Originally published in Modern Healthcare, July 15, 2021
Alex Kacik, hospital operations reporter for Modern Healthcare in Chicago. Interviewed LBMC expert Andrew McDonald.
Health systems could reduce supply chain costs if third-party companies were permitted to repair medical devices, as President Joe Biden’s executive order directs.
Biden issued a sweeping antitrust-related executive order on July 9 that, in part, seeks to make it easier and cheaper for consumers to repair their own products or to pay a third party to do so. Biden’s order targets manufacturers that only allow them to fix their products at prices they set.
Healthcare providers could try to amend their current arrangements with medical devicemakers to eliminate that restriction, which could reduce maintenance costs, supply chain experts said.
Many sales contracts for medical devices mandate that only the manufacturer may make repairs. Devicemakers often will void the warranty when someone else repairs a product. The terms typically are not negotiable.
“Part of it is quality assurance, from the medical device company’s perspective. They have leverage to increase their rates for repairs for that reason,” said Rose Willis, who chairs the healthcare practice group at the law firm Dickinson Wright. “As a healthcare lawyer who represents hospitals and other providers, we look at those high prices and start to think about that as one piece of rising healthcare costs. It has been really frustrating.”
There will be a legal push and pull to determine whether the executive order justifies an amendment to existing contracts, Willis said. In addition, manufacturers may alter pricing or financing options in reaction to a new right-to-repair policy, she said.
The executive order will spark a debate between the administration and the medical device industry, which likely will claim that it won’t be responsible for adverse outcomes when third parties fix their devices.
Enforcing the order is a different matter than agreeing on what it means, said Mark Mansour, a healthcare attorney at Dykema.
“Right now, there are no means to enforce the executive order,” Mansour said. “But the fact that it exists is upsetting the industry, so it has to be resolved one way or another.”
Kaleida Health, a regional health system in Buffalo, New York, accused Intuitive Surgical of prohibiting providers from hiring independent companies to repair its da Vinci surgical robots, according to a lawsuit filed in a California federal court last week. Kaleida alleges that Intuitive uses its monopoly power to inflate repair rates and unnecessarily limit how many times a provider may use replaced products, compelling them to buy more. Restore Robotics filed a similar antitrust lawsuit, which is ongoing.
Intuitive would not comment on the lawsuits but said in a statement that “third parties may use incompatible or unvalidated parts or processes in servicing or repairing the systems, which could cause damage and put patient safety at risk.” The company launched an extended-use program in July 2020, which allows certain high-volume da Vinci instruments to be used for 12 to 18 surgeries, up from 10, a spokesperson noted.
The lawsuit “could benefit hospitals and health systems by reducing operational costs associated with a highly utilized service in the healthcare system,” said Andrew McDonald, healthcare consulting practice leader at LBMC. Even if hospitals reduce their overheard, that does not always translate to lower costs for patients.
More than half of da Vinci procedures are performed for benign conditions, such as hernia repairs, hysterectomies and cholecystectomies, according to the company.
While robotic-assisted surgeries were expected to improve precision, a 2018 study showed that the higher-cost procedures did not result in statistically better outcomes than traditional surgeries, except with respect to blood loss. Operating times and complication rates were higher for robot-assisted surgeries, according to the research.
Those findings didn’t seem to meaningfully slow sales. There were 6,142 da Vinci systems in use as of March 31, an 8% increase compared to the first quarter of 2020 and a 23% increase from the end of 2018. Service revenue for da Vinci systems accounted for 17% of Intuitive’s $4.36 billion in 2020 revenue.
Providers can purchase da Vinci systems or lease them from Intuitive. Each contract generates an annual fee between $80,000 and $190,00, the company said in a recent earnings report.
Hospital purchases of da Vinci robots peaked in 2019, according to data from OpenMarkets, which helps providers source equipment. There’s been a decline since but it’s unclear if that’s tied to the COVID-19 pandemic or other factors, said Hanna Levine, director of operations at OpenMarkets.
When expensive equipment fails, the problem often can be remedied by replacing an inexpensive part. But across industries, manufacturers have told its third-party suppliers not to sell specific parts to anyone else. Equipment owners are forced to do business with the manufacturer, which typically recommends replacing major parts of the device rather than a cheaper widget.
“Our more than 3,500 hospital and health system clients tell us the right to repair—or lack of—is a major issue when faced with maintaining hospital equipment and medical devices critical for the care of their patients,” said Dr. Philip Settimi, CEO of PartsSource, which provides medical replacement products.
It’s unclear how a court would take the executive order into account when weighing if a contract is enforceable, Willis said. Still, the decree could have far-reaching impacts across the medical device sector, she said.
“The executive order should be used as a bargaining chip when negotiating new contracts,” Willis said. “It’s worth providers reaching out to medical equipment companies with which they have contracts to see if the EO is reason enough to seek an amendment.”