From Costs to Outcomes: A Framework for Evaluating New Drugs and Medical Devices

Standardize decision-making processes and evaluate clinical evidence to improve outcomes while containing costs.

Standardize decision-making processes and evaluate clinical evidence to improve outcomes while containing costs.

Choosing the right drugs and medical devices is critical for patient safety and cost containment. Ensuring patent safety is essential for healthcare organizations to become high reliability organizations (HROs)—organizations that successfully avoid catastrophe, despite a high level of operational risk and complexity. With value-based medicine, when reimbursement is based on treatment outcomes, evaluations of new drugs and medical technologies must consider clinical effectiveness as well as cost.

Evaluating the clinical effectiveness and safety of medical devices can be challenging. The Food and Drug Administration’s (FDA’s) 510(k) clearance process does not require clinical testing of intermediate-risk (Class II) devices that are “substantially equivalent” to similar devices that are already on the market. As a result, many implantable devices don’t have any clinical trials demonstrating their safety and effectiveness.

Fast-tracked administrative approval of implantable devices, without clinical trials establishing their safety, can result in serious patient harm. Surgical mesh, a Class II device, caused complications in about 200,000 women who were implanted with vaginal mesh for urinary incontinence and prolapse. Women have filed more than 104,000 lawsuits against multiple medical device manufacturers. In 2017 the FDA reclassified surgical mesh used for transvaginal pelvic organ prolapse repair as a Class III device (requiring clinical testing). Due to safety concerns, the FDA withdrew all surgical mesh used for transvaginal repair from the market in 2018.

Determining a fair price for medical devices is also tricky. Lack of price transparency makes it difficult to compare device prices. Device manufacturers often impose gag clauses (confidentiality agreements that prevent hospitals from disclosing prices). Manufacturers enforce the gag clauses through lawsuits, often aimed at consultants who collect price data from multiple hospitals to help negotiate lower prices. By making it harder for purchasers to find benchmarking price data, vendors can sell their devices at higher prices.

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Physicians, who play an active role in purchasing decisions, may be more influenced by their relationships with and payments from device vendors than by the cost of the device. One study of 145,900 patients who received a defibrillator found that 39–55 percent of these patients received a device from the manufacturer that provided physicians with the largest payments. Physicians are often unaware of the cost of the devices they implant. In one survey, orthopedic surgeons correctly estimated the cost of 13 commonly used orthopedic devices (within 20 percent of the actual cost) only 21 percent of the time.

Choosing which new drugs to include in your hospital’s formulary also requires systematic evaluation of clinical effectiveness and cost. This is particularly critical for specialty medications (including biotechnology)—high-cost (>$600 per month) oral, injectable, transdermal, or inhaled medications used to treat complex, chronic conditions such as cancer, hepatitis C, and autoimmune disorders. Although specialty drugs are used by only 2 percent of the population, they accounted for 47.7 percent of the U.S. prescription drug spend in 2019. Reimbursement rates for specialty medications from health plans and pharmacy benefit managers have dropped. In order to participate in some managed care networks, specialty pharmacies must agree to contracts with reimbursement rates that are often below cost.

The most expensive drugs aren’t necessarily the most effective. One international study of 47 cancer drugs used to treat solid tumors in adults found no associations between monthly treatment costs and clinical benefit (assessed by the European Society for Medical Oncology (ESMO)-Magnitude of Clinical Benefit Scale) in all studied countries (the United States and four European countries). Therefore, it’s important to examine the clinical evidence for a particular drug.

Use this 4-Step Approach to Evaluate Drugs and Medical Technologies

  1. Standardize your decision-making process. Establish a systematic, transparent decision-making process based on data (e.g., clinical evidence, financial and safety data) and clinical experience. Replace manual, paper-based review processes, which produce binders full of reports that are time-consuming to access, with automated workflow and digital documents stored in a central repository. Workflow software standardizes the decision-making process and makes it transparent.
  2. Include physicians, pharmacists, and other clinical experts in new product decision-making. Frontline clinical staff are in the best position to anticipate potential safety problems and adverse events, so they should help evaluate new drugs and devices through an automated workflow tool. Physicians and pharmacists must disclose financial relationships with pharmaceutical or medical device companies that may unduly influence purchasing decisions. Failure to document and report potential conflicts of interest may result in fines for compliance violations. Pharmacists and physicians should also develop evidence-based, standardized diagnostic and treatment protocols to improve clinical outcomes and prevent wasting money on ineffective or unnecessary drugs, devices, and procedures.
  3. Use unbiased clinical evidence to make objective purchasing decisions. Your decision-making team should consider the clinical evidence and safety data for new products, instead of making purchasing decisions based solely on cost or subjective opinions that may be heavily influenced by vendor relationships. Clinical evidence reveals the effectiveness (or lack thereof) of a device or technology, which has a direct impact upon safety, patient satisfaction, readmission rates, and measurable improvements in care.
  4. Use benchmarking price data to evaluate price quotes. Take advantage of extensive benchmarking databases to compare quoted prices to national averages and negotiate a better deal.

TractManager’s workflow software, MedApproved, standardizes new product decision-making and stores decision-support data in a centralized digital repository. Our spend management solution includes more than 3 million benchmarking data points to help you negotiate the best price for the right capital equipment and med-surg supplies. For more information on becoming an HRO, read our white paper, “Toward A High Reliability Organization.”


Mark S. Kestner, MD, MBA

Chief Medical Officer

Mark is a surgeon with deep leadership experience in military, university, integrated delivery, and especially community-based healthcare systems.


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