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Value based purchasing: decision-making processes underlying hospital acquisitions of orthopedic devices

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Value based purchasing: decision-making processes underlying hospital acquisitions of orthopedic devices

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VALUE BASED PURCHASING:
DECISION-MAKING PROCESSES UNDERLYING HOSPITAL
ACQUISITIONS OF ORTHOPEDIC DEVICES

by

Caroline Mosessian

A Dissertation Presented to the
FACULTY OF THE USC SCHOOL OF PHARMACY
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF REGULATORY SCIENCE

May 2016

Copyright 2016 Caroline Mosessian

2
DEDICATION
I would like to dedicate this dissertation to my amazing sons, Brandon and Damon
Nazari. I am a strong believer that every human life has unlimited potential for growth
and opportunity. The only difference between the moment of recognizing and acting on
the opportunity is our choice, which feeds into inspiration. There is no greater happiness
for me than to share this seed of inspiration with my children, their peers and generations
to come as the world witnesses the full bloom of creativity, determination and
consistency which bears the fruit of expansion and evolution of human consciousness
with many possibilities. I hope my work not only carries scientific, academic and
practical value, but also delivers the magic of inspiration to you, the reader, as it did to
me.

“Intellectual growth should commence at birth and cease only at death.”
Albert Einstein

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ACKNOWLEDGEMENTS
I would like to thank everyone for their support and encouragement throughout my
doctoral studies, and all those who helped make this dissertation a reality.
First and foremost, a special thanks to Dr. Frances Richmond Ph.D., whose unwavering
support, guidance, encouragement, patience together with expert teaching and advice
provided me with the strength and enthusiasm to achieve this goal.
A heartfelt appreciation to Dr. Michael Patzakis M.D., who has been a mentor for the
past 20 years, and a champion for women’s success in higher education. His expert
advice and stature in the orthopedic community gave me confidence in the direction and
methodology for this research.
Dr. Robert Myrtle Ph.D. provided insightful feedback during my qualifying exam. His
friendship and support is immensely appreciated.
My sincere gratitude to the thesis committee, Dr. Eunjoo Huisang Pacifici PharmD.
Ph.D., and Dr. Michael Jamieson DRSc., for the invaluable feedback and input provided
throughout the process.
I thank my focus group for their time and constructive feedback to make the survey
process a success.
Special thanks to the staff of USC Regulatory Science, particularly Randa Issa, Ph.D.,
Deborah Schroyer, and Erin Chow for their assistance in all the logistical and
administrative processes.
In closing, I would like to thank my fellow students of 2012 cohort, and the Regulatory
Science faculty for their support, both personally and professionally, throughout the past
three years.

4
TABLE OF CONTENTS
DEDICATION .................................................................................................................... 2
ACKNOWLEDGEMENTS ................................................................................................ 3
TABLE OF CONTENTS .................................................................................................... 4
LIST OF TABLES .............................................................................................................. 8
LIST OF FIGURES ............................................................................................................ 9
ABSTRACT ...................................................................................................................... 11
CHAPTER 1. OVERVIEW ...................................................................................... 12
1.1 Introduction .................................................................................................. 12
1.2 Statement of the Problem ............................................................................. 13
1.3 Purpose of the Study .................................................................................... 14
1.4 Importance of the Study ............................................................................... 15
1.5 Limitations and Delimitations ...................................................................... 15
1.6 Organization of Thesis ................................................................................. 17
1.7 Acronyms ..................................................................................................... 17
CHAPTER 2. LITERATURE REVIEW .................................................................. 19
2.1 Introduction .................................................................................................. 19
2.2 Evolution of Orthopedic Decision-Making .................................................. 19
2.2.1 The Hospital as Decision-maker ..................................................... 22
2.2.2 The Regulator as Decision-maker .................................................. 25
2.2.3 The Health Insurance System as Decision-maker .......................... 27

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2.2.4 The Patient as Decision-maker ....................................................... 30
2.3 Current Environment for the Purchasing of Implantable Devices ............... 32
2.4 Value Based Purchasing............................................................................... 33
2.5 Current Payments Options ........................................................................... 35
2.5.1 Control by Formularies ................................................................... 35
2.5.2 Reference-Based Pricing and Purchasing ....................................... 37
2.5.3 Health Technology Assessment ...................................................... 38
2.6 Orthopedic Implants as a Case Study of Decision-making .......................... 41
2.6.1 Past decision-making processes: A dual stakeholder paradigm .... 43
2.7 Current and Future Directions for Purchasing Orthopedic Implants ........... 47
2.8 The CalPERS Experience ............................................................................ 49
2.9 Decision-making Framework ....................................................................... 51
CHAPTER 3. METHODOLOGY ............................................................................ 57
3.1 Methods........................................................................................................ 57
3.2 Development of the Initial Survey ............................................................... 57
3.3 Focus Group Conduct .................................................................................. 58
3.4 Survey Deployment and Delivery ................................................................ 60
CHAPTER 4. RESULTS .......................................................................................... 63
4.1 Results .......................................................................................................... 63
4.1.1 Focus Group Conduct ..................................................................... 63
4.2 Profile of Respondents ................................................................................. 63

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4.3 Structures and data-gathering to base decision-making ............................... 67
4.4 Evaluation and Selection of Devices ........................................................... 72
4.5 Making the Decision .................................................................................... 77
4.6 Analysis of Survey Results – Assessment ................................................... 87
4.7 Comparison between Responses of Surgeons and Administrators .............. 90
CHAPTER 5. DISCUSSION .................................................................................... 94
5.1 Summary ...................................................................................................... 94
5.2 Consideration of Limitations, Delimitations, and Assumptions .................. 94
5.2.1 Use of survey methodology ............................................................ 95
5.2.2 Delimitations .................................................................................. 96
5.2.3 Limitations ...................................................................................... 98
5.3 Consideration of Results ............................................................................ 101
5.3.1 Application of a decision-making framework .............................. 101
5.3.2 How is the decision-making process initiated? (ASK) ................. 102
5.3.3 How is data acquired to feed the decision process?
(ACQUIRE) .................................................................................. 103
5.3.4 How are committees operating to appraise and analyze
options? (APPRAISE and AGGREGATE): ................................. 107
5.3.5 Who makes the financial decisions? (APPLY) ........................... 110
5.3.6 The degree of opinion and follow-up by the decision-makers in
assessing their final selections. (ASSESSMENT) ........................ 111

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5.4 Future Evolution of Decision-making Processes ....................................... 112
REFERENCES ............................................................................................................... 115
APPENDIX A. ................................................................................................................ 124
APPENDIX B. ................................................................................................................ 132
APPENDIX C. ................................................................................................................ 141
APPENDIX D. ................................................................................................................ 160

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LIST OF TABLES
Table 1: Major Issues in the Development of Health Care in the United States ...............20
Table 2: Hospital DRG Reimbursement vs. Average Implant Cost per Procedure ...........43
Table 3: Participants in the focus group ............................................................................60

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LIST OF FIGURES
Figure 1: Medicare Physician Reimbursement by CPT Code ...........................................42
Figure 2: The Impact of Reference Pricing: The CalPERS Experience ............................50
Figure 3: The Consumer Information Processing Model ..................................................53
Figure 4: Evidence Based Analysis for Management ........................................................54
Figure 5: Steps in the EBMgt Process Path .......................................................................55
Figure 6: Six elements of decision-making process to frame the survey ..........................61
Figure 7: Position/title of the respondent ...........................................................................64
Figure 8: Type of Institution type with which respondents are affiliated. .........................65
Figure 9: Size of facility with which respondents were affiliated .....................................66
Figure 10: Location of respondents based on states within each region. ...........................66
Figure 11: Mechanism on decision-making for purchasing hip & Knee products. ...........68
Figure 12: Primary mechanism for decision-making for orthopedic implants .................70
Figure 13: Initiating person or group to purchase equipment ............................................71
Figure 14: Frequency of committee meetings ...................................................................72
Figure 15: Methods of follow-up evaluation after hip and knee devices are
purchased ...................................................................................................75
Figure 16: Purchasing process for expedited or compassionate use devices ....................77
Figure 17: Factors currently considered in decision-making about orthopedic
implants ......................................................................................................79
Figure 18: Importance of information/data in purchasing process ...................................80
Figure 19: Insights into different aspects of the current decision-making process ...........82
Figure 20: Level of satisfaction with product purchasing policies ...................................84

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Figure 21: Personal views regarding the importance of different factors to base
decision making for hip and knee implants. ..............................................85
Figure 22: Level of satisfaction with institutional decision-making processes and
outcomes ....................................................................................................87
Figure 23: Methods by which institutions assess the validity of decisions
regarding hip and knee implants ................................................................88
Figure 24: Additional Comments......................................................................................89
Figure 25: Views of surgeons and administrators on certain key questions
relating to decision-making for orthopedic implants .................................92
Figure 26: Differences between surgeons and administrators on certain key
questions relating to decision-making for orthopedic implants .................93

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ABSTRACT
Value Based Purchasing is a methodology for decision-making that is expected to improve
the quality and outcomes of purchasing decisions while maintaining cost control. Value
Based Purchasing models are amongst several changes in purchasing approaches advocated
by the Congress in March 2010 under the Patient Protection Accountable Care Act, with
the goal of identifying opportunities to be efficient without compromising quality of care.
This research examines the extent to which Value Based Purchasing is being used to
purchase implanted orthopedic medical devices, and the decision-making processes that are
being implemented to support those acquisitions. A survey tool was developed and
administered to two groups of stakeholders, hospital executives and orthopedic surgeons,
who often disagree on purchases of these orthopedic devices. The results showed that
two most important decision-making attributes for both groups were quality of care and
cost-containment. We found that most health care settings now use decision-making
systems more amenable to VBP than previous ad-hoc decisions driven by surgeons.
Decisions are commonly, but not universally, made by committees with representation
from surgeons, administrators and often others, who work together to choose implants.
Their processes are still mostly based on information derived from the clinical experience
of clinicians and local knowledge of procurement officers, with less influence from more
formalized health technology assessments. The findings give insight into the current
practices regarding the purchase of orthopedic implants and suggest how these practices
might be evolving in reaction to the high cost orthopedic implants and the changing
political and healthcare environment.

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CHAPTER 1. OVERVIEW
1.1 Introduction
The rising cost of health care in economies worldwide has forced governments, healthcare
providers and medical products companies to justify purchasing decisions particularly
when those decisions involve costly medical products. The term often used to describe the
activities and analyses that base such market transactions is Value Based Purchasing
(VBP). According to the National Business Coalition on Health (NBCH), value-based
purchasing is a strategy used by employers, and increasingly the Federal government, to
use their market power as a force to promote quality and value of health care services
(NBCH, 2011). The overarching goal of VBP is a health care system built on value, with a
clear return for every dollar spent. Value can be broadly considered to be a function of
quality, efficiency, safety and cost. This process will require standardized, comparative,
and transparent information on patient outcomes, health care status, patient experience, and
costs of services provided. Levels of reimbursement for medical treatments will be tied to
the ability to demonstrate superior outcomes for care. Thus it is not an option to ignore the
activities associated with VBP, unless providers are willing to accept lower payments
(CMS, 2010a).
The U.S. healthcare delivery system is further complicated because the role of “informed
consumer” is commonly played not by the patient who may be the ultimate user, but by a
proxy who makes decisions on behalf of patients. For implanted medical devices, the
choice is typically made by the surgeon, sometimes in consultation with the patient, and the
purchasing is done by the hospital or ambulatory surgery center (ASC). The medical
device cost is bundled into total cost charged to the insurance company by the hospital, and
then this group of charges is reimbursed on a per case or per diem basis. The

13
reimbursement level is typically capped by the insurers that pay for the product. Thus the
decision is ultimately in the hands of not one individual but rather shared between the
physician, hospital and payer in some way. Each of these stakeholders may have a different
view on what best serves the healthcare system and the individual patient, and each can be
influenced by other factors, such as conflicts of interest or experiential bias, pricing
structures that discount bundles or large-volume purchases, or favoritism to particular
companies with whom relationships have been built. Nevertheless, the new systems are
forcing these stakeholders to work together to a degree that was not typical a decade ago.
Many hospital executives in the United States have implemented or are in the process of
implementing a VBP system in their respective institutions. Equally, orthopedic surgeons
have been under pressure to assist with decreasing the cost of device acquisition, by giving
up their choice of one particular product, in order that efficiencies can be gained through
group purchasing and better price negotiations with the device suppliers.
1.2 Statement of the Problem
Rising hospital costs have challenged decision-making with regard to orthopedic products
because different stakeholders are often perceived to make decisions regarding the
purchase of medical products according to different criteria and considerations. On one
hand, physicians who are intent on securing the best treatment outcomes for patients may
view the added benefits of more expensive devices and the relationship with the
manufacturer who support training as an important part of the decision-making. These
attitudes may be interpreted by hospital management as an impediment to value-based
purchasing decisions. On the other hand, anecdotal evidence suggests that physicians often
do not trust the decisions made by hospital purchasers, because they feel that their
decisions may focus too strongly on achieving the lowest cost without adequate

14
consideration of other performance metrics (Berenson, Ginsburg, & May, 2007).
However, little systematic study has been directed at the motivations, metrics and views of
these two sets of stakeholders that might validate whether these views are in fact
characterized accurately. We do not know the degree to which the views of physicians and
hospitals are misaligned with regard to the criteria that they use to assess medical device
value on which purchasing decisions are based. Further we do not have a clear picture of
the ways in which physicians and hospitals interact to make purchasing decisions, and
whether these corridors for communication are collaborative and mutually supportive.
We do not have a clear picture of the types of resources and information used by
physicians and purchasing executives in order to achieve VBP in their hospitals.
1.3 Purpose of the Study
The purpose of this study was to analyze current policies and decision-making processes
pertaining to the purchase of medical devices and delimited specifically to the hip and knee
implants used in hospitals’ orthopedic departments. The study utilized a mixed methods
approach to identify the business practices surrounding value based purchasing (VBP) in
hospitals across the United States of America. The goal of this study was to understand
better the ways in which physicians and hospital executives take part in the purchasing
process. A survey tool was developed to gain the views of the hospital executives who are
the purchasers of the implants on behalf of patients, and the physicians/ surgeons who
select the implants, occasionally in consultation with patients. The survey questions were
framed using the Information Processing decision-making framework modified from
Herbert Simon (Campitelli & Gobet, 2010). A focus group critiqued the survey questions
that included researchers, orthopedic physician(s), hospital executives from finance and
supply management and other experts as needed. After the focus group provided its

15
feedback, the survey was administered to potential respondents who were identified
through professional and personal networks. In addition, through membership and
network with the American Academy of Orthopaedic Surgeons (AAOS) I was able to
identify a wider range of participants across the United States of America. The responses
of both groups were compared in order to assess the external validity of the survey.
1.4 Importance of the Study
This study provides a better knowledge of how the decision-making process used to
procure orthopedic products is viewed by two principal stakeholders, physicians and
hospital executives. This knowledge is important to evaluate the range of current practices
that are used in making such decisions by hospitals and physicians. Hospitals and health
systems can use this information in order to benchmark their activities, identify best
practices and understand the inherent challenges in those processes. More importantly, this
information is valuable to the policy-makers as they try to shape the Value Based
Purchasing for drugs and devices, where they can learn as to how these policies are being
translated and implemented within various healthcare systems in the U.S. By knowing the
concerns of the decision-makers, it will be easier for policy-makers to identify
impediments to the implementation of VBP.
1.5 Limitations and Delimitations
Every study contains limitations and delimitations, at times unknown or predictable. This
study is delineated to the evaluation of purchasing decisions specifically for orthopedic
medical devices, including those for hip, knee, shoulder and elbow, purchased by hospitals
and ambulatory surgery centers in the United States. It did not investigate purchasing
practices outside of the U.S., where healthcare delivery systems are substantially

16
different. Thus, surveys were not sent to hospital executives and/or physicians outside the
U.S.A. It also dealt only with the view of two stakeholders, the orthopedic surgeon and
the purchasing organizations of the hospitals, and did not consider the reimbursement
entities, patients or regulators whose interests might also be important ultimately in any
policy decisions. Further, the survey was distributed to the orthopedic surgeons through
AAOS membership, as it relates to decision-making on hip, knee, shoulder and elbow
devices. Finally, the surgical site, organization and surgeon specialists added another
delimitation in this study. The reconstruction surgeries of limb joints are performed in
inpatient hospital settings. Therefore the survey had to be administered to specialty
orthopedic hospitals, academic and community hospitals providing such orthopedic
services.
The study can be predicted to have limitations. Limitations occur when, for example, the
selection of respondents is nonrandom or when the sample from which responses are
derived does not adequately represent the populations in general. Further, respondents may
possess certain sensitivities when providing answers to surveys. In this particular case, the
hospital executives might not have been sufficiently forthcoming when discussing
physician relationships and physician choices with respect to implants at their facilities. At
the same time, the physician respondents might not have been forthcoming when
discussing medical device choices, especially if such choices depend on a close working or
financial relationship with the industry (RWI). Another limiting factor is my own bias as
the researcher. My background involves working with physicians and hospital executives,
and my experiences may affect my ability to craft nonpartisan, appropriate questions for
the survey. In order to manage my bias as an investigator, the formation of the focus
group was very helpful to critique the survey and identify areas where bias might be

17
obvious. The feedback from the focus group helped improve the quality and impartiality
of survey questions prior to dissemination.
1.6 Organization of Thesis
The thesis contains five chapters. Chapter 1 provides an overview and background of the
research question. Chapter 2 focuses on the review of relevant literature pertaining to
various standards, approaches, and processes applied by the various hospitals with regards
to value based purchasing. Chapter 3 outlines methods used allowing evaluation of
approaches and processes. Chapter 4 reviews survey results and analysis of findings.
Chapter 5 provides an overall summary and conclusion.

