Medtronic continues to push outcome-based contracts: 5 things to know

Written by Mackenzie Garrity | April 02, 2018 | Print  |

Medtronic CEO Omar Ishrak is pushing for the device manufacturer to take on more risk-based compensation contracts, The Wall Street Journal reports.

Here are five things to know.

1. Currently, Medtronic is signing contracts with customers to adjust prices based on how well the specific product works rather than having a customer paying a fixed price for a product despite its performance.

The move toward outcome-based contracts follows the healthcare industry's push toward value-based care.

2. Medtronic began signing outcome-based contracts in 2017. To date, the company has signed close to 1,000 contracts that require the company to reimburse hospitals for certain infection costs.

The company also signed an agreement with Aetna to combine a portion of the reimbursements the insurer pays for insulin pumps if a patient doesn't see an improvement with Medtronic's pump.

3. When asked about the decision to move toward outcome-based contracts, Mr. Ishrak told WSJ, "Medtronic is focused on technologies to improve outcomes. We use biomedical engineering to alleviate pain, restore health and extend life."

"Historically we’ve done that by creating credible evidence that our technologies do change outcomes. But at the end of the day, we and the industry get paid on the technology itself and a promise that those outcomes will actually be changed," said Mr. Ishrak.

4. Mr. Ishrak emphasized the move toward these contracts is to provide additional assurance to customers that they are receiving their money's worth, instead of as a way for Medtronic to reduce costs.

5. When talking about why more device companies are not moving to this model, Mr. Ishrak said, "It's difficult to do. Incentives for the whole healthcare industry don't encourage this. You get paid for a service; that's easier than being paid for an outcome. You get paid for a technology; that's easier than getting paid for the technology actually doing something. So, the incentive structures across multiple stakeholders, almost every stakeholder, are fashioned to make this risky proposition."

"The fee-for-service model is just not a sustainable model, and we have to do our piece in a managed way, a responsible way, to move the ball forward."

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