Coordinated clinical and financial analysis as a powerful tool to influence vendor pricing

Background: As costs continue to outpace reimbursements, hospital administrators and clinicians face increasing pressure to justify new capital purchases. Massachusetts Health Care Reform has added further economic challenges for Disproportionate Share Hospitals (DSH), as resources formerly available to treat the uninsured have been redirected. In this challenging climate, many hospitals still lack a standardized process for technology planning and/or vendor negotiation. Purpose: The purpose of this study was to determine whether a simple, coordinated clinical and financial analysis of a technology, Endoscopic Carpal Tunnel Release (ECTR), is sufficient to impact vendor pricing at Cambridge Health Alliance (CHA), a disproportionate share hospital (DSH) in Cambridge, Massachusetts. Methodology: This case study addressed the topic of technology adoption, a complex decision-making process every hospital administration faces. Taking note of other hospitals approaches to instill a strategic management culture, CHA combined a literature review on clinical outcomes and financial analysis on profitability. Clinical effectiveness was evaluated through a literature review. The financial analysis was based on a retrospective inquiry of fixed and variable costs, reimbursement rates, actual payer mix, and profitability of adopting ECTR over open carpal tunnel release at CHA. This clinical and financial analysis was then shared with the vendor. Findings: A literature review revealed that although there are short-term benefits to ECTR, there is little to no difference in long-term outcomes to justify a calculated incremental loss of $91.49 in revenue per case. Sharing this analysis with the vendor resulted in a 30% price reduction. A revised cost analysis demonstrated a $53.51 incremental gain in revenue per case. CHA has since elected to offer ECTR to its patients. Practice Implications: Smaller hospital systems often have modest leverage in vendor negotiations. Our results suggest that the development of adoption criteria and an evidence-based managerial approach can create dialogue with vendors and directly impact pricing. Coordinated clinical and financial analysis is a powerful tool, enabling administrators, clinicians, and medical device suppliers to work constructively to provide patients access to innovative technology, even in the face of a challenging payer mix. Ongoing assessment of clinical outcomes and financial data must be performed to reflect the most up-to-date scientific and economic climate.