1.7 Acronyms
TERM DEFINITION
AAOS American Academy of Orthopaedic Surgeons
ACA Affordable Care Act
ACO Accountable Care Organization
AHA American Hospital Association
AHRQ Agency for Healthcare Research & Quality
AMGO American Medical Group Association
ASC Ambulatory Surgery Center
CMS Center for Medicare & Medicaid Services
CPT Current Procedural Terminology Codes
DHHS Department of Health & Human Services
DRG Diagnostic Related Group
EBMgt Evidence-Based Decision-Making for Management
FDA Food & Drug Administration
GPO Group Purchasing Organization
HMO Health Maintenance Organization
HTA Health Technology Assessment
ICOR International Consortium of Orthopaedic Registries
IHI Institute for Health Improvement
IOM Institute Of Medicine
MAR Medical Arm Race

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OIG Office of Inspector General
P4P Pay for Performance
PCORI Patient-Centered Outcome Research Institute
POD Physician Owned Distributorships
POI Physician Owned Intermediaries
PPACA Patient Protection and Affordable Care Act
PPI Physician Preference Item
PPO Preferred Provider Organization
RP Reference Pricing
RWI Relationship With Industry
THR Total Hip Replacement
TKR Total Knee Replacement
VAC Value Analysis Committee
VBP Value Based Purchasing

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CHAPTER 2. LITERATURE REVIEW
2.1 Introduction
The concept of “value” is widely discussed when medical devices are selected for
purchase. However, value is rarely understood and defined in the same way by key
stakeholders, such as the patients, the physicians, the hospitals and the insurers, who all
participate in the transactions. In this chapter, I will explain how the purchase of medical
devices in the orthopedic sector has transitioned from a patient-based system to one of
increased complexity in terms both of the identities of the decision-makers and the value
equations underlying their decisions. I will then then evaluate current thinking regarding
the way that hospitals and physicians make decisions about the orthopedic implants that
they prescribe for their patients. Finally, I consider how a framework based on decision-
making theory can be used to structure this survey-based research.
2.2 Evolution of Orthopedic Decision-Making
One of the unique aspects of US health care is the manner in which medical products are
purchased. Unlike many other countries, the US does not have a publicly administered
universal insurance program. Instead, healthcare is financed through a multitude of shared
payment pathways that form a complex system shaped by a history rich in political and
economic influence. Its evolution has also been marked by a gradual change in the way
that decisions about choices and structures for the funding of medical treatments are made,
as suggested by the textbook figure shown in Table 1, and discussed below.

20

Table 1: Major Issues in the Development of Health Care in the United States
Figure shows the evolution in 5 epochs from 1850 to Present

In the early part of the 1900s, individuals in the US paid for their own healthcare. In this
less sophisticated time, the medical devices that were available for orthopedic problems
were simple and often custom-made; the head support brace invented by Dr. R.H. Sayre in
1902 for scoliosis patients might be one such example (Fayssoux, Cho, & Herman, 2009;
Mayer, 1950). In the case of more complex products such as surgical implants, which in
early stages were typically such items as nails and rods, decisions regarding device needs
were typically driven by physicians who often took on the responsibility for medical
decision-making on behalf of their patients. Rates of elective surgeries and other medical
interventions were determined in large part by the practice style of the local doctors and

21
geographic variations in the availability of resources and individuals capable of fabricating
custom devices (Pauly & Burns, 2008).
The Second World War marked a time of change in the environment surrounding medical
care (Williams & Torrens, 1993). War-time demand for medical services and products
spurred the development of many medical technologies, and this evolution continued
beyond the war as the knowledge gained in engineering and technology stimulated the
development of new drugs and medical devices of increasing sophistication. The treatment
of heart disease provides a good example of the way in which such new knowledge has
changed the way that patients are managed and products are used. In the 1970s, cardiac
care units were introduced, lidocaine was used to manage irregular heartbeat, and beta-
blockers were used to lower blood pressure in the first 3 hours after a heart attack. It was
at this time also that coronary artery bypass surgery became more prevalent (Williams &
Torrens, 1993). In the 1980s, anticoagulants were used after a heart attack to prevent
reoccurrences, beta-blocker therapy evolved from short-term therapy immediately after a
heart attack to maintenance therapy, and angioplasty was used to image the coronary
circulation after the patients were stable. In the 1990s, more effective drugs were
introduced to inhibit clot formation, angioplasty was used for treatment and
revascularization by implanting stents to keep blood vessels open, cardiac rehabilitation
programs were implemented sooner, and implantable cardiac defibrillators were used in
certain patients with irregular heartbeats (Williams & Torrens, 2002). In the 2000s, better
tests became available to diagnose heart attack, drug-eluting stents were used, and new
drug strategies were standardized for long-term management of patients. Today, a patient
with cardiac problems has an impressive array of potential diagnostics, therapeutics and
devices that affect decision-making and treatment (Williams & Torrens, 2002).

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The gradual addition of new and sophisticated therapies has also affected the way that
doctors and patients approach medical decisions over the last 50 years. For generations,
decisions about healthcare management, and particularly medical devices, were the
purview of doctors. Patients, if they participated at all, often had little ability or
information on which to make a choice (IOM, 2001). Rates of elective surgeries, types of
medical interventions and choice of devices were determined in large part by practice style
and geographic variations in the availability of resources. Decisions were further shaped
by the political and legal environment. For example, physicians might avoid certain risky
interventions, or might order expensive and largely unnecessary tests, because of the fear
of legal suit if a diagnosis were to be flawed or the outcome of treatment were to be poor
(IOM, 2001). More recently, however, the central role of the physician as decision-maker
has been eroded by a number of changes in the health care environment. Other
stakeholders, including the hospitals, the reimbursement agencies, the regulators and the
patients themselves have become more involved in the decision-making (Ventola, 2008).
2.2.1 The Hospital as Decision-maker
The growing importance of hospitals as a primary location for the acute care of patients
appeared to follow changes in treatment methods that were driven by the Second World
War. At that time, the development of antibiotics accelerated rapidly, new surgical
techniques for the treatment of trauma and burns were discovered, and new approaches to
the transportation of the sick and wounded were developed. Hospitals had the specialized
equipment, surgical facilities and imaging capabilities needed for these more modern
treatment approaches, with the result that patients began to receive their interventions in
the hospital. Hospitals also came to be seen as extensions of research laboratories, where
patients went to be cured rather than just tended to (Williams & Torrens, 2002).

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In the earlier years of rapid hospital growth, patients typically paid for the treatments so
that hospitals served in some ways as “hotels” providing beds while doctors provided
billable services. However, the costs of medical care could be crippling if families did not
have some form of insurance, and increasingly the primary purchaser of such care became
the insurance companies. In the US, the system of payments now used for these services
was introduced by Congress in 1983 as the Inpatient Prospective Payment System, or what
more commonly has come to be known as the Diagnosis Related Group (DRG) system.
The core offering of the Diagnostic Related Group (DRG) system is a defined healthcare
“product” supplied by the hospital that provided an episode of care to a patient. This
“product” bundles payments for interventions and supplies related to treatment of a
particular problem (or diagnosis, hence diagnosis-related group) and can include not only a
surgical intervention, but also the costs of supplies, salaries of support personnel, and even
devices used in the interventions (Bushnell, 2013; CMS, 2013a).
The implementation of DRG-based system for Medicare was considered to be a
“revolutionary shift in the balance of political and economic power” between the payers
and the providers (Bushnell, 2013). The initial architects of the DRG system established 23
Major Diagnostic Categories (MDCs) as the first level into which the products were
categorized. The MDCs were then subdivided into DRGs based on factors such as
surgical status, organ system, age, symptoms, co-morbidities, and discharge status
(Bushnell, 2013). The initial DRG system focused primarily on the Medicare population,
who were mostly over 65, and thus had limited applicability to non-Medicare patients such
as infants and children, trauma victims, or people with HIV. In 2003, the All-Patient-
Refined DRG (APR-DRG) system was introduced. It shifted the focus of the system to
emphasize patient characteristics by including adjustments to the calculations of

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reimbursement that were based on various factors, such as the severity of illness, risk of
mortality, prognosis, treatment difficulty, need for intervention, and resource intensity.
Today, the APR-DRG system is commonly used not only by the federal Medicare program
but also by many private payers and some state Medicaid programs (Bushnell, 2013).
The implementation of a DRG system changed the power of the doctor to make decisions
about health care and particularly about the selection of medical technologies that are
normally contained into the DRG envelope, that now were ordered by the hospital.
Hospitals became the paymasters and bore the costs of DRG-included devices. This
created a new challenge because insurance payments generally did not rise at the same rate
as the costs of treatments, especially complex treatments that included diagnostic imaging
of the patient or surgical implantation of a sophisticated medical device. The budgets of
hospitals became squeezed by the shrinking differential between rising costs for medical
products and allowable reimbursements by insurance carriers. Christine Maroulis, Director,
Health Economics and Reimbursement, at Ethicon noted:
“As hospital revenues have been constrained and reimbursements have
decreased, hospitals are looking everywhere to find savings, so we’ve
definitely witnessed this change in our customer’s perspective over the
last few years. For example, between 1991 and 2004 the cost of
implanted orthopedic devices rose by 132%, whereas hospital
reimbursement rose only by 16% (Trombetta, 2007). The problem of
rising costs was compounded by the growing demand for procedures for
which medical devices were required. According to the National Center
for Health Statistics (NCHS), the numbers of knee replacements
increased by 40% between 2000 and 2004 and are predicted to grow by
another 673% by the year 2030 (Montgomery & Schneler, 2007). In
response to these changes, hospitals became less and less enthusiastic
about the devices often chosen by physicians who might be less
concerned about the cost of the device than about its ease of use,
advanced functionality or better safety profile. Hospitals became
decision-makers as they began to resist the choices made by physicians
and instead began to order devices in bulk from specific manufacturers
with whom favorable contracts could be negotiated.”

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2.2.2 The Regulator as Decision-maker
The role of regulatory agencies as gate-keepers and decision-makers appeared to lag the
growth in medical technologies. The first legislation assigning a role for medical
technologies to a regulatory agency appears to be the Pure Food and Drugs Act of 1906.
However, this Act did not include medical devices, presumably because they were still in
an underdeveloped state and did not seem to present the same degree of risk to the patients
compared to drugs. Nevertheless, by 1917, fraudulent medical devices, such as nose
straighteners, height stretching machines, and heated rubber applicators advertised as a
cure for prostate gland disorders, began to flood the market (FDA, 2006). It was clear to
the FDA that the law should be expanded to assure FDA authority over medical devices, if
only to remove the fraudulent devices from the market. In the 1937 Food, Drug and
Cosmetic Act, definitions clearly included medical devices as an explicit regulated
category over which the FDA had authority to exercise provisions related to adulteration
and misbranding. Devices were defined as:
an instrument, apparatus, implement, machine, contrivance, implant, in
vitro reagent, or other similar or related article, including a component
part, or accessory which is:
recognized in the official National Formulary, or the United States
Pharmacopoeia, or any supplement to them,
intended for use in the diagnosis of disease or other conditions, or in the
cure, mitigation, treatment, or prevention of disease, in man or other
animals, or
intended to affect the structure or any function of the body of man or
other animals, and which does not achieve its primary intended purposes
through chemical action within or on the body of man or other animals
and which is not dependent upon being metabolized for the achievement
of any of its primary intended purposes (FDA, 2006).

26
Until the 1960s, most of the regulatory attention in the device sector was directed toward
post-market policing. However, during the 1960s and into the 1970s, a number of
implantable and often life-saving medical devices began to appear that had significant risks
to patients (FDA, 2006). However, after many years of debate in Congress, new legislation
was enacted specifically to change the way that medical devices and related technologies
were handled at the premarket stage. While signing the new law, President Gerald Ford
said: “The Medical Device Amendments of 1976 eliminate the deficiencies that accorded
FDA ‘horse and buggy’ authority to deal with ‘laser age’ problems.”
The new Act gave the FDA’s Center for Devices and Radiological Health (CDRH) wider
responsibilities for regulating firms that manufacture, repackage, re-label, and/or import
medical devices sold in the United States. Key to the regulatory management of devices
in the eyes of the FDA was the concept of risk. In the regulations that followed to
operationalize the law, FDA divided all devices into three risk-based classes, with varying
amounts of control required for each class. Devices in Class I included the least risky
devices and had relatively low requirements, such as registering the manufacturer and
product on the FDA’s database, but typically did not have to notify or gain approval from
the FDA before commercializing the product. The other two classes, however, had
premarket requirements to be satisfied and submissions to be made to the FDA prior to
marketing. Through these submissions requirements, FDA became a de facto decision-
maker with the capability to deny market access to certain devices (FDA, 2006).
Over the last 40 years since the Medical Device Amendments were enacted, numerous
additional regulations were introduced to control further the ability of manufacturers to
commercialize devices judged to be inappropriate for sale for one reason or another. The

27
details of these rules are beyond the scope of the dissertation topic here (King, Fries, &
Johnson, 2015). However, the increasingly rigorous requirements not only for design
controls and risk analysis in the premarket period but also for quality systems during
manufacturing had a huge impact by restricting the ability of manufacturers to market
products. The regulatory agency became a decision-maker, both by preventing certain
products from being marketed, and by serving as a conduit for information about problem
products. Such information could then be used, often with huge consequences, to influence
purchasing decisions by insurance companies, hospitals and doctors to choose different
products. An example of this kind of power is evident, for example, in the case of DePuy
Medical’s experiences with metal-on-metal hip implants. Problems with premature wear
and with FDA pre-notification requirements (FDA, 2011) caused FDA to recall more than
8000 implantable devices for hip replacement in 2012, and caused many purchasers to
select other kinds of products. As a result DePuy made the decision to stop the production
of custom devices (Sandberg, 2012), presumably because of the serious negative effects on
sales projections and liability concerns (FDA, 2014). The regulatory concerns further
drove third party payers to withhold reimbursement of the problematic implants (Depuy-
Synthes, 2014).
2.2.3 The Health Insurance System as Decision-maker
A crucial stakeholder in today’s decision-making process is the health insurance system.
Before the development of health insurance programs, patients had no form of social
support to protect themselves financially in the face of sudden catastrophic medical
problems for which they were unable to pay. The period immediately after World War II
therefore witnessed the growth of plans to provide health insurance. The early Blue Cross
and Blue Shield plans were started by voluntary hospital groups and state medical societies

28
respectively. In late 1960s, commercial insurance companies also emerged to offer a wider
range of life, health, disability and retirement plans as part of employee benefits. As a
result, the percentage of Americans covered by some form of health insurance rose from
less than 20% at the end of World War II to over 70% by the year 2001. Typically, these
insurance policies paid for most of the medical bills of its insured subscribers. Thus, the
insurers acquired a major influence on the decision-making process (Williams & Torrens,
2002).
The system of insurance in the US is in some ways quite unique. Unlike many other
countries, the US does not have a publicly administered universal insurance program.
Instead, as a result of the historical evolution of its system, healthcare is now financed
through a multitude of public and private insurance programs. The government is still an
important player, because it is responsible for two major plans, the Medicare and Medicaid
public healthcare programs (Williams & Torrens, 2002). However, “purchasers” of
healthcare products and services also include employers and purchasing cooperatives for
private health care programs. “Purchasers” are defined as public and private sector
entities that subsidize, arrange and contract for the cost of health care services received by
a group of beneficiaries (Schoen, Davis, How, & Schoenbaum, 2006).
Reimbursement policies are important because they can shape the practice of medicine by
shaping the treatments for which the insurance policy will pay. Medical device
manufacturers depend on insurance reimbursement to create favorable conditions for
selling their products. As noted by Maroulis:
“With the introduction of a new device, we are often creating entirely
new medical procedures that require the establishment of new codes,
new coverage policies and new payment methodologies” (Ventola, 2008)

