Check the Fine Print: Are Your Medical Device Contracts Making it Hard to Price Shop?

June 14, 2006

For many purchases, both personal and professional, you price shop to be sure that you are getting the best deal. Many hospital vendors realize this is common practice, and they make this information available for public consumption. Benchmarking prices is especially wise when it comes to costly medical devices, such as orthopedic and cardiac implants, which account for more than 40 percent of total supply expense.  

However, it is a disturbing fact that some medical device companies are getting hospitals to sign confidentiality agreements that restrict the hospital's ability to share prices and other contract terms. Ultimately, these types of contract restrictions could make it more and more difficult for your hospital -- and the hospital industry as a whole -- to gain control over rising medical device costs.  

The Danger in Confidentiality Clauses

How can you tell if this is an issue for your facility? A first step is to immediately review any "confidentiality" sections in vendor contracts. In any negotiations, the search for restrictive clauses should begin with scrutinizing the vendors' first responses to the request for proposal, and continue diligently through final contract execution.

These confidentiality clauses vary by vendor but tend to include a range of restrictions, especially regarding the hospital's ability to share contract terms such as pricing. It is common for these clauses to forbid the hospital to share contract terms with "any third party." This seemingly benign category would include your nonemployed physicians, payers, and even patients.

Some confidentiality clauses are more detailed. All too frequently, hospitals blithely agree that they will not share information with "any person not employed by the hospital," "any consultant" or "third party adviser," any "online subscription service," or even any "group purchasing organization." Only occasionally do these clauses target the very group that the vendor should really be seeking to protect its information from: competing vendors.

Other worrisome terms and definitions in confidentiality clauses include "trade secret," "third party," and "confidential information." If the language is vague, the hospital may be at risk. A vendor might contend that its contract does not give the hospital permission to use contract information, such as product prices, in ways the hospital has historically done. For example, a vendor may contend that providing the hospital's closed receipts file to a consultant for analysis could be off limits because the file embodies the vendor's "trade secret" prices.

Preserve Your Ability to Run Your Business

If benchmarking, discussing service line costs with physicians, or talking to your colleagues across the country about contract terms have been effective tools for you in the past, be sure that your contracts still give you free rein to do so.

A few hospitals have implemented their own standard contract template that is hospital-focused rather than vendor-focused. This puts all suppliers on a level playing field by giving them the same terms and conditions. In the most progressive situations, a medical device contract is literally written on the hospital's letterhead for the vendor to sign. The medical device vendor's specific pricing and service terms are an attachment to the "generic" hospital document. This is a great model to begin to adopt.

Whether your medical device contracts take the hospital's or the vendor's form may be less important than ensuring that the contract terms protect the hospital's procurement methods. Any language related to the sharing of contract information or confidential information is very important to review carefully.

The Importance of Transparency

Imagine having to seek a vendor's written permission to continue your best practices for procurement. Although it is fair to agree to protect your vendors' information from their competitors, current vendor confidentiality language sometimes seems more focused on keeping the customers -- that is, hospitals -- from knowing all they should in order to control medical device costs effectively. Through consensus and vigilance, hospitals can support transparency and fairness.

SOURCE:  Adapted from "Check the Fine Print: Are Your Medical Device Contracts Making It Hard to Price Shop?" by Eileen McGinnity, president, Aspen Healthcare Metrics, a subsidiary of MedAssets, May 2006 issue of Supply Chain Solutions.

Additional Resources

• "Eyes On The Supplies: Results Of A Massive Performance-Improvement Initiative," April 2006 hfm magazine
• HFMA's 2005 Supply Chain Benchmarking Survey
• "Streamlining the Supply Chain," July 2003 hfm magazine