotten great feedback on it, although it's more likely someone will come up to you and say something positive than negative. We do get some of those written comments sometimes.
I'm actually surprised by how many surgeons will stop me if I'm at a conference and tell me, "I just want to say that I appreciate that you've taken a stand on such and such issue, and even if I don't agree with you, I think it's great that somebody is doing it."
I think weighing in on public policy issues is the right thing to do. We've used [the blog] to respond to media reports that we didn't think portrayed the industry accurately. I like that it's unique to Biomet. I'd love to think of some way to facilitate more of a dialogue about the business, but I've enjoyed doing it and I hope people enjoy reading it.
MassDevice: What motivated you to start blogging?
JB: I would say just that nobody was doing it. I found that there was a lot being written about the industry which I didn't agree with, and I thought nobody had really taken on the mantle of publicly writing about the issues that impact orthopedics. So I decided, "What the heck?" I don't know if anyone else does it in any of the other device sectors either.
MassDevice: Some CEOs use Twitter, but most medtech CEOs tend to be more conservative in their communications with the public. It would be nice to hear their thoughts, though.
JB: Yeah, somebody else should jump in the water with me.
MassDevice: What still excites you about the orthopedic industry, all these years in?
JB: It all starts with the difference we can make for patients. The majority of patients do extremely well.
I love that it's a finite group of surgeon customers and hospital customers and you can really get to know them at a detailed level, as opposed to some mass-consumer product. Our customers are super-smart, they want to do the right thing for their patients, they're very challenging, they can be difficult in a good way because they demand excellence. They need us to give them the tools to care for their patients. I love that there's always an opportunity to make things better.
When I first got in this business 20 years ago, people said that there was no room for innovation, and that basically everything that could be invented had already been invented. Twenty years later, people are saying the same things, and when you look at the progress we've made over the last 20 years, it's extraordinary.
There's so much progress yet to come. People who say there is nothing left to do and this has become a commodity market are so wrong. Having spoken with surgeons, hospitals, and patients, we realize that there are significant opportunities to improve satisfaction with these procedures. Their unmet needs are what drive us.
More from Jeff Binder's blog on gain sharing (very interesting how this likely affects patients
Unfortunately, gainsharing has greater potential to reduce the quality of care than to save money.
Gainsharing creates perverse incentives
Gainsharing would allow hospitals to incentivize surgeons to use less expensive implants by sharing the savings with them. Hospitals could reduce their implant costs, and surgeons could be paid for their participation in the program.
While this may appear reasonable, and even desirable, in practice it would intensify pressure on surgeons to change sound, established practices in the interest of saving money.
This approach has some theoretical appeal, but it is only appropriate in highly specific circumstances – that is, where (a) the device in question is a pure commodity of no differentiation in clinical performance in any patient populations versus alternative devices and (b) there is no learning curve associated with switching devices that has the potential to impact patient outcomes.
Fundamental to our healthcare system is the implicit assumption that doctors serve as patient advocates, committed to offering the best potential solution for a given clinical problem. Under gainsharing, patients would have every reason to worry that their physicians are incentivized to provide an inferior device due to its lower cost.
Imagine the orthopaedic surgeon faced with a decision on whether an active, 65 year old patient should receive a hip or knee with an advanced bearing surface. Does anyone think it is better for health outcomes if the decision is influenced by an economic incentive to utilize a less expensive bearing?
This scenario involves patients' quality of life and the risk of revision surgery. One shudders at the thought of gainsharing being applied to devices that prolong life.
Additionally, in any gainsharing program, after the initial reduction in implant costs, subsequent physician and hospital financial gains would depend entirely on continued, year-after-year reductions in implant costs. Thus, it's likely that hospitals would continually request bids for implants in order to reduce costs. In order for this tactic to work, surgeons must be willing to switch implant systems on a regular basis.
This is clearly the goal of gainsharing proponents, such as Joanne Goodroe, a consultant whose company designed the gainsharing programs that received OIG exemptions. Goodroe stated:
"Why would surgeons who are already achieving good patient outcomes be interested in changing their practice patterns without being incentivized to do so?"3
A far more important question: why should we incentivize surgeons to change practice patterns that achieve good outcomes?
There is a clear correlation between high volume and improved patient outcomes.4-7 Researchers have also demonstrated the importance of surgeons ascending the "learning curve" in order to achieve good outcomes.8-10 Incentives to restart the learning curve solely to reduce implant costs can only be detrimental to patient care. Indeed, the OIG, in its original opinion on gainsharing arrangements, referred to "the potential adverse impact on patient care from gainsharing arrangements."12
How will gainsharing affect innovation?
Technology has contributed significantly to reducing cost and expanding access. For example, the revision burden of total joint replacement has declined steadily since 1998, while the proportion of younger, high-demand patients has grown rapidly.9 It is inconceivable that these two trends could co-exist without advanced implants of improved durability.
However, the practice of paying surgeons to use less expensive implants would stifle innovation. Manufacturers are not going to invest in technologically advanced implants if there is no market for them. Resources devoted to research and development will be redirected to improving the efficiency of manufacturing and distribution. While this may reduce the cost of existing technology, promising (but expensive) innovations are less likely to be funded.
Gainsharing is inconsistent with other government policies
The government has created legal barriers to insulate clinical decisions from financial incentives to reduce care or steer referrals to particular facilities. These include the, Civil Monetary Penalties for reducing care to Medicare patients and the Anti-Kickback Statute, which prohibits physicians from accepting (or hospitals from offering) anything of value in exchange for referrals. According to OIG, gainsharing potentially violates both of these statutes.12,13
Yet while the government has extensively investigated potential violations of these statutes, it appears willing to scrap those barriers in the interest of reducing cost.
Such a posture is inconsistent with other government proposals related to potential conflicts of interest. For example, the healthcare reform law contains prohibitions on new physician-owned hospitals,2 which represent the ultimate in physician-hospital alignment. Physicians who own hospitals have strong incentives to improve efficiency, outcomes, and cost-effectiveness. It appears that government is all for hospital-physician collaboration, as long as the physician isn't in charge.
Additionally, it's clear that government views payments to physicians as a potential source of conflict. In addition to the statutes mentioned above, the healthcare law requires manufacturers to disclose transfers of value to physicians of $10 or more.2 Payments to surgeons from cardiac gainsharing programs, meanwhile, averaged $17,000 per physician.14 If $10 is a problematic amount that needs to be disclosed because of its potential impact on clinical judgment, why isn't $17,000?
Conclusion: gainsharing creates new problems without addressing the old ones.
Our healthcare system is a jumble of skewed incentives, because most recipients of healthcare pay only a fraction of the cost. Not surprisingly, as third-party payers have assumed an increasing proportion of responsibility for reimbursing healthcare, the cost of health care has steadily increased faster than both GDP and inflation.
Instead of addressing the core problem of escalating healthcare costs, policymakers choose to experiment with inconsistent policies that threaten innovation and create potential conflicts that may impact long-term patient outcomes. By providing hospitals and physicians with incentives to cut costs on medical devices, both parties benefit from denying patients newer, potentially more effective technology. At the very least, Congress should complete the existing gainsharing demonstration projects and analyze the data before expanding the practice and its potentially detrimental effects on patient outcomes.