29
Physicians and hospitals depend on reimbursement to offset the costs of adopting new
products and procedures into medical practice. Reimbursement policies consequently
serve as an influential gatekeeper for new medical technologies and procedures that often
are not reimbursed until an adequate body of clinical evidence regarding effectiveness and
cost-effectiveness can be established. They also have become an area of conflict in which
the high costs of the newest products affect the ability of the payer to control health care
and insurance costs (Raab & Parr, 2006).
One particularly influential insurance system in the US is the government funded
Medicare/Medicaid program. Medicare is the largest purchaser of health care services in
the U.S., providing health insurance coverage for more than 41 million people and
accounting for 20% of all health care spending. Even after the large size of the program is
factored out, the decisions that are made by Medicare have a disproportionate influence
because the reimbursement policies as published through the Federal Register and CMS fee
schedule form a benchmark for private payers who use these payment rates when setting
their own rates. Private payers typically pay a certain percentage above the Medicare
rate, and public programs, such as Medicaid, pay some percentage below. However, the
determination of reimbursement policies by Medicare is often delayed. A study by the
Lewin Group found that it took the CMS from 15 months to five or more years to add new
medical technologies to the Medicare program. This presents a reimbursement hurdle for
practitioners, hospitals and the manufacturers, because most medical devices have life
spans of only 12 to 18 months. Thus, providers may offer older technologies to patients
because they are more easily reimbursed; for example, the older products may have an
established billing code to facilitate rapid payment using an electronic rather than manual
billing route. Even for those products with longer histories and established billing codes,

30
tightly constrained payment rates may drive providers to choose the cheapest products in
order to increase the potential for profit from the medical treatment as a whole, because the
cost of the device is bundled into the cost of the treatment (HHS, 2006).
2.2.4 The Patient as Decision-maker
A fourth stakeholder who was silent in many respects for much of the history of medical
care has been the patient. Traditionally, the patient left decisions about medical care and
medical products in the hands of the doctor. This paternalistic decision-making process
began to change in the late 1960s and 1970s, as movements calling for patient
empowerment grew (Emanuel & Emanuel, 1992) and medical ethicists began articulating
principles regarding ethical care of patients in such documents as the Belmont Report of
1979 (Cassell, 2000). However, much of this thinking was directed at protecting patients
through informed consent, particularly in clinical trials, rather than consulting and
empowering them as part of shared decision-making. Only recently has this fourth
stakeholder emerged as a real decision-maker driven by a few new and powerful forces.
Two that have been particularly powerful in bringing the patient into the decision-making
process have been the rise of social media and direct to consumer advertising.
The effective sale of product by manufacturers in the device sector depends on promotional
activities that traditionally were directed only at the physician who prescribed the products.
More recently however, the device manufacturers have identified that pharmaceutical
products can be marketed with great success directly to the consumer. Thus over the last 5
years, an increasing number of media channels feature promotional materials directed at
the consumer (Patsner, 2013) . Further, consumers can much more easily find information
about treatment choices from new information sources residing on the Internet, and can
hear about the experiences of others from social media and patient blogs. Thus, patients

31
are becoming more educated about choices of manufacturers, surgeons, products and
procedures (Burns, 2007; Montgomery & Schneler, 2007). Armed with this information,
patients are entering the offices of their providers with questions and concerns about the
choices for their care.
Despite regulatory cautions, spending for direct-to-consumer (DTC) advertising for
medical devices grew from almost nothing in 1996 to nearly $50 million in 2005, and more
than one-quarter of companies making medical devices report engaging in DTC campaigns
(Montgomery & Schneler, 2007). In addition, the move toward patient spending accounts
and higher health-plan deductibles have the potential to make patients more vocal in
expressing their product selection preferences, often formed as a result of DTC efforts
(Montgomery & Schneler, 2007).
Apart from the selection of particular products, patient involvement has been recently
encouraged as part of a broader strategy to manage both disease and wellness. In a 2012
NEJM editorial, Bardes noted that patient-centered care represents the next step in a
general trend to make both the patient and the physician central actors in the doctor-patient
interaction. Nevertheless the role of the patient in decision-making is often limited to
certain types of products. For example, patients may be consulted about the choice of
devices when some user interface or attribute, such as a control pad, may affect the ability
of the patient to use the product. Patients often have strong feelings about the acceptability
of certain types of wheelchairs. However, patients are typically not so strongly involved in
the choice of their pacemakers or deep brain stimulators (Bardes, 2012).

32
2.3 Current Environment for the Purchasing of Implantable Devices
Until quite recently, purchasing decisions for implantable devices appeared to be made in a
relatively informal way, often related to the personal preference or industry relationship of
the physician. However, as the costs of health care rose, it seemed clear that this way of
making decisions was not sustainable, and it would be necessary to move significantly
away from Fee-For-Service (FFS) payments as the main source of payment (CMS, 2012b).
A growing body of evidence suggests that a significant percentage of the money that
employers and other healthcare purchasers are spending encourages poor quality by
allowing overuse, misuse (e.g. medical errors), and waste (Kohn, Corrigan, & Donaldson,
2000). For example, according to a study by the Midwest Business Group on Health, the
Juran Institute, and the Severyn Group, the direct cost of poor quality of care for employers
is estimated to be approximately $1,350 per employee per year, while the indirect cost of
poor quality care, including lost time and productivity, is at least $340 per employee per
year (Mortimer, DeFeo, & Stepnick, 2000).
The concern became reflected in the Patient Protection and Affordable Care Act (PPACA),
commonly called the Affordable Care Act (ACA) that was signed into law on March 23,
2010. PPACA stimulated a major redesign of the US healthcare system, by legislating
mechanisms that had the potential to increase the value derived from medical products and
treatments. It introduced new avenues for insurance coverage, raised revenue through
taxation, and reorganized the way that money was provided for goods and services
(ProQuest, 2010). Many of its provisions are beyond the scope of this dissertation.
However, certain mechanisms, such as value-based purchasing, accountable care
organizations (ACOs), bundled payments, and patient centered care, are shaping the
landscape of medical device purchasing.

33
The PPACA mentions the word “value” repeatedly throughout its text (ProQuest, 2010) as
it attempts to shift payments for health care from a “volume-based” to a “value-based”
system through the use of various incentives. Examples of such incentives include pay-
for-performance programs that reward improvements in quality metrics; bundled payments
that reduce avoidable complications; and global trend-rate targets that tie upside and
downside payments to specific quality scorecards in addition to actual to target cost trend
rate (HCi3, 2013). All of these incentives and programs share a common goal, to slow the
increase in the total cost of care by encouraging a reduction in the reported 30% of wasted
healthcare dollars (CMS, 2013b). These goals are consistent with a methodology recently
discussed extensively by third party payers, including both the government (CMS) and
commercial insurers, called Value Based Purchasing (VBP) that aims to align approaches
that will provide better care, but will lower costs by improving efficiency and health
outcomes. It directs every healthcare organization to improve its methods for treatment
standardization, to implement measures that assess patient experience and satisfaction, and
to report patient outcomes and costs of services in a transparent way (CMS, 2010a).
2.4 Value Based Purchasing
According to the Agency for Healthcare Research and Quality (AHRQ) (an outcome
research division under the Department of Health & Human Resources “DHHS”), Value
Based Purchasing (VBP) can be described as follows:
“The concept of value-based health care purchasing is that buyers should hold
providers of health care accountable for both cost and quality of care. Value-based
purchasing brings together information on the quality of health care, including
patient outcomes and health status, with data on the dollar outlays going towards
health. It focuses on managing the use of the health care system to reduce
inappropriate care and to identify and reward the best-performing providers. This
strategy can be contrasted with more limited efforts to negotiate price discounts,

34
which reduce costs but do little to ensure that quality of care is improved.”(AHRQ
& HHS, 2012)
VBP can be broadly considered to be a function of quality, efficiency, safety and cost of
medical care. The use of a value-based system constitutes a major change for the health
care system. As stated by Professor Michael Porter of Harvard School of Business:
“As major purchasers of healthcare services, employers have the clout to insist on
change. Unfortunately, they have also been part of the problem. In buying
healthcare services, companies have forgotten some basic lessons about how
competition works and how to buy intelligently.”(Porter & Teisberg, 2004)
The use of a value-based system as part of the approach mandated by the Affordable Care
Act requires the participation not only of multiple stakeholders who provide input on
different aspects of quality that would be important in assessing value, but also the
availability of data to support the decision-making process. Rather than simply paying the
bills, insurers, hospitals and other providers must be able to measure, monitor, and improve
the quality they get for the dollar spent. Healthcare providers are kept accountable for the
quality and cost of the healthcare services by a system of rewards and consequences,
conditional upon achieving pre-specified performance measures (CMS, 2010b). For
instance, under the “value based payment modifier” program, which will be phased in over
the next 3 years, CMS will adjust payments to physicians based on their assessments of the
quality of care compared to costs. High and low performers with respect to specified
quality outcomes will have their payments adjusted upward or downward respectively.
Smaller and solo physician practices have been encouraged by CMS to use 2014 practice
guidelines to help them participate in the value-based payment modifier system in 2015.
Because physicians have been engaged in the exercise, they may be motivated to examine
the value of purchasing decisions that they request or make.

35
The most critical ingredients to VBP are standardization, comparative analysis, transparent
information on patient outcomes, healthcare status, patient satisfaction and experience, and
costs of providing services. Both HHS and CMS have identified that they intend to
implement VBP modifiers, because they express confidence that this approach unlike the
Medicare-fee-for-service (FFS) payment system, will reduce the use of excessive and
overly expensive services and add incentives to pay for products of high value (CMS,
2010b).
2.5 Current Payments Options
The current questions about the efficiency of health care spending necessarily direct
attention toward the DRG system which has been so central to the reimbursement of
medical treatments. Within such a system value can only be achieved if every
contributing cost element- the surgical procedure, device, and professional and hospital
care- is assessed critically. Traditionally, hospitals have broken these various components
into different assessment tracks.
2.5.1 Control by Formularies
Perhaps the most formalized track for hospital-based purchasing is that for pharmaceutical
products. Pharmaceutical products are typically chosen to belong to an approved drug list
called a formulary by a formalized committee, the Pharmacy & Therapeutics (P&T)
committee (Ventola, 2008). Belonging to this committee are physicians, pharmacists, and
other specialists who evaluate potential drugs to be included in the formulary according to
their efficacy, safety, outcomes and relative costs. Sometimes special advisory
subcommittees are developed by the parent committee in order to research specific drugs.
These committees also play a wider role in many hospitals to evaluate adverse events, to

36
establish policies related to drug access and administration and to specify areas that should
be investigated using risk management methods.
The potential to treat medical devices like drugs, with the formation of P&T-like
committees for device acquisition, has been suggested in the past (Ventola, 2008).
However, they have not as yet been used to make decisions about device purchases. As
stated by Vogenberg:
“…with drugs, very clearly the P&T committee is the final decisions maker but it is
generally not the final maker for medical devices… Typically, a P&T committee
doesn’t get directly involved in reviewing medical devices but may be advisory to a
surgical or medical supplies committee. A P&T committee would get involved only
in a secondary or tertiary role to make sure medical device authorizations
coordinate with everything else that is going on in a hospital. The absolute final
decision would be by the medical executive committee in a hospital.” (Ventola,
2008)
Part of the reason why P&T committees are not used for devices is that this may not be as
straightforward or feasible as it is for drugs. One obstacle to the creation of a medical
device review process by a P&T committee is that clinical trial data related to medical
devices is relatively sparse. The limited data that does exist may not provide sufficient
insight into therapeutic equivalencies and treatment outcomes compared to that typically
associated with drug treatments for pharmaceuticals (Montgomery & Schneler, 2007). In
addition, FDA’s requirements for long-term safety and efficacy can be less stringent for
medical devices. Because many new devices are brought to market much more rapidly
through a pre-notification rather than a preapproval pathway (Kahan & Meyers, 2009), it
can be difficult for an arm’s length organization comprised by busy individuals with other
jobs to stay current with all of the model changes. However, the subtleties of the model
changes can be important for therapeutic efficacy and acceptability or for overall costs of
administering the treatment (Montgomery & Schneler, 2007). Assessment of product

37
equivalencies for items with different features developed by diverse manufacturers can
therefore be difficult (Montgomery & Schneler, 2007). Further, cost comparisons or
effectiveness evaluations are not always possible because manufacturers rarely reveal
pricing voluntarily (Montgomery & Schneler, 2007). As stated by Nash:
“Pricing is largely hidden from the public analysis process, especially when you
factor in rebates, discounts, and all kinds of separate payment schemes.” (Ventola,
2008)
Data on clinical outcomes is also difficult to interpret given the multiple variables that can
affect the response of a patient to a specific device. It is more difficult to substitute an
alternative surgical implant if a patient does not respond well to the one specified by
formulary and that now resides in the body of a patient so initial choices are critical and
often depend on the knowledge of the physician based on experience (Montgomery &
Schneler, 2007). Rather, surgeons may need to customize their selection according to
specific patient needs and their surgical training experience (Guezuraga & Steinbring,
2004), so limitations in the choice of manufacturer or device may not be desirable.
2.5.2 Reference-Based Pricing and Purchasing
Another method that is often used for the purchase of hospital products and especially for
the purchase of drugs is reference-based pricing. In most businesses, reference-based
pricing is a term that reflects a marketing and pricing strategy used by the seller. In
healthcare, however, reference pricing is a strategy often used to manage expenditures by
the payer. In either case, however, the seller or payer creates a “reference price” (RP) for a
product (Kim, Kumler, & Page, 2014). In the hospital setting, typically the payer
establishes the RP for a class of product based on a relatively low-priced product in the
group. The RP becomes the maximum amount that will be paid for any product in the
group. Manufacturers may charge a price above the RP, in which case the patient must pay

38
the additional amount as a surcharge. If the manufacturer’s price is less than the RP, the
savings may be shared between the payer and the dispensing pharmacist, depending on the
structure of the purchasing system. Using RP alone, the buyer is quality-neutral; the
methodology is designed primarily to control costs and payment variations. It only
addresses quality insofar as it stimulates competition (Kim et al., 2014).
In recent months, RP has provoked a great deal of controversy as payments for health care
items and services such as devices are reviewed. Under RP, a payer offers to pay a fixed
price for an item or service – for example a medical device or a hip replacement surgery.
The plan member (usually the patient) can then go to any physician and hospital that will
provide the item or service for that price, or to a higher priced provider, in which case the
patient will have to pay the difference between what the price offered by the insurer and
the price charged by the provider (Jost, 2014).
2.5.3 Health Technology Assessment
The routes used to purchase medical products identified above depend largely on local
decisions made by purchasers close to the point of use of the product. Another way that
drugs, and more recently devices, have been identified as appropriate for use in a wider
clinical environment is by basing the purchasing decision on assessments of a state- or
nationally-configured body that is given the resources to conduct a deeper cost-benefit
analysis. These bodies conduct what is called a Health Technology Assessment (HTA).
HTA is a multi-disciplinary field of policy analysis that examines the medical, economic,
social and ethical implications of the incremental value, diffusion and use of medical
technology in healthcare (Hailey, Babidge, Cameron, & Davignon, 2010). HTA
committees or institutes were first introduced in countries where a strongly socialized
health care system could make centralized decisions about the appropriateness of certain

39
highly priced drugs or other products. They attempted to provide analyses considered too
expensive for individual providers to carry out effectively. Such assessments require a
workgroup specifically trained in the appropriate methodologies for technology assessment
and whose members have the time and resources to undertake the costly and difficult
analyses that can be required.
Perhaps the best known HTA group is that in Great Britain, formed as the National
Institute for Health and Clinical Excellence (NICE) in 1999. According to their website,
NICE is tasked with: a) producing evidence based guidance and advice for health, public
health and social care practitioners; b) developing quality standards and performance
metrics for those providing and commissioning health, public health and social care
services; c) providing a range of informational services for commission, practitioners and
managers across the spectrum of health and social care (NICE, 2013).
Similar assessment bodies are present in many other countries of Europe, Canada and
Australia (e.g., Canadian Agency for Drugs & Technologies in Health – “CADTH”)
(CADTH, 2014), and (e.g. Australian Government Department of Health Services HTA)
(Australian Government, 2010). In these highly centralized health-care insurance systems,
activities and resource allocation appear easier to justify and have generally been more
accepted by constituents. Decisions made by the body responsible for the HTA are
intended to provide a systematic approach that uses scientific data to guide decision-
making. These decisions serve as the underpinning for Value Based Purchasing (VBP). In
centrally-controlled health systems, it is easy to see how the translation can occur; products
deemed as too expensive or ineffective are simply not paid for by the governmental
insurance scheme.

40
In the US, VPB is more complicated because decisions are decentralized. Further, the
formation of HTAs has been more politically charged. Because such committees often
recommend against the use of expensive technologies when they provide only marginal
gain in life expectancy or quality of life, they have been labeled as “death panels” and have
generated considerable backlash against the government’s “power over life and death”
(Book, 2013). Nevertheless, and despite the many concerns about restrictions on access to
expensive technologies, a Patient-Centered Outcomes Research Institute (PCORI) has
recently been funded by Government Accountability Office. PCORI provides a working
definition:
“Patient-Centered Outcomes Research (PCOR) helps people and their caregivers
communicate and make informed health care decisions, allowing their voices to be
heard in assessing the value of health care options.” (PCORI, 2014b)
The main function of PCORI is to provide data in the form of Comparative Effectiveness
Research (CER). The Institute of Medicine Committee has defined CER as:
“…the generation and synthesis of evidence that compares the benefits and harms
of alternative methods to prevent, diagnose, treat, and monitor a clinical condition
or to improve the delivery of care. The purpose of CER is to assist consumers,
clinicians, purchasers, and policy makers to make informed decisions that will
improve health care at both the individual and population levels.” (Committee on
Comparative Effectiveness Research & Institute of, 2009)
The core goal of CER is to decide which treatment works best for whom, and under what
circumstances (PCORI, 2014a). PCORI will allow patients and care givers to actively
participate in the treatment and care plans by having a voice in determining what values
they place on certain aspects of quality. In addition, by applying the concept of value
based health care purchasing, buyers can more easily hold healthcare providers accountable
for both cost and quality of care (Mullen, Frank, & Rosental, 2010). Through this process,
better price discounts are anticipated to become available. HTA can also help to assess the

41
quality of technology, while allowing an efficient system of rewards, known as Pay for
Performance.
2.6 Orthopedic Implants as a Case Study of Decision-making
In this research, the way that decision-making occurs for medical devices is explored using
a specific example, that of orthopedic implants, that was chosen because this subsector of
the industry is both large and easily defined. Many of the problems identified above are
brought into sharp focus because of the high cost and extensive use of such devices. Hip
and knee replacement surgeries are two of the most commonly performed and effective
operations in the United States. Data supplied by AHRQ on trends in hip and knee
arthroplasties shows that in 2004, knee arthroplasty (replacement) procedures were
responsible for 488,000 hospital stays , with a mean length of stay of 3.9 days and mean
cost of $13,200 per admission (AHRQ, 2007). Further 368,000 total and partial hip
replacements were carried out with a mean length of stay of 5.0 days and mean cost of
$14,500. Aggregate costs were $6.3 billion for knee replacements and $5.3 billion for hip
replacements (AHRQ, 2007). As early as 2000-2004, knee replacement became one of the
top ten commonly performed procedures, with the most rapidly increasing hospital
inpatient costs for all payers.
The need for hip and knee implants is expected to increase markedly over the next decade,
in large part because of the anticipated growth in the geriatric population relative to other
age groups and the rise in obesity (Kurtz, Ong, Lau, Mowat, & Halpern, 2007) that puts
more strain and wear on hip and knee joints. There also appears to be a correlation
between the increase in reimbursement rates and the cases of total knee replacements, total
hip replacements, neck fusions, and lumbar fusions. In 2010, CMS reported an increase

42
of 4.3% ($1,418) in reimbursement to physicians for a total hip replacement, and increased
between 3.3% to 5.2% for partial hip, and total and partial knee replacements (Figure 1).
Figure 1: Medicare Physician Reimbursement by CPT Code
Retrieved from: (Biomet, 2012) Source: CMS Physician Fee Schedule, available at
www.cms.gov

Table 2 shows that payments to hospitals for hospital stays have also increased by on
average 2.77% for total joint replacements on an annual basis. A comparison study of
average cost of implant acquisition by hospitals shows a decrease of 0.5% for the same
period. Thus the modest decrease in price may not be significant because it could be
explained by and increased number of “volume-based” purchasing agreements in the face
of the increased number of procedures overall.

43
Table 2: Hospital DRG Reimbursement vs. Average Implant Cost per Procedure
Retrieved from: (Biomet, 2012) available via subscription at
www.orthopedicnetworknews.com

The demand for total joint replacement surgery is accelerating as baby boomers reach
retirement age. According to one estimate, the number of hip replacements in the United
States will increase by 174 percent from 2005 to 2030, while knee replacements are
expected to rise by approximately 673 percent (Kurtz et al., 2007). Another estimate shows
Medicare spending on total joint replacement surgeries rising from $5 billion in 2006, to
almost $50 billion in 2030 (Wilson, Schneller, Montgomery, & Bozic, 2008).
2.6.1 Past decision-making processes: A dual stakeholder paradigm
As the above descriptions suggest, today’s methods for choosing and paying for devices
are not in the hands of a single stakeholder. In the case of orthopedic devices the decision
has largely been shared by two principal groups, who must work together for the success of
the orthopedic department or service, yet have very different motivations. Hospitals have
two primary concerns when it comes to equipment acquisition. First is the need to control

44
costs, but second is the need to recruit and foster excellent surgeons who allow specific
programmatic or service-line development in areas that will bring patients to the hospital.
In the latter case, hospitals have physician-recruitment strategies, that are an integral part
of their service line development and/or expansion, and that depend to some extent on
meeting the needs and expectations of those physicians (Berenson, 2007). Therefore,
hospitals are not in a position to ignore physician preferences with regard to equipment and
supplies that are part of the decision-making processes. If a physician expresses a strong
preference for a medical device, the hospital’s purchasing power can be limited even if the
device is more expensive than competitive products (Berenson, 2007).
This situation is not immutable, however. Payers, especially CMS, have targeted the
DRGs for total joint replacements as an area in which cost should be controlled (Wilson et
al., 2008). Joint implants are the greatest expense in these surgical procedures, so that
hospitals now must scrutinize the cost of joint implants as the rate of increase in price of
implants rises faster than the rate of increase in hospital reimbursements. Initiatives such
as Value Analysis Committees (VAC) have therefore been implemented in some hospitals
in the hope that they will be able to influence implant use and cost, and form part of
broader initiatives to establish a more systematic approach to Value-based Purchasing
(CMS, 2012b).
The efforts of hospitals to influence the decisions of orthopedic surgeons have not always
been successful. Physicians can have different values and incentives in making their
decisions about implants. A surgeon, for example, may define value by the ease of use of
an implanted product, or the level of satisfaction with the surgical outcomes amongst their
patients. These outcomes are important drivers but are often not easy to express with a

45
reliable metric. Further, the choice of device and clinical success of the implant often is
influenced by the relationship that has developed over time between a physician and device
firm (Robinson, 2008). Device firms support physicians by training them in product use,
by supporting their ongoing needs and concerns (Robinson, 2008), and even by providing
professional and monetary in the form of income when the physicians participate in clinical
trials, speakers’ bureaus, advisory committees and other types of consultative and business
relationships (Bulleit, Immelt, & Wisor, 2009). Sales representatives further foster
physician-company relationships by attending surgical interventions so that they can
provide necessary technical support and learn about modifications to the devices that might
add value to the surgeon (Bulleit et al., 2009). To the physician, such support is often
crucial to staying current with new methods and device options, and may have a large
effect on the choice of device to be implanted in a patient (Robinson, 2008). Thus, business
arrangements involving physician ownership, investment or some type of financial
agreement have become quite common in the recent years.
Establishing appropriate boundaries between practicing physicians and the industry has
been a key area of concern. The US Office of Inspector General has been reporting some
disturbing facts about close relations between physicians and the Industry. The reports
indicate that medical device companies manufacturing or distributing implantable medical
devices, who have already under scrutiny in consent agreements for their attempts to
influence physicians through direct payments, are trying to find ways to circumvent the
perceptions that they are funding physicians to influence buying decisions yet maintain
those relationships. This has resulted in the creative use of investment shells held by third-
party groups that can distribute profits to physicians who implant their devices in patients
(Bulleit et al., 2011). These arrangements differ from one company to another, although

46
they share the end result of providing a way to give financial incentives to surgeons in a
manner invisible to the patients (Bulleit et al., 2011).
In October 2006, the Office of Inspector General of the Department of Health and Human
Services (OIG) indicated it was “aware of an apparent proliferation” of Physician Owned
Intermediaries (POI) and stated that “given the strong potential for improper inducements
between and among physician investors, the entities, device vendors, and device
purchasers”, the OIG believed that “these ventures should be closely scrutinized under the
fraud and abuse laws.” More recently, OIG officials indicated in Congressional testimony
that POIs “raise substantial concerns that a physician’s return on investment from the
venture may influence the physician’s choice of device” (Bulleit et al., 2009). Opponents
of POIs and PODs argue that the arrangements create an ethical conflict of interest
distorting medical decision-making based on financial benefits, rather than quality of care
for patients. It also provides an environment for overutilization, because the more
procedures that a surgeon performs, the more commission that physician can earn from the
sale of the product (Bulleit et al., 2009).
The differing value systems identified above often contribute to disagreements over how
best to provide services and product to patients. Physicians can feel that the concerns of
hospital administrators with regard to controlling costs make them less sensitive to the
needs of patients. In contrast, hospitals may have vendor management policies that are
viewed as restrictive or intrusive by both vendors and the surgeons (Wilson et al., 2008).
The hospital’s profit from each surgical case depends on whether the surgeon chooses a
basic or upgraded device, whether that device is purchased from a vendor with which the
hospital is able to negotiate a lower price and whether the device is covered by a contracted

47
rate or is considered a novel technology with a high list price (Robinson, 2012). Hospitals
can only negotiate lower prices from vendors in exchange for higher volumes. To facilitate
such high volume purchases, hospitals may require that physicians switch medical product
brands. Many physicians will fiercely challenge the suggestions of hospital executives,
and object to efforts that force them to switch device brands. Such disagreements force
the hospital purchaser and the physician to confront decisions about who will be the
ultimate decision-maker for the purchase of costly medical devices (Robinson & Brown,
2013).
2.7 Current and Future Directions for Purchasing Orthopedic Implants
As consumer advocates push for greater pricing transparency, the evidence points to major
disparities between the costs of medical devices as well as reimbursement for the
respective procedures. Currently, we are not sure how the decisions to acquire implants
are being made. However it is clear that whatever the strategy, it is important to decrease
and control costs.
Some of the arguments that have been made by key stakeholders with regard to purchasing
decisions are not new. The American Academy of Orthopaedic Surgeons issued a
statement in 1994 that focused on three points in relation to the decisions about orthopedic
implants. First, the surgeons firmly believed that decisions on selection and use of
implants should be made by the orthopedic surgeon. Second, orthopedic surgeons should
work cooperatively with hospitals to adopt reasonable criteria for the selection of implants
on the basis of patients’ needs. Third, strategies must be developed for cost containment
(Clark, 1994). Almost twenty years later, their opinion stays the same ( Kim, Kumler, &

48
Page, 2014), despite of skyrocketing healthcare costs, lower reimbursement rates, and an
impending healthcare reform.
Dr. Kevin Bozic, vice chair of department of orthopedic surgery at UCSF, believes that the
only way to achieve a better pricing and reimbursement structure for all physicians and
hospitals is to adopt a collaborative process whereby a four-phased strategy is adopted.
The phases include: 1) analysis of the usage of implants; 2) development of awareness of
the problem on part of the orthopedic surgeon; 3) development of competitive bidding
system; and 4) establishment of a prosthesis-utilization committee to oversee and review
the process. The goals of the strategy are to initiate a cost-containment system that allows
each surgeon to maintain the same high quality of orthopedic care based on best practices.
Dr. Bozic believes that the surgeons must be fully involved in this process, and must be
willing to make any changes or adjustments to their utilization and purchasing criteria.
They must be willing to abide by the rules that they have created for themselves and their
colleagues through the creation of committees (Bozic, Rosenberg, Huckman, & Herndon,
2003).
Part of the problem that currently exists is the lack of transparency regarding pricing and
purchasing activities. The Accountable Care Act enforces the pricing transparency
requirement, which might help to clarify some of the factors underlying the purchasing
decisions that are made for joint implants. In a recent article published by the New York
Times (NYT), the disparities in hospital charges were significant throughout the United
States. The NYT article noted that a major joint replacement surgery in an academic
medical center in the Southern California region was “six times the average amount that

49
Medicare reimbursed for the procedure and a rate significantly higher than the average for
other Los Angeles area hospitals” (Meier, Mcginty, & Creswell, 2013).
Such public awareness creates pressure on the hospitals and providers to evaluate carefully
their pricing and charges to the insurance payers, and implement parity within the
healthcare system. It is important to note that the Affordable Care Act directs the Medicare
program to examine the use of bundled payments for total joint replacement surgery
(meaning a single payment for all hospital, physician, post-acute, and home care involved
in surgical case) from three days before hospital admission until 30 days after discharge, as
a test case (Mechanic, 2011).
2.8 The CalPERS Experience
In orthopedics, RP can be applied to implants. Challenged by the rising costs of orthopedic
implants, hospitals have employed different strategies (Kim et al., 2014). Various methods
are used to control implant cost such as: a) contracting with a single or limited
manufacturer(s) to obtain deep discount; b) discouraging a surgeon’s choice of expensive
implants; c) favoring surgeons with lower implant costs; d) restricting high-cost implants
from being used in the facility by various mechanisms. With regard to the latter approach,
some employers are implementing reference-pricing benefit designs to limit the amount
that they will pay for some procedures covered by employer-sponsored insurance.
Employees are required to pay the difference between the employer’s contribution limit
and the actual price received by the hospital. These initiatives encourage patients to select
low-price facilities and indirectly encourage facilities to reduce prices to increase patient
volume (Robinson & Brown, 2013).

50
The California Public Employees Retirement System (CalPERS) implemented a reference-
pricing model for hip and knee arthroplasty. CalPERS instituted the RP program in 2011
for its covered 1.3 million public employees, dependents and retirees. Prior to this
implementation, the hospital charges to CalPERS for hip and knee arthroplasties ranged
from $15,000 to $110,000 and were rising annually (Kim et al., 2014). CalPERS
established an inpatient price threshold for hip and knee arthroplasty procedures at $30,000
for hospital costs, excluding the physicians’ fees. As in an RP model, costs above this
amount were incurred entirely by the patients for non-designated hospitals (Barr, 2014).
Thus, patients had to undergo their procedures at the 54 designated hospitals, or else they
had to pay out of pocket. As a result of initiating the program, the number of patients
selecting “low-price” hospitals increased by more than 30%, with a corresponding 30%
decrease in the number of patients selecting “high-price” hospitals. During this period,
prices at the non-designated high price hospitals were reduced by 34% to just below
$30,000 per case (Barr, 2014).
Figure 2: The Impact of Reference Pricing: The CalPERS Experience
Retrieved from: (Robinson & Brown, 2013)

51
Figure 2 summarizes the CalPERS experience in the first year after implementation.
Surgical volumes for CalPERS members increased by 21.2% at low-price facilities and
decreased by 34.3% at high-price facilities. Prices charged to CalPERS members declined
by 5.6% at low-price facilities and by 34.3% at high-price facilities(Robinson & Brown,
2013). Analysis reported by Robinson and Brown indicated that in 2011 reference pricing
accounted for $2.8 million in savings for CalPERS and $0.3 million in lower cost sharing
for CalPERS members (Robinson & Brown, 2013).
2.9 Decision-making Framework
The research to be undertaken in this dissertation will explore the way that decisions are
made regarding orthopedic implants. Thus, theoretical frameworks were explored that
might help to systematize the organization of this research. Theories regarding judgment,
decision making and choice generally fall into two categories: normative theories of
cognition and descriptive theories of cognition. Normative theories are concerned with
“how we should or ought to reason, make judgments and take decisions”(Koehler &
Harvey, 2008) and are based on formal logic, probability theory, and decision theory.
Descriptive theories set out to describe how people actually think or behave when making
decisions and rely on empirical data to support their conclusions. This is the area in which
I am interested most, in order to explore the processes through which physicians and
hospitals make decisions and choices.
One useful and well-characterized framework for the study of decision making is the
Information Processing model that be traced back to Nobel Laureate Herbert Simon in
1955. Simon emphasized that decision-making often relies on incomplete information and
limited resources, a notion that he described as “bounded rationality” (Campitelli & Gobet,

52
2010). Simon’s rational decision making approach can be characterized as a linear,
sequential set of decision-making processes. The decision-maker will: a) define the
situation and the desired outcome; b) research and identify options; c) compare and
contrast each alternative and its consequences; d) make a decision by choosing one
alternative; e) design and implement an action plan; f) evaluate results. This decision-
making approach is typically seen to proceed as a sequential process in which each step
must be completed before the next step is taken. Occasionally it might be necessary to go
back several steps to complete the steps fully before moving forward (Campitelli & Gobet,
2010). In recent years, Simon’s decision making theories have evolved to fit more
specifically the needs of particular applications. Literature that has focused on consumer
behavior has discussed and used frameworks similar to those of Simon to analyze
purchasing decisions (Schiffman & Kanuk, 1978) such as that shown in Figure 3. This
type of framework is not only appropriate for consumer purchasing decisions, but might
usefully describe the purchasing decisions of hospitals that are of concern in this
dissertation.

53
Figure 3: The Consumer Information Processing Model
Retrieved from Matsuno (1999), adapted from Schiffman & Kanuk (1978)

Over the past few years, the practical or descriptive approaches to buyer decision-making
have begun to evolve further, under the rubric of “Evidence-based Management” (CEBM).
The basis for this evolution appears to parallel that of evidence-based decision-making in
medicine as described earlier in this chapter. Evidence-Based decision making in
Management (EBMgt) focuses attention not simply on the logistics of the decision-making
process, but additionally, on the quality of the decisions, according to the quality of the
information upon which the decision is based. It requires that managers and their
organizations procure and organize enough empirical and objective data to implement a
scientific decision-making process (Pfeffer & Sutton, 2006). Thus it uses principles well-
known in science, where experimentation and systematic data collection are used to
advance knowledge (Shillabeer, Buss, & Rousseau, 2011). Figure 4 below demonstrates
the way in which conclusions are drawn through a scientific, evidence based process.

54
Figure 4: Evidence Based Analysis for Management
Retrieved with Permission from: (Boundless, 2014)

The increasing awareness of this approach to decision-making in management as well as
science is reflected in the constitution of a new organization called the EBMgt
Collaborative, or Center for Evidence-Based Management (CEBM). This organization,
sponsored by many universities and foundations throughout the U.S., U.K., and Canada,
aims to expand the practice of EBMgt (CEBM, 2013). Its mission statement includes a
comprehensive definition of the practice:
“Evidence-Based Management (EBMgt) enhances the overall quality of
organizational decisions and practices through deliberative use of relevant and
best available scientific evidence. EBMgt combines conscientious, judicious use of
best evidence with individual expertise; ethics; valid, reliable business and
organizational facts; and consideration of impact on stakeholders.”(CEBM, 2013)

This statement emphasizes that the decisions are not just reliant on the data but also on the
presence of a suitable decision-making process. Therefore, healthcare professionals must
be able to gain, assess, apply and integrate new knowledge and have the ability to adapt to
changing circumstances (Dawes et al., 2005). Decision makers need to understand the
principles of Evidence-Based Process, recognize it in action, implement evidence-based

55
policies, and have a critical attitude to their own internal processes. Otherwise, it could be
challenging to provide “best practices” without these skills.
Adopted by CEBM, the essential steps to follow in order to increase the likelihood of a
favorable outcome in EBMgt are: 1) Asking: translating a practical issue or problem into
an answerable question; 2) Acquiring: systematically searching for and retrieving the
evidence; 3) Appraising: critically judging the trustworthiness and relevance of the
evidence; 4) Aggregating: weighing and pulling together the evidence; 5) Applying:
incorporating the evidence in the decision-making process; 6) Assessing: evaluating the
outcome of the decision taken (Figure 5).
Figure 5: Steps in the EBMgt Process Path
Retrieved with permission from: (CEBM, 2013)

In this research, we plan to use the steps defined in the Consumer Information Processing
Model, shown in Figure 3, as our primary basis for exploring the way in which decisions
are taken when acquiring orthopedic hip and knee implants. I would like to study in a

56
systematic way how hospitals and physicians arrive at their final purchasing decisions. I
will explore how the different stakeholders work together through formalized structures
such as committees or informal structures related to local or political culture. The nature of
the information that is used is of particular interest. Using the EBMgt approach to expand
steps 2 and 3 of the information processing framework, we will explore how, when and
where information to base decisions is obtained, what information is found to be most
useful for their decision-making activities and what credence is placed on the information
as a factor in the final decision. I will also attempt to determine if the information is
adopted from another source, such as a HTA recommendation, or developed de novo. I am
interested in whether the information is used descriptively and informally or whether it is
entered into some form of scoring matrix such as the Pugh decision matrix (Pugh, 1971),
that might define criteria and apply weightings to different attributes of importance (such
as quality, patient outcomes and cost) when making the decision.

57
CHAPTER 3. METHODOLOGY
3.1 Methods
The purpose of this study is to evaluate the views and decision-making processes of
physicians, hospital and health care administrators with regards to purchasing, and
acquisition of orthopedic implants in order to perform hip and knee reconstructive
surgeries. The research has three sections. The first stage is documented in chapter 2. It
was carried out to summarize briefly the literature related to the history of U.S. healthcare
system, and to examine the current understanding of stakeholder decision-making
processes, interactions, values and methods of implant procurement. The views of
regulatory bodies including the CMS as payer, FDA as watchdog over efficacy and safety,
and the US Department of Health and Human Services as the policy maker enforcing
quality outcomes and value based purchasing are also explained briefly. The second
section involves the development of a survey tool to capture relevant information regarding
the views and interactions of physicians and purchasers as key stakeholders in the
decisions to purchase certain brands of orthopedic implants. The third section involves the
dissemination of the survey to a sample of orthopedic specialists and purchasing agents for
hospitals carrying out the procedures for which the implants are used. The study design
enables some level of triangulation by drawing on the perspectives of the stakeholders in
various positions involved in selecting and purchasing orthopedic implants and
representing different facilities throughout the United States.
3.2 Development of the Initial Survey
The purpose of the survey is to understand the types of resources and information used by
physicians and purchasing executives to achieve VBP in acquisition of orthopedic implants
in their respective hospitals. A qualitative question-based research design utilizing the

58
Qualtrics (www.qualtrics.com) survey tool was developed. Its survey questions were
designed in a way that can produce rich descriptions of the purchasing processes and
contexts in different hospitals and health systems. Questions were varied in format and
included binomial, multiple choice, and Likert scale questions, supplemented where
appropriate with text boxes to gather deeper insight into particular issues. It was designed
to ensure that the respondents were able to complete the survey in 15 minutes. Survey
participants were characterized with regard to their professional experience and level of
decision-making autonomy. The number of hip and knee implant surgeries performed at
their facilities and the type of formal organized committees with regard to decision-making
and value analysis (VAC) was queried. All answers to questions that had yes/no and
multiple choice formats were designed to be tabulated and analyzed to determine the major
trends in the topic areas covered by the survey. Information regarding the number of
individuals solicited to participate was compared to the number of actual participants to
estimate the response rate.
Prior to deployment of the survey to the study participants, a focus group was formed to
examine and discuss the quality of survey questions. The critique provided by the
participants was used to revise the draft survey in order to assure that bias is identified and
reduced, and to improve the internal validity of the survey.
3.3 Focus Group Conduct
The focus group was comprised of 10 professionals who worked in medical device and
regulatory affairs, hospital administration, university academician, researchers and
statisticians throughout the U.S. (Table 3). These individuals had affiliations with
medical-product industries, and were regarded as decision-makers with regard to

59
purchasing and selecting orthopedic implants for patients within their respective
organizations. An initial survey questionnaire was developed and emailed to the focus
group participants along with a summary of the Abstract and Chapter 1 of this research,
approximately a week prior to the scheduled focus group meeting. This allowed the group
to review and be prepared to provide the investigator with their feedback. The focus
group meeting was held on January 29, 2015, at the Center for International Regulatory
Science, located at the USC Health Science Campus. Input form the focus group was used
to modify the survey to its final form.

60
Table 3: Participants in the focus group
NAME TITLE
Dana Bell, Ph.D. Professor of Pharmacy, USC School of
Pharmacy
Patient Advocate
Michael Jamieson, DRSc. Assistant Professor of Clinical Pharmacy,
Associate-Director, USC International
Center for Regulatory Science, USC School
of Pharmacy
Martha Kamrow, MRSc., MEng.
(Connected via WebEx)
Regulatory Affairs Director, GE
Healthcare, Wisconsin
Doctorate Student at USC Regulatory
Science Program
David Locke, M.Sc.
(Connected via WebEx)

Associate Regulatory Director, J&J
Doctorate Student at USC Regulatory
Science Program
Eunjoo Pacifici, PharmD., Ph.D. Assistant Professor of Clinical Pharmacy,
Assistant-Director, USC International Center
for Regulatory Science, USC School of Pharmacy
Susan Pusek, MRSc., MSc.
(Connected via WebEx)
Director of Education Programs for the NC
Translational and Clinical Sciences
(TraCS) Institute at the University of North
Carolina (UNC) at Chapel Hill
Doctorate Student at USC Regulatory
Science Program
Frances Richmond, Ph.D. Director, USC International Center for
Regulatory Science
Nancy Pire-Smerkanich, M.Sc. Education Liaison, USC International
Center for Regulatory Science, School of
Pharmacy
Doctorate Student at USC Regulatory
Science Program
George Tolomiczenko, Ph.D. Director, HTE and Assistant Professor of
Neurology, Keck School of Medicine
Ellen Whalen, DRSc. Associate Hospital Administrator, Keck
Hospitals of USC.

3.4 Survey Deployment and Delivery
One hundred and ninety three participants including orthopedic surgeons specialized in hip
and knee surgery and hospital/health care executives including consultants, purchasing
directors and advisors throughout the USA, were selected to participate in the survey.
Most of the participants were individuals who are familiar with the investigator through a
professional linkage or have had a prior working relationship. The investigator contacted
the selected group to inquire whether they wished to participate in the survey or not. No

61
compensation was offered to the participants. However, a summary of the survey was
offered to be circulated to the participants, upon request after the research was completed.
The majority of the respondents had no specific concerns about taking the survey.
The final survey titled: “Decision-Making on Orthopedic Implants - Value-Based
Purchasing” was sent via web-based link email on March 10, 2015. A small percentage of
participants had identified that they had not received the survey, most probably due to the
fact that their spam folders had intercepted it. A follow up survey link was sent to their
personal email from the investigator’s USC email. Throughout the communication
process, the investigator assured the participants that the anonymity of their comments was
guaranteed, and that their identities could not be concealed.
The 28 survey questions were focused on the six elements of decision-making processes as
outlined in Figure 6.
Figure 6: Six elements of decision-making process to frame the survey

In the survey, questions were asked about demographics, such as the position/title of the
individual, as well as the size and location of the hospital they worked. Affiliation with a
particular health system or entity such as academic, HMO, specialty or public facility was
part of the demographics. Hospital size was assessed based on number of beds and the
location was divided into 4 sections (Northeast, Midwest, South, and West) within the
United States. In addition, the demographics took into consideration the number of hip

62
and knee surgeons who practice in the respective facility. Questions of yes/no or multiple
choice formats were graphed and analyzed to determine the major trends in the topic
areas covered by the survey. Questions that solicited open-ended responses were
examined for information content and were used to supplement or clarify responses in the
multiple choice answers.
In total, approximately 150 individuals agreed to take the survey. For the participants who
did not complete the survey within the first two weeks, a reminder email was sent via
Qualtrics. The second reminder was sent after one month. Despite of continuous
reminders, some respondents did not complete the survey. A final reminder was sent after
an additional two weeks using Qualtrics, personal emails and phone calls. For those who
completed the survey, a thank you email was sent automatically using Qualtrics data-base.
The survey was closed on May 28, 2015, approximately 3 months from the launch date.

63
CHAPTER 4. RESULTS
4.1 Results
4.1.1 Focus Group Conduct
The focus group met for 90 minutes on January 29, 2015 at 2:00 p.m. to discuss the survey
and evaluate the validity, organization and clarity of the survey questions. The investigator
first explained the importance of keeping the survey manageably short, by restricting the
number of questions to 30, so that most respondents could answer the questions in 15
minutes or less. The focus group was introduced to the five-step decision-making
framework, whose elements, including “ask, acquire, appraise, apply and assess”, were
explained in detail in chapter 2. The focus group then stepped systematically through the
survey questions. Typically the suggestions included creating a better flow to the survey,
removing several redundant questions with little value for the final results, and adding
several questions surrounding the capture of theme elements pertaining to “best practices”
in decision-making. The result of these deliberations were incorporated in the final survey
and is contained in Appendices A and B, where both the draft survey (pre-focus group
meeting) and the final survey are included for comparison.
4.2 Profile of Respondents
Of 193 deployed surveys, 69 individuals (36% of those contacted) completed the survey.
Forty respondents (58%, 40/69) were orthopedic surgeons specialized in the hip and knee
surgical procedures (Figure 7). Five of the orthopedic surgeons also worked in an
executive capacity, described as hospital chief medical officer, department and service
chief/chairman, and board member of the hospital within the health system, respectively.
These five individuals identified that they were responding to the survey from a
perspective related to their dual roles. Twenty-nine (42%, 29/69) self-identified as hospital

64
executives, purchasing directors and/or GPO purchasing consultants in their respective
organizations.
Figure 7: Position/title of the respondent
“What is your current position/title?”
Note: The bars are to scale but the x-axis has been truncated. The total n is smaller than
the number of answers because some respondents selected two choices.

Answer

N %
Orthopedic Surgeon

40 58
Hospital Executive (CEO, CNO,
CMO, CFO, Associate
Administrator)

22 30
Hospital Purchasing
Director/Manager

1 1
GPO/Purchasing Consultant

1 1
Other

9 13
Total (Multiple entries not
included)
69

Twenty-six of the 69 respondents (38%) were affiliated with an academic health system,
and 20 (29%) with an independent health system (Figure 8). Sixteen individuals were part
of a community and/or a specialty hospital such as an orthopedic institute or surgical
facility (23%). Only 5 individuals (7%) were associated with a HMO-type health system
such as Kaiser Permanente. The remaining 10 respondents were equally divided between
public/state hospital affiliates and an “other” category that included an association with
professional service firm, consulting firm and/or a role as a private practitioner.

65
Figure 8: Type of Institution type with which respondents are affiliated.
“I am affiliated with a(n): (please check all that apply)”.
Note: The number of answers exceeds the number of respondents, because multiple
answers can be provided by each respondent.

Answer

N %
Academic Health System

26 38
HMO-Type Health System

5 7
Independent Health System

20 29
Community/Specialty Hospital

16 23
Public/State/County Hospital

5 7
Other

5 7
Total (Multiple answers based on 69
respondents)
69

Most commonly, the respondents (48%, 33/69) worked in a “medium size facility” with
200-450 licensed beds. About one-third (34%, 23/69) were affiliated with a large
institution with more than 451 licensed beds, and a minority (19%, 13/69) worked for small
facilities with fewer than 200 beds (Figure 9).

66
Figure 9: Size of facility with which respondents were affiliated
“My hospital size is…”
Answer

N %
Small, <199 beds

13 19
Medium, 200- 450
beds

33 47
Large , >450 beds

23 34
Total 69 100

The majority of respondents (40/69) were located in the western U.S. as defined by the
grouping of states specified in Figure 10. Thirteen of 69 (17%) were located in the South,
whereas 10 (14%) were from the Midwest and 6 (8%) were located in the Northeast.
Figure 10: Location of respondents based on states within each region.
“In what area is your hospital located?”
Midwest (IA,IN,IO,KS,MI, MN, MO,ND,NW, OH,SD,WI)
Northeast (CT, ME,MA,NH,NJ,NY,PA,RI, VT)
South (AL,AR,DC,DE,FL,GA,KY,LA,MD,MS,NC,SC,TN,TX,VA,WV)
West (AK, AZ,CA,CO,HI,ID,MT,NM,NV,OR,UT,WA,WY)

Answer

N %
Northeast

6 8
Midwest

10 15
South

13 17
West

40 60
Total 69 100

Of 69 respondents, 54 identified that on average, 7 surgeons practiced in their facilities but
the range in values was large (±3.7, range= 1-15). The remaining 15 respondents could not

67
answer the question, either because they did not know the exact number and/or did not
think that the question was appropriate for their institution (e.g., consultant). Sixty-two of
the 69 respondents were able to identify the number of different hip implant manufacturers
whose products were used in their facility. Numbers ranged from 1 to 9 (mean= 4±1.9).
Similarly, 61 respondents reported that their facility used products from 1 to 9 different
knee implant manufacturers (mean= 4±1.7).
4.3 Structures and data-gathering to base decision-making
The survey explored the range of mechanisms used to make purchasing decisions for hip
and knee implants by presenting several options as shown in Figure 11. Because multiple
answers were permitted, 116 responses were registered. Thirty-nine of the 69 respondents
who answered this question (57%) affirmed that purchasing decisions were made at least in
part by the physicians and surgeons. Thirty-eight (55%) noted that some form of decision-
making committee, such as value analysis and/or P&T committee, was used. Fifteen
(22%) noted that they have a separate committee for orthopedic products, and only 10
respondents (14%) use one committee for all their medical technologies and equipment
acquisition decision-making. One responded that they use the same committee for medical
devices and drugs. Ten (19%) identified that hospital executives and administrators made
decisions about purchasing hip and knee implants, and 7 (10%) noted other approaches,
such as: “we decide as a group”; “health system has construct pricing for all major
vendors”, “we set price caps and have available those manufacturers who will agree to the
price offered for reimbursement”, and “bundled corporate purchase agreements”.

68

Figure 11: Mechanism on decision-making for purchasing hip & Knee products.
“In your facility/hospital, what are the range of mechanisms that you are used to make
decisions about the specific brand of hip & knee products to be purchased? (Please check
all that apply)”
Note: The number of answers exceeds the number of respondents, because multiple
answers can be provided by each respondent.

Answer

N %
We have decision-making committee(s)
(e.g., Value Analysis Committee, P&T
Committee)

38 55
The decision is made by the hospital
administrator/director

13 19
The decision is made by the
surgeons/physicians

39 57
We use the same committee as that for
drugs (e.g., P&T Committee)

1 1
We use a separate committee for
orthopedic products only

15 22
We use one committee for all medical
technologies and equipment

10 14
Cannot answer

2 3
Other

7 10
Total (includes all answers – multiple
entries by 69 participants)
116

Other

We decide as a group
Hospital System has construct pricing for all major vendors
We have an overall Health System committee that then puts together an ortho. specialty
committee for product selection/choice
Not purchased
GPO
We set price caps and have available those manufacturers who will agree to the price offered
for reimbursement.
Bundled Corporate Purchase Agreements

69
The multiple responses to this question suggested that some organizations used more than
one mechanism to make decisions about orthopedic implants. Respondents were then
asked about the “primary” mechanisms used by their organizations; about equal numbers
identified that they either used a value-based committee (38%, 26/69) or that they relied on
the physicians and surgeons to make the decision (38%, 26/69). In only a few cases did the
decisions rest with a hospital administrator (12%, 8/69). Seven (10%, 7/69) noted other
mechanisms, such as bundled corporate purchase agreements, requests for proposals (RFP)
or group purchasing organizations (GPO) (Figure 12).

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Figure 12: Primary mechanism for decision-making for orthopedic implants
“What is the primary mechanism by which you make purchasing decisions in your
facility?”

Note: Under “other” options are stated the actual entries of the respondent

Answer

N %
Committee (e.g., Value Analysis
Committee, P&T Committee)

26 38
Hospital administrator

8 12
Surgeon/Physician Preference

26 38
Cannot answer

2 3
Other

7 10
Total 69 100

Most respondents identified that requests to initiate a purchasing decision were made in
their organization by surgeons (80%, 55/69). Less than 20% of respondents (12/69)
attributed the initiation of such decisions to administrators/executives. Occasionally,
requests came from a formal committee (5/69). Two respondents noted that the industry
representatives initiated such requests. Given the option to provide other mechanisms, a
few respondents added the initiator as the “hospital system” and the “orthopedic
department committee” (Figure 13). One individual noted that all of the offered options
were exercised in their facility.
Other
RFP
Both Hosp Adx and Surgeons
Hospital system has construct pricing for all major vendors
Health system Clinical Effectiveness Committee
GPO
Combination of ortho dept and purchasing/ value analysis, every 3 years or so we re-evaluate
our joint implant contracts. As surgeons we have contracted with 2 vendors.
Bundled Corporate Purchase Agreements

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Figure 13: Initiating person or group to purchase equipment
“In your facility, who or what group initiates the request for purchasing of medical
equipment?”
Note: The number of answers exceeds the number of respondents, because multiple
answers can be provided by each respondent.

Answer

N %

Surgeons/physicians

55 80
Hospital administrators/directors

12 17
Formal committee

5 7
Industry Representatives

2 3
Other

3 4

Other
Any and all of the above
Hospital System office with input from orthopedists
Surgeon requests go thru our Hospital Orthopedic Dept. Committee.

A minority of respondents identified that no formalized committee existed for purchasing
decisions in their institution. Those without such a committee (23%, 16/69) were allowed
to skip a series of subsequent questions regarding the work of this purchasing committee.
Of the 53 who did have such a committee, 45 (85%) reported that the committee had a
formal way to collect the necessary data on which the decisions were based. The majority
of those individuals noted that an internal director or analyst from finance or hospital
administration is assigned the responsibility to collect the data on behalf of the committee
members. In few instances (15%, 8/53), the committee relied on external sources for data
collection, which included GPO and vendor representatives. Fifteen (22%) responded that
data is not provided for purchasing decisions. Nine (13%) could not answer the question.

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4.4 Evaluation and Selection of Devices
Fifty-three potential respondents were able to answer questions about their use of
purchasing decision committees, which appeared from their responses to be varied in their
meeting frequency and composition. Twenty (38%) noted that the committee met
regularly each month, and equal numbers of respondents (n=7 and 7, 13% each) noted
quarterly and seasonal meetings respectively, the latter timed, for example, to budget
deadlines. In contrast, 25% (n=13) reported ad hoc or as needed meetings. One individual
identified that weekly committee meetings are taking place (Figure 14).
Figure 14: Frequency of committee meetings
How often does your committee meet?”
Answer

N %
Weekly

1 2
Monthly

20 38
Quarterly

7 13
Seasonal

7 13
Ad-hoc (as needed)

13 25
Cannot answer

4 8
N/A

1 2
Total 53 100

Membership also varied substantially. All had at least one physician in their membership
but the number could range as high as 16 (mean= 5 ±3.8). Similarly, all had at least one
hospital/ administrator/director but the number could range up to 14 (mean= 4 ±2.7).
Patient advocates or external groups were represented less frequently (mean= 0.6 ±0.9,
range =0- 4). In addition, 26 specified that “others” were also represented. This “other”
category included varied representatives from nursing or pharmacy, educators, health
system corporate representatives, sales and GPO members. Respondents were typically

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satisfied with the composition of their committees. When provided with a sliding scale to
measure satisfaction, the majority (35/53) chose values between 7 and 10 on a scale of 0-10
(0 completely unsatisfied to 10 completely satisfied). Only 9 respondents chose values
between 0 and 3. Of the 53 respondents who were given the option of identifying how they
might restructure the committee, they identified that they would increase surgeon
representation to an average of 6.3 surgeon/physicians, with a wide range of suggestions
from 0 to 25 (±5.6); decrease hospital administrators to an average of 3.0 hospital
administrators/directors (range 0-15 ±2.3); and include an average of 1.1 patient
advocate/external group (range 0 to 5 ±1.2).
In the “other” category, all 53 respondents identified others whom they would also include;
numbers of suggestions per individual averaged 1.4 additional representatives (±3.6,
range= 0-25). Suggestions included representatives from nursing and pharmacy, clinicians
and educators, health system corporate representatives, as well as sales and GPO members.
In many instances, the respondents preferred not to include additional individuals in the
“other” category, but commented on the membership of already identified participants.
These individuals emphasized a preference for a majority representation by
surgeons/physicians over administrators. One respondent recommended an 80/20 rule with
80% surgeons and 20% non-surgeons.
The survey asked respondents if their organizations had a mechanism to review and
evaluate their decisions once they had made hip and knee implant choices. Thirty-seven of
69 (54%) continuously evaluated reimbursement trends and costs of devices. Thirty-five
(51%) continuously evaluated clinical outcomes subsequent to purchasing their devices.
Twenty-seven (39%) reconsidered their choices when they identified a major change in

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utilization such as a decrease in volume and/or surgeon attrition. Twelve (17%) believed
that the organization never reviewed its choices once the decisions were made. Three
individuals commented that: a) they rely on GPOs to provide information about trends; b)
they would like to support and empower their materials management department to
negotiate better pricing with the vendors; c) they were concerned that hospital
administrators are under pressure to get competitive prices, and thus threaten to prohibit the
sales representatives from visiting and working with the surgeons in the operating room
(Figure 15).

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Figure 15: Methods of follow-up evaluation after hip and knee devices are purchased
“In your institution, what is the mechanism by which you evaluate the hip & knee device
choices made by your decision-making processes? (Please mark all that apply)

Answer N
We never review the choices made

12
We continuously evaluate clinical outcomes for
the type of device used in patients

35
We evaluate reimbursement trends and its ratio
to overall cost of the devices

37
We revise the devices' choice when we see major
change in utilization (e.g., drop in volume,
surgeon departure, etc.)

27
Cannot answer

7
Other

3

Respondents were also questioned about the way in which novel or custom device choices
are selected. Of 69 responses, 36 (52%) affirmed that the same selection process was used
as that for regular purchasing decisions. (Not illustrated, see Appendix C). Nineteen (28%)
did not follow the same process and provided information on their alternate process:
review on a “case by case” basis; review of patient needs with IRB approval; hospital
administration approval that involved CMO and finance heads. Some non-academic
respondents (28%, 19/69) identified that they do not handle novel or custom devices within
their organization. Twenty percent (14/69) could not answer the question.
A follow up question explored the decision-making process used to make decisions about
the “expedited” or “compassionate use” cases. Twenty-four of the 69 (35%) noted that
Other

we support materials management to negotiate better pricing
GPO provides information on trends
Hospital administrators always ask for better pricing and threaten to block the sales reps
from the O.R.

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they coordinated with all stakeholders to address such needs. Eighteen (26%) believed
that their organization takes care of patients’ needs regardless of cost (Figure 16). They
also added additional information; some relied on the surgeon’s decision in deference to
his/her expertise, and some had a faster defined internal process. Nine (13%) noted that a
special meeting of the purchasing decision committee is called to discuss these cases
(Figure 16a). Approximately 14/69 (20%) could not answer the question. Four
individuals noted “other” as an answer, with additional explanations: route depends on the
situation; department chair approves the urgent case; decision-makers try to negotiate a
reasonable solution in such circumstances (Figure 16b).

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Figure 16: Purchasing process for expedited or compassionate use devices
“How does your organization or committee determine purchasing decisions on patients
with “expedited cases” or “compassionate use” instances?
Answer N %
We take care of patients' needs regardless of cost
(would you like to add more information?)

18 26
We use the same committee and call in a special
meeting

9 13
We coordinate with all stakeholders (e.g.,
surgeons/physicians, administrators, manufacturers
etc.) informally

24 35
Cannot answer

14 20
Other

4 6
Total 69 100

Figure 16(a): Additional information added by the respondents

We take care of patients' needs regardless of cost (would you like to add
more information?)
Patients are sent to us for the expertise of our surgeons. That's their last stop.
There is a well-defined quick add process for items and it works well.
We are a tertiary hospital and surgeon tells us what he needs in these cases.

Figure 16(b): Additional information added by the respondents
Other
we try to negotiate a reasonable solution
Depends on the situation
Department chair can approve a request deemed urgent.

4.5 Making the Decision
Questions regarding the way in which decisions are made regarding device selection
suggested a complex interplay of several factors. The two most common factors

78
highlighted by the 69 respondents included financial considerations and physician
preferences; each choice was selected by 60 (87%) of respondents (Figure 17). Clinical
outcome was also an important factor selected by a majority of respondents (65%, 45/69).
Government policies and outside evaluations such as health technology assessment did not
seem to be considered to the same extent; only 26 respondents (38%) included it in their
responses. Patient preference was least commonly selected as a key factor; only 10
respondents (14%) included this factor.

79
Figure 17: Factors currently considered in decision-making about orthopedic implants
“Which of the following factors are taken into consideration when making the decision in
your institution? (Please mark all that apply)” n= 69 respondents, denominator for
percentage calculations
Note: The number of answers exceeds the number of respondents, because multiple
answers can be provided by each respondent.

Answer

N %
Financial Information (e.g., ROI,
Reimbursement Policies, Expenses,
etc.)

60 87
Patient Preference

10 14
Clinical Outcomes

45 65
Physicians’ Preference

60 87
Influencers (e.g., payers, sales reps.,
government developed technology
assessment)

26 38
Cannot answer

1 1
Other

2 3

The participants were asked their views on the importance of different types of
information/data that they might use to make a purchasing decision, as shown in Figure 18
(quality outcomes, manufacturers’ information/catalogue, presentations/justifications by
physicians/surgeons, academic/scientific literature, financial information/impact
assessment, governmental/payer developed practice guidelines/analysis). Of these options,
quality outcome data ranked highest. Thirty-six respondents (52%) chose this as the most
important decision-making factor, and a further 16% (11/69) as the second most important
factor, giving it a mean ranking of 2.3 (± 1.8). Financial information impact was also
important as reflected by its choice as most important by 15% (10/69) and second in
importance by 25% (17/69). Its mean ranking was 3.3 (±1.6). Information from

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manufacturers’ information or catalogue descriptions ranked lowest with 48% (33/69)
selecting it as least important, and with cumulative rankings giving it a mean rank of 4.4
(±1.8). The other options had intermediate positions whose relative importance was
reflected in their mean rankings: presentations/justifications by clinicians, 3.4 ± 1.5;
government/payer guidelines, 4.0 ± 1.5; academic/scientific literature. 3.5 ±1.6.
Figure 18: Importance of information/data in purchasing process
“In your opinion, how important is the following information/data in purchasing
decision-making? (Please rank in order of importance- 1 being most important and 6
being the least.)

Answer 1 2 3 4 5 6 N
Quality outcome data 36 11 8 2 4 8 69
Manufacturers’ information and
Catalogue description
8 4 10 8 6 33 69
Presentations/justifications by
surgeons/physicians/clinicians
9 11 15 16 12 6 69
Academic and scientific literature 2 16 17 15 17 2 69
Financial information/Impact
assessment
10 17 7 16 13 6 69
Governmentally/payer developed
practice guidelines/cost effectiveness
analysis
4 10 12 12 17 14 69
Total 69 69 69 69 69 69 -

Respondents were offered additional statements with which to agree or disagree in order to
gain further insight into the degree of transparency and consistency in their decision-
making for device acquisition. Results suggested that most systems were considered to be
transparent. Forty-four of 67 respondents (66%) agreed that they use a transparent process
to make decision. However, respondents differed on the degree to which they rated the
purchasing process as “straightforward” and able to be accomplished “without extensive
clinical data”. More commonly, respondents (45%, 30/67) disagreed with this assertion
but a sizable minority agreed (28%, 19/67). Further, responses in the remaining statements

81
regarding the processes used to make decisions did not reflect a highly consistent or
systemized methodology across institutions. Approximately equal numbers of respondents
(35%, 24/68, versus 43%, 29/68) agreed and disagreed respectively with the statement that
ad-hoc decisions are made in their institutions without utilizing any formal matrix. The
use of a numeric or ranking system appears to be in place at only a minority of institutions
(36%, 24/66); a nearly equivalent number of respondents (21/66) identified that such a
system was not used. Responses suggested that formal negotiations with the
manufacturers of the implants take place before finalizing the purchasing decisions. Only
5 out of 68 noted that such a negotiating process was not used in their institution.
Differences also were obvious when respondents were asked about whether they felt that
the mechanisms to make decisions were effective; 30 (45%, 30/67) identified that their
processes were effective but 17 (25%) saw them as ineffective. These types of statements
produced many neutral responses as well, accounting for 16% to 32% of responses for the
different options (Figure 19).

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Figure 19: Insights into different aspects of the current decision-making process
“In your opinion, which of the following applies to your decision-making process when
acquiring medical equipment?”

Question
Strongly
Agree
Agree Neutral Disagree
Strongly
Disagree
N
We use a transparent process to make
decisions
16 28 13 6 4 67
We use numerical matrix (e.g. ranking
system) to make purchasing decisions
4 20 21 16 5 66
Our mechanism to make purchasing
decisions is an effective way to judge hip
and knee implants
4 26 20 12 5 67
We make ad-hoc decisions without
utilizing any formal matrix
5 19 15 20 9 68
We have a formal negotiation process with
the manufacturers prior to finalizing the
purchasing decision making
21 31 11 5 0 68
The decision is straightforward and can be
made without extensive clinical data
4 15 18 18 12 67

Additional statements were offered to explore the effectiveness of interactions between the
players responsible for decision-making (Figure 20). Results suggested that cooperation
between these different groups were challenging. When asked if views of stakeholders
were hard to align, more agreed than disagreed (43%, 30/69 versus 29%, 20/69). Thirty-
eight of 69 (55%) agreed that ultimately the hospital administration approves all implant
requests initiated from surgeons, but 22 (32%) disagreed with this statement. Thirty-six
(52%) believed that administration and physician worked closely to secure the best pricing
from manufacturers but 19 (28%) disagreed.
Because traditionally physicians had primary control of decisions for acquisitions, the
respondents were also asked about their views regarding the power balance and financial

83
incentives in their organizations. When asked whether physicians exert too much control
over purchasing decisions 18 of 69 (26%) agreed but more (43%, 30/69) disagreed. Fifty-
five (80%) either “strongly disagreed” or “disagreed” that the hospital has a process to
disburse financial incentives to physicians when they contribute in cost-cutting efforts,
whereas 10 (14%) believed that some type of gain-sharing was available to physicians.
Thirty-seven (54%) affirmed that physicians do maintain financial relationship with the
industry, as opposed to 16 (23%) who felt that no financial relationship was present.
Orthopedic implants are expensive for institutions so the views of respondents were sought
on the degree to which decisions were related to and effective in cutting costs. Thirty-
seven (54%) believed that cost cutting efforts have been successful in their institutions,
whereas 15 (22%) did not. Twenty-one respondents (30%) believed that their hospital has
standardized their implant choices to one or two vendors, whereas the majority (38/69)
noted that such standardization has not been achieved. Interestingly, ten (15%)
respondents noted that surgeons/physicians have threatened to drop hospital admitting
privileges because they are frustrated with fewer implant vendor choices, but most (62%,
43/69) disagreed with this statement. Again as figure 19, most questions evoked several
neutral responses.

84

Figure 20: Level of satisfaction with product purchasing policies
“State your level of agreement/disagreement with the following statements regarding your
hospital’s purchasing policies.”

In order to gain insight into the types of factors that respondents personally believed to be
important in the selection of particular orthopedic implants, respondents were first asked
whether they agreed or disagreed with the weighting of factors used by their institution’s
decision-making committee (Figure 21). Most (74%, 51/69) responded that they
personally agreed with the weighting of those factors but a quarter (26%, 18/69) did not
agree with that weighting (results not illustrated). When asked further about their personal
Question
Strongly
Agree
Agree Neutral Disagree
Strongly
Disagree
N
The hospital administration approves all implant
requests from surgeons/physicians

10 28 9 18 4 69
The hospital and surgeons/physicians work closely
to get the best pricing

8 28 14 17 2 69
The hospital has a process to disburse financial
incentives to surgeons/physicians when they help
cut implant costs (e.g., Gain-sharing)

2 8 4 28 27 69
The surgeons/physicians have too much control
over hospital with regard to implant purchase

4 14 21 16 14 69
The decision-making committee's efforts to cut cost
have not been successful
5 10 17 26 11 69
The hospital has standardized implant choices from
one or two vendors

4 17 10 23 15 69
The surgeons/physicians have threatened to drop
hospital admitting privileges, because they are
frustrated with fewer implant vendor choices

3 7 16 24 19 69
The surgeons/physicians maintain financial
relationships with the manufacturer(s)

9 28 16 8 8 69
The views of different stakeholders are hard to
align
5 25 19 19 1 69

85
views on important factors for this decision-making process from a list of choices by using
a ranking schema (Figure 21), a complex set of choices emerged. Amongst the factors
ranked highest were “quality outcomes”, “surgeon/physician satisfaction” and “patient
satisfaction”. Intermediate rankings were generally given to “cost containment”, “product
safety record”, “payer reimbursement” and “previous experience with the known product”.
Lowest were “support from manufacturer” and “bundled large volume purchasing”.
Figure 21: Personal views regarding the importance of different factors to base decision
making for hip and knee implants.
“Which of the following do you personally believe is most important in decision-making
when purchasing hip & knee products? (Please rank in order of importance – 1 being
most important and 9 being the least important)”
Note: Highlighted cells show the most common answer for each statement.
Answer 1 2 3 4 5 6 7 8 9 N
Cost containment 9 11 10 9 10 4 8 2 6 69
Quality outcome 38 14 3 1 2 2 1 3 5 69
Surgeon/Physician
satisfaction
9 7 19 15 4 6 5 3 1 69
Patient satisfaction 2 11 13 15 13 3 3 7 2 69
Payer Reimbursement
status
1 6 3 12 13 7 10 10 7 69
Support from
manufacturer (e.g,
resources, trainings
etc.)
3 0 2 7 6 17 6 12 16 69
Bundled large volume
purchasing
options/discounts
2 3 3 1 6 11 17 14 12 69
Product safety record 2 15 9 5 10 9 8 9 2 69
Previous experience
with the known
product
3 2 7 4 5 10 11 9 18 69
Total 69 69 69 69 69 69 69 69 69 -

86
An additional set of statements were offered to probe the satisfaction of respondents with
the current decision-making process at their institutions (Figure 22). Responses reflected a
high degree of satisfaction with the systems that had been developed. Fifty-four out of 69
(78%) identified at least some degree of satisfaction, ranging from “somewhat” to “very”
satisfied with their institutions’ final decisions on selection of hip and knee implants for
their facilities, whereas only 6/69 (9 %) were not satisfied. The majority (75%, 52/69)
were also satisfied with the process by which the final decisions were made and only 6
were not satisfied. Approximately two-thirds (64%, 44/69) were also satisfied with the
transparency of data that led to the final decision-making although 12/69 (17%) were not
satisfied. Forty-four (64%) also felt that their environment is conducive to sharing pros
and cons candidly amongst the stakeholders when making purchasing decisions, although
14/69 (20%) were not satisfied. Forty-six (67%) believed that their opinions are valued
and taken seriously, whereas 9/69 (13%) were not satisfied with the degree to which their
opinions are valued. Forty-two (61%) were satisfied that final decisions balanced
stakeholders’ views appropriately whereas 7 (10%) were not. Forty-six of 69 (67%) was
satisfied with the way that their personal influence at their institutions. Neutral responses
were common, ranging from 9-20 (mean =13) of the 69 respondent sample. An average of
13 respondents opted to mark “neutral” throughout their answers to each of the questions.

87
Figure 22: Level of satisfaction with institutional decision-making processes and outcomes
“Please state your level of satisfaction with the following:”
Note: Highlighted cells show the most common answer for each statement.

4.6 Analysis of Survey Results – Assessment
Final survey questions were posed to determine the degree to which decisions were
revisited in some form of assessment process. Responses suggested that such evaluations
were conducted by different institutions in different ways. Most commonly, respondents
affirmed that they reevaluated their purchasing contracts when their renewals become due
(48%, 33/69). Seventeen (24%) believed that they continuously evaluated their decisions,

Very
Satisfied
Satisfied
Somewhat
Satisfied
Neutral
Somewhat
Dissatisfied
Dissatisfie
d
Very
Dissatisfie
d
N
The final decisions made
with regard to hip & knee
implant acquisitions
5 39 10 9 3 2 1 69
The process by which the
final decisions were made
5 29 18 8 5 1 3 69
The transparency of the
data and information that
led to the final decisions
9 21 14 13 5 4 3 69
The ability to share pros
and cons candidly when
making purchasing
decisions
8 19 17 11 6 5 3 69
The degree to which my
opinions are valued and
taken seriously
10 24 12 14 3 3 3 69
Final decisions balance
the degree to which
stakeholder views are
balanced
4 24 14 20 3 1 3 69
I am satisfied with the
way that my influence on
decisions has evolved
over time.
6 24 16 14 4 2 3 69

88
and 5/69 (7%) evaluated their decisions when there was a problem with the patients,
product and/or payers. Six of the respondents (9%) believed that their institution never
reevaluated its decisions on purchasing once the final choice was made. One individual
noted that manufacturers were asked to participate in their reevaluation process when
assessing the validity of their choices (Figure 23).
Figure 23: Methods by which institutions assess the validity of decisions regarding hip and
knee implants
“What is your primary mechanism of assessing the validity of your decision and choice of
hip & knee implants?”
Answer

N %
We evaluate our decisions continuously

17 25
We don't evaluate our decisions

6 9
We re-evaluate when a purchasing contract must be renewed

33 48
We wait until there is a problem with patients and/or payers,
before re-evaluating

5 7
Cannot answer

7 10
Other

1 1
Total 69 100

At the end of the survey, participants were encouraged to add any additional comments or
information in a text box. From the 69 participants 54 comments were registered, but at
least 16 (30% of 54) stated these as “no comment”, “nothing to add” or “none”. The
remaining 38 (70%) provided variety of comments that can be grouped in 4 themes: a)
Reimbursement and pricing; b) Standardization in implant selection; c) Cost containment
and value; d) Structure/membership of the committee.
Approximately 13 (24% of 54) believed that reimbursement and ultimate price of the
implant is an important factor in the decision making (Figure 24(A). Equal numbers (24%,
13/54) noted that some type of standardization in selecting the implants is important

89
(Figure 24(B). Few specifically commented that they either have a mechanism or would
like to see a process in which the number of vendors are limited to 2 or 3 for final selection
process. Seven out of 54 (11%) noted that cost reduction is a primary driver of their
implant selection process. They believed that more and more decision-making processes
will be based on overall cost together with a measurable outcome value (Figure 24(C).
Five out of 54 (9%) noted that the overall structure and membership of their committee can
alter the final purchasing decision-making outcome (Figure 24(D). The list of detailed
responses is provided in the appendix C.
Figure 24: Additional Comments
A) “Reimbursement and Pricing”
Reimbursement and Pricing:
Trends towards utilization based on payer reimbursement.
Purely price based. All implants are looked at like a commodity, when for complex cases,
service and implant selection are important.
Trends is to have “shelf pricing” for implants.
Surgeons are reimbursed too little and manufacturer are reimburse too much.
Our facility works with vendors to get the best pricing working with the DRG.
We are looking at pricing much more closely than in the past, but still have a long ways to go
with regards to cost-effectiveness.

90

B) “Standardization in Implant Selection”
Standardization in Implant Selection:
As the market begins to consolidate more and more the “standardization” give back is less
impactful.
There is a well-defined quick add process for items and it works well.
We are working through our Value Analysis Committee to standardize implant choices and limit
the purchases to 2-3 vendors.
It is best to limit the number of implant vendors to 2 only.
There needs to be an alignment between hospital administrators and surgeons. It is
recommended to use less than 3 vendors.

C) “Cost Containment and Value”
Cost Containment and Value:
Value is becoming the driver.
Volume discounts negotiated from national vendors has helped us but surgeon ability to select
from a short list of vendors has kept up the quality surgeon input into controlling costs has not
produced rewards for surgeons and their patients.
The surgeons were allowed to pick two vendors for hip and knee implants and the hospital
negotiated the contract.
Although we try to make the best decisions on quality and price, still there are times that our
cost surpasses the actual need of the patient. The quality is always good, because our
surgeons are very good, and the quality of implants they use are also high.

D) “Committee Structure/Membership”
Committee Structure/Membership:
I believe the best approach is to have participation by the key surgeons and the key hospital
representations (not “administration”) and that they have a good relationship for trust, honest
dialogue and equal decision power.
Difficult to navigate the current system and policies. Hard to make decisions.
We have a specialty orthopedic committee and handle all our orthopedic service liens issues
through that committee and group.

4.7 Comparison between Responses of Surgeons and Administrators
This exploratory study was based on a relatively small sample of respondents that is not
amenable to detailed statistical analysis particularly when the data are categorical and must

91
be analyzed with qualitative methods. However cross-tabulations were used to gain a
beginning insight into whether the two principal groups of respondents, surgeons versus
administrators, differed in any key areas. Typically major differences in responses were
not seen between these two groups. For example, the following two questions suggest that
even in questions that might have been expected to elicit different answers, the responses
of surgeons and administrators were similar.
A) When opinions of surgeons and administrators were compared with regard to the
way that decisions were made using the question, “We make ad-hoc decisions without
utilizing any formal matrix”, the cross-tabulation showed that similar proportions of
orthopedic surgeons (38%, 15/40) and administrators (41%, 9/22) disagreed that such a
formal matrix was available (Figure 25A).
B) Surgeons and administrators also had similar views when asked their opinions on
the statement: “The hospital has a process to disburse financial incentives to
surgeons/physicians when they help cut implant costs (e.g., Gain-sharing)”. Most of the
surgeons and hospital administrators who answered this question (82%, 18/22 and 80%,
33/41 respectively) appeared to believe that no financial incentives were given to surgeons
to assist in making cost-cutting choices (Figure 25(B).

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Figure 25: Views of surgeons and administrators on certain key questions relating to
decision-making for orthopedic implants
A) “We make ad-hoc decisions without utilizing any formal matrix”

B) “The hospital has a process to disburse financial incentives to surgeons/physicians
when they help cut implant costs”

Note: Cross tabulation on this data was conducted after one additional respondent
provided feedback.

A somewhat different picture was seen for the question, “The surgeons/physicians have
threatened to drop hospital admitting privileges because they are frustrated with fewer
implant choices”. Here, surgeons appeared to report more commonly that surgeons have
threatened to drop hospital privileges (15%, 6/41) than did administrators (5%, 1/21) but
these differences are relatively small given the absolute numbers (Figure 26).

93
Figure 26: Differences between surgeons and administrators on certain key questions
relating to decision-making for orthopedic implants
“The surgeons/physicians have threatened to drop hospital admitting privileges
because they are frustrated with fewer implant choices”

Note: Cross tabulation on this data was conducted after one additional respondent
provided feedback

A complete cross-tabulation analysis for the survey produced by Qualtrics is provided in
Appendix D.

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CHAPTER 5. DISCUSSION
5.1 Summary
One of the several payment reforms enacted by Congress in March 2010 under the Patient
Protection Accountable Care Act has been the promotion of Value-Based Purchasing
(VBP) models. These models aim not only to improve quality and outcomes of health care
interventions, but also to manage healthcare costs. Healthcare leaders view the ability to
find efficiencies without compromising quality of care as vital to sustain the healthcare
system. Purchasing has a central role in achieving these goals. According to the National
Business Coalition on Health (NBCH), purchasing decisions are best made when payers
can measure comparative performance and use those differences to pay differentially for
products and to encourage consumers to select high-value services and products
preferentially (NBCH, 2011).
The goal of this research was to identify current practices of hospitals and orthopedic
surgeons with respect to their decision-making processes as they selected one type of high-
value product, specifically, hip and knee implants, for their patients. Results suggest that
many of the hospitals and/or health systems surveyed in this research have implemented
some form of formalized decision-making approach. However, these systems and
processes appear to be in evolution, and demonstrate some of the stresses that such
evolution might be anticipated to have.
5.2 Consideration of Limitations, Delimitations, and Assumptions
In the past most of the evidence about the way that orthopedic implant decisions have been
made were anecdotal. In this study, a more systematic approach was attempted first by
using a survey directed at a larger number of respondents whose backgrounds were

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characterized, and second by basing that survey on a framework that encouraged the
exploration of decision-making more comprehensively. Both of these approaches increase
the usefulness of the information, but also have delimitations and limitations that must be
considered when trying to understand the validity of the observations.
5.2.1 Use of survey methodology
Survey research methods have many advantages for research such as this. In contrast to
more qualitative methods such as interviews or focus groups, they allow a researcher to
standardize and quantitate the data that is derived (Trochim, 2006). Interviews depend on
the ability of the researcher to gain access to the interviewees (Trochim, 2006), a
requirement that is not time- and cost-effective given the nature of the sampled population.
By using surveys, it is easier to target a larger number of geographically distributed
participants concurrently than would be feasible with personal interviews. In addition, it
facilitated the engagement of participants who worked at institutions of varying sizes and
organizational structures, such as academic medical centers and institutions with public,
for-profit and community affiliations. Surveys may also be easier for the participants to do
because they can respond to the survey at convenient times in their busy schedules.
Interviews require that participants allocate a significant amount of time for interactions
with the interviewer, and some potential respondents may not be willing to spend this time
for a non-essential professional activity (McCall, 2013).

However, surveys also have several features that can weaken the collection and
interpretation of the data if they are not managed appropriately. These include the need to

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establish certain restrictions on scope, identified below as delimitations, and to assess
potential limitations of the survey in light of the environment in which it is disseminated.
5.2.2 Delimitations
The exploratory nature of the survey developed here could easily become unfocussed
unless criteria were put into place to define the scope of the investigation and the selection
of respondents (Simon, 2011). As identified by Kelley and colleagues (2003),
“Good research has the characteristic that its purpose is to address a single clear
and explicit research question; conversely, the end product of a study that aims to
answer a number of diverse questions is often weak.” (Kelley, Clark, Brown, &
Sitzia, 2003)

Consequently, a decision was made to concentrate on one group of implants, specifically
orthopedic implants for the hip and knee joints. Once the decision was made to delimit the
study in this way, it was necessary to reflect that delimitation by sampling individuals who
were involved most closely in the decision-making process for these devices. Thus two
specific groups were included in the sampled subpopulation. First were administrative
executives who play a key role in the decision-making and procurement of the necessary
implantable devices. Second were orthopedic surgeons, specifically surgeons who are
trained through 5 years of residency and at least one year of fellowship to develop
expertise in the types of hip and knee joint surgeries that would require the implant of
artificial hip and knee prostheses (Swierzewski, 2015). The orthopedic hip and knee
surgeons are specifically trained to perform knee and/or hip replacements on patients with
osteoarthritis, and may also have been involved in developing the prostheses in
collaboration with the manufacturers of the implants (Wilson et al., 2008). Although this
restriction made recruitment more challenging, widening the scope to other specialized
surgeons, such as foot and ankle, sports medicine or spine specialists, would run the risk of

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including individuals who had neither the experience nor decision-making capacity for
selecting hip and knee implants in their practice settings. The delimitations to certain
stakeholders and device classes will obviously have consequences for external validity in
relation to other types of devices. For example, if I were to study the management of
purchasing decisions for cardiovascular devices, the target group for the survey would
differ and the decision-making system that they use might also vary according to
differences in the nature of the patient population, the specifics of their treatment plans,
and the culture of the cardiovascular sector.
The decision to involve two types of stakeholders, surgeons and administrators, was made
deliberately in order to assure that a reasonably balanced picture was obtained from groups
that have previously been suggested to hold different views and have different experiences
with regard to orthopedic purchases. Thus, it was necessary to assure that neither group
was sampled preferentially to prevent one group from dominating the results The
participation of 40 surgeons and 29 administrators (5 of the surgeons also identified
themselves as administrators) from various regions of the U.S. was considered to provide a
sufficient saturation of views for the two groups, particularly when those respondents
represented a population of healthcare professionals not known for its willingness to
respond to a survey (Cho, Johnson, & VanGeest, 2013).
This study also focused only on decision-making approaches in hospital settings. As a
result, it provides no insight into practices in other healthcare settings that are not
considered to be “hospitals”, such as ambulatory sites, physician offices or outpatient
surgery centers. The types of questions that have been asked in this survey could be
adapted to examine and compare practices in other settings, or other product lines. We

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might predict that smaller facilities and less expensive medical devices would have less
developed purchasing acquisition and/or simpler processes (Ozcan, 2009). However,
present results could be used as a benchmark to look at other facilities as well as other
types of implantable and costly medical devices, such as spine and cardiovascular implants.
Such further studies could be timely, as increased pressures for accountability come from
payers to save cost and increase quality care. These recent trends are central to developing
US healthcare regulatory and financing policies that will support reductions in cost and
improvements in quality of care (McKethan et al., 2009).
5.2.3 Limitations
Surveys can have several potential limitations that can weaken the results unless
acknowledged and taken into account when results are interpreted. Survey results can be
diminished in value if, for example, the chosen questions are not appropriate, thus
decreasing internal, or face, validity (Marshall & Rossman, 2011). Valid survey methods
depend upon the ability to develop and select questions that are appropriate to capture the
intended data elements. In this research study, such concerns about face validity were
addressed, in part, by using a focus group of highly experienced healthcare professionals
and academic advisors to critique and suggest changes to the survey tool. The use of a
focus group prior to deployment of survey is not the typical approach in qualitative
research. In most mixed-methods approaches, the focus group follows the survey (Patton,
2002). However, the inverted order was felt to be more helpful in this study because the
questions to be addressed by the focus group were concerned with the survey design rather
than data collection and content. A similar reverse approach has been found to be useful
in other studies, where concerns about the structure of the survey tools led to the use of a
preliminary review by the focus group (Storm, 2013; Whalen, 2013).

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Marshall and Rassman (2011) also point out that a survey can be weakened if methods to
select respondents are unable to sample from the target population adequately. The degree
of engagement of potential respondents is therefore of critical concern (Marshall &
Rossman, 2011). Two particular issues of engagement, the relative numbers of responses
to the survey and the candor of those who did respond, are known to be common problems
facing any survey research of this type.
The rate of respondent participation is of particular concern when dealing with busy
professionals, such as physicians and administrators. Thus, survey response rate can be
low even when a survey is sponsored by a highly reputable professional society or agency.
For example, a recent survey conducted by the Orthopaedic Trauma Association regarding
a specific issue related to the medical management of orthopedic trauma patients yielded
responses from only 379 individuals despite the fact that the mailing list was sent to 1,545
members of the Orthopaedic Trauma Society. This equates to a 25% response rate
(Obremskey et al., 2014). It is not unusual for electronic surveys to have response rates of
30-40%, although papers are published on survey response rates as low or lower than 20%,
when the target respondents are particularly hard to reach (Schonlau, Ronald, & Marc,
2002). Thus the response rates of 36% in this survey were considered to fall within, and
perhaps even above, the level of expectation that was predicted by previous literature.
An additional limitation for a study of often-sensitive views regarding satisfaction and
professional practice patterns is that of assuring the candor of the respondents (Schonlau et
al., 2002). Based on methodological considerations discussed by Evans and Mathur
(2005), an online, self-administered survey method was selected on the premise that direct
interactions with the respondents should be reduced. Not only might this allow participants

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to be more forthcoming in their responses but it would help to reduce potential bias as a
consequence of experimenter expectancy. Nonetheless, candor is difficult to assure if
individuals are concerned that their responses will not be held confidential. Evans and
Mathur point out that an online survey method may not fully allay concerns about privacy
and confidentiality (Evans & Mathur, 2005). Thus, special care was taken in this study to
reassure participants that their identity would be protected, and to phrase questions in a
manner that did not require respondents to speak directly about the identity of their
institutions and/or decision-makers.
To encourage engagement of the participants, the focus group reinforced advice given in
methodological literature (Lavrakas, 2008) that long surveys be avoided to the extent
possible. According to feedback and personal experiences shared by focus group
members, most senior executives in hospitals and physicians would be unlikely to
participate in a survey lasting more than 15 minutes. Longer surveys are viewed as
problematic more generally because they can engender lower data quality; respondents
may tire of the survey and fail to complete it or give superficial answers in an attempt to
satisfice (Lavrakas, 2008). Thus, it was necessary to obtain a balance of appropriate and
meaningful questions without creating a cumbersome and lengthy survey tool. By
providing text boxes for longer answers, it was hoped that respondents might amplify on
their views. In addition, the fact that the text boxes yielded frank criticisms of the system
in some places suggested that respondents were being both thoughtful and direct in their
answers. Nevertheless, in an exploratory survey such as this, it is not possible to probe
fully some areas of interest, and follow-up interview research might be needed to amplify
concerns and information of interest (Lavrakas, 2008).

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This dissertation research does not examine practices outside the United States of America,
although such comparisons in the future might be interesting. Europe in particular has
always been sensitive to the cost of drugs and devices, because the socialized national
health plans of most countries bear the costs of these products through an aggregate of
taxes paid by the population collectively. This sensitivity has led to the creation of
independent review bodies for Health Technology Assessment (HTA) where quality,
safety, outcomes and costs are analyzed simultaneously to achieve the most cost-effective,
yet favorable outcome in treating patients (Hailey et al., 2010). As US migrates to a more
comprehensive and possibly some type of a “single-payer” system, the creation of a
US/HTA body might be expected as a necessary part of cost management. At the moment
such analyses are carried out mostly by major insurance providers such as The Center for
Medicare and Medicaid services and Blue Cross/Blue Shield (AHRQ, 2015). Thus we
might anticipate that broadening the survey to European surgeons and administrators might
provide a different view of decision-making methodologies.
5.3 Consideration of Results
5.3.1 Application of a decision-making framework
The survey instrument used in this study was based on a research framework originally
developed by Simon (1955) to analyze purchasing decisions of consumers (Schiffman &
Kanuk, 1978). Its elements are however, generic for any kind of purchasing decision, and
were found to be useful in guiding and systematizing the questions to be asked about the
decision-making process in this study. The results of this approach paint a picture of a
process that has typically been placed in the hands of relatively small groups of decision-
makers. Almost all of the questions asked in the survey yielded insights about how these

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groups may function or align across a variety of activities at different stages of the
decision-making process when given the responsibility of procurement decisions.
5.3.2 How is the decision-making process initiated? (ASK)
The first step in deciding on a purchasing strategy for orthopedic implants is to recognize
the need for devices in the hospital inventory, and then to initiate the request for a
purchase- in the language of Schiffman and Kanuk (1978), to “ask”. Ten years ago,
decisions regarding the choices of orthopedic implants were initiated and guided
principally by surgeons (Pauly & Burns, 2008). Present research shows that this approach
has evolved - most institutions now appear to recognize the need for a more structured
process in which a multi-membered committee is configured to make purchasing decisions.
These committees can include not only physicians but also hospital administrators,
purchasing directors, GPO representatives and in few instances, patient advocates, as
others have recently observed (Pauly & Burns, 2008). This new construct has broad-
ranging implications. Although results here suggest that surgeons are still primarily the
driver for the initiation of purchasing requests, the process that ensues in many hospitals is
no longer in the hands of an individual with a singular opinion about what is wanted.
Rather a structure is now available to systematize the process so that it integrates the needs
of multiple surgeons, while at the same time addressing the cost and efficiency concerns of
the hospital and its representative administrators. In healthcare, one manifestation of
professional power and autonomy is the physicians’ ability to prescribe and bill separately
for services provided to their hospitalized patients. As hospitals face ongoing cost-control
pressures resulting from Medicare’s prospective payment system, they must manage the
new realities of low Medicaid payments, value-based purchasing, bundled payment
policies, and price negotiations with large purchasers- all of which alter and reduce the

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physicians’ autonomy- in a way that does not consequently reduce their commitment and
engagement (Montgomery & Schneler, 2007).
5.3.3 How is data acquired to feed the decision process? (ACQUIRE)
The second phase of the decision-making process as defined by Schiffman and Kanuk
(1978) is an “acquire” phase, in which information about competing options is gathered
(CEBM, 2013), so that the decision-making body is supplied with essential data on which
to base their activities. In this study, respondents reported that the committees appeared to
value some types of information more than others; most important were data on costs and
clinical/quality outcomes, typically gathered from internal sources. An emphasis on
acquiring information about clinical and quality outcomes suggests an increasing reliance
on scientific evidence rather than personal preference. Such approaches are viewed by
many to be an important way not only to improve the outcome of the process but also to
increase transparency and potentially reduce bias and conflict of interest (Burns, 2007).
However, collecting good data is challenging. In this research, a minority of health systems
were still placing significant reliance on unilateral decision-making made by few
individuals, without utilizing a systemized committee structure. It is not clear whether all
hospitals will see this as a fruitful activity as more experience is gained with value based
decision-making, and whether they will adopt a VAC or in-house decision-making
committee as time progresses (Montgomery & Schneler, 2007).
Notably, physician preference was still one of the top three factors that appeared to inform
the decision-making. This latter result seems unsurprising given the continued importance
of physician preferences. Physicians are often in the best position to give feedback on
clinical evidence that they have gathered personally or collected from the experience of
others. Thus they can play a critical partnership role. A number of investigators have

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previously examined how the relationship between physicians and hospitals may affect the
quality of patient care. In general, these studies suggest that greater physician participation
in hospital decision-making is positively associated with higher quality of care, as
measured by hospital length-of-stay, morbidity and mortality rates and complication rates
(Flood & Scott, 1978; Shortell, 1983). This positive outcome seems to also translate to
more effective decision-making about purchases. For example, at the 21-hospital system
comprising Intermountain Healthcare in Salt Lake City, administrators shared data
containing the costs of orthopedic devices with the orthopedic surgeons. The resulting
cooperation of surgeons with administrators in the purchasing process saved a substantial
amount of money, up to 20% every two years during their “assessment” time that they
could invest into other parts of the healthcare system (Lee, 2013).
Results from the present survey further showed that current decision-making bodies
appeared to pay less attention to external assessments, such as Health Technology
Assessments (HTA), or other systematic decision-analysis tools. Why this is the case
would be interesting to explore in future research. Physicians may believe that national
standards are not an adequate substitute for local determinations of product equivalencies.
If this were to be the case, it might be worth to explore whether determinations of product
equivalencies made by a governmental agency, now being seen as a wave of the future,
would be widely accepted (Montgomery & Schneler, 2007).
It will be interesting to see if purchasing committees become more reliant on externally
derived data in future. The provisions of the Accountable Care Act will almost certainly
drive a more methodical and standardized approach for hip and knee purchasing decisions
and this may motivate the development of benchmarking data analysis at a national level

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that hospitals and healthcare organizations can utilize for decision-making purposes.
Europe and to a limited extent other constituencies are already placing greater reliance on
HTA assessments to base purchasing decisions. There, focus seems to be shifting not only
to doing the assessments but ensuring their use, as reflected in a proposed six-step model to
increase the use of the HTA recommendations as they are developed. These steps include
interventions: 1) to assess evidence-based information related to the coverage and use
patterns of technological innovations related to drugs and medical devices; 2) to increase
awareness of the HTA by relevant stakeholders; 3) to evaluate acceptability of the HTA
reports; to foster explicit utilization of the HTA by the policy process; 4) to examine the
impact on the policy decision as a result of the HTA’s conclusions or recommendations; 5)
to assure the implementation of policy decisions through clear and measurable changes in
clinical practice; and 6) to measure the impact of a HTA in terms of health or economic
outcomes (Greer et al., 2008). These efforts are much more aggressive than those typical
of the US.
Another potential opportunity for input that might aid decision-making would be that from
the patients receiving the implants. This input was not explored in the present study.
However, it was interesting that this type of input was not something that respondents
identified to be important when given the opportunity to add sources of information in a
provided textbox. We might expect that this lack of attention to patient input will change
in future. Although physicians, hospitals, device manufacturers, and insurers have
traditionally been the primary players in determining medical device usage, patients are
beginning to have more input in determining their medical care, as they take a more
proactive stance to learn more about new technologies (Raab & Parr, 2006). As the use of
the internet increases, patients have greater access to information through blogs, advocacy

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groups, medical information sites and social media, so that many become well educated
about choices of manufacturers, surgeons, products and procedures (Burns, 2007). As
they acquire knowledge, they expect to participate in the decision-making process, with the
result that they are acquiring more power in the health care supply chain (Montgomery &
Schneler, 2007). An important organization reflecting the growing power of patients in the
decision-making process is the Patient-Centered Outcomes Research Institute (PCORI),
that is charged to provide data in the form of Comparative Effectiveness Research (CER),
that was recently developed to assist consumers, clinicians, purchasers, and policy makers
with informed decisions regarding health care at both the individual and population levels
(PCORI, 2014a).
Hospitals and physicians can also take a leadership role in improving practices for
monitoring and benchmarking clinical outcomes and disseminating the information
necessary for evidence-based technology assessments (Guezuraga & Steinbring, 2004).
Alignments of interests can occur through close working relationships with manufacturers
that can provide access to hospital executives and purchasing directors in order to educate
them about the impact of technology investments on cost-benefit and improved patient
outcomes (Guezuraga & Steinbring, 2004). More sophisticated information systems are
being developed that link products to cost, outcomes, and safety, but widespread adoption
requires establishing standards for systematic data collection as well as specially trained
staff members to conduct evidence-based studies that incorporate cost-benefit and cost-
effectiveness analyses to support quality outcomes (Montgomery & Schneler, 2007).

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5.3.4 How are committees operating to appraise and analyze options? (APPRAISE and
AGGREGATE):
After information is gathered, decision–making is generally proceeded by a step in which
information is “appraised” and “aggregated” by the group guiding the final decision.
Because results suggested that a committee structure was typically in place, questions
regarding the methods used to conduct this appraisal and the satisfaction of respondents
with it seemed appropriate to gauge the effectiveness of current selection processes. This
stage has significant potential to be divisive. For example, media attention has been
recently drawn attention to the dissatisfaction of some clinicians, that has even resulted in
the resignation of surgeons who felt that their views were not sufficiently heard (Ross,
2015). However, contrary to these anecdotal reports, results here suggested that the
assessments were generally conducted in a way that was satisfactory to most individuals.
When asked how the committee itself might be changed, suggestions were relatively
modest. Further not all of these suggestions were directed at simply rebalancing the
committee in favor of a larger proportion of surgeons, though such changes were in fact
suggested by some. Others, however, recommended that individuals be added from other
areas of expertise, such as nursing, pharmacy, clinicians, health educators, health system
corporate representatives as well as sales and GPO members. This would result in a further
broadening of input into the decision-making process, as these individuals add their views
to those of the current committee structure.
The operation of the committees seemed in general to be perceived as transparent but
perhaps not straightforward by most respondents. The fact that some text responses
highlighted concerns about the lack of systematized methodology and reliance on ad hoc
decisions suggests a system that may not be fully developed yet, and one that still varies
from one institution to another in the degree to which decisions are based on data rather

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than preference. The sense that this system is still in evolution is also gained by numerous
responses that suggested difficulty in aligning the views of committee members. Such
challenge of misalignment have been suggested to occur by others (Robinson, 2008).
Given that physicians typically wanted more representation, it seems likely that methods to
make purchasing decisions will continue to be complicated by balance of power
considerations, in which physician roles cannot be dismissed easily. As stated by
Robinson (2008):
“The main obstacle to value-based purchasing therefore is the
fragmentation and misalignment of information, incentives, and
organizational capabilities between the hospital and the surgeon.”
Nevertheless, decision-making processes will continue to change in future as a result of
shifts in policy toward value-based selections (Grube, 2015). An early model for such
change is illustrated by the activities described in 2000 as a “Single Price/Case Price
Purchasing Program” by the Lahey Clinic located in Burlington, Massachusetts. The
program was developed to make more cost-sensitive decisions for orthopedic implants
without increasing the level of conflict between surgeons and hospital administrators
(Healy et al., 2000). Their cost-reduction strategy required that the surgeons first evaluate
implant systems and decide which of the products from different manufacturers were of
sufficient quality to be acceptable for their patients. The vendors with the acceptable
implant systems then submitted bids, and the hospital administrators and the surgeons
selected one vendor on the basis of cost. This program achieved a 32% reduction in price
per unit/case for total hip arthroplasty by changing vendors, and 23% reduction in price per
unit/case for total knee arthroplasty without the need to change vendors (Healy, Iorio, Ko,
Appleby, & Lemos, 2002).

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An important lesson that seems to emerge from the study at Lahey Clinic is its
commitment to the early and significant involvement of stakeholders in order to achieve a
positive outcome. Substantial research has focused on the impact of the changes that are
driven by managed care to understand how best to achieve mutually productive and
satisfying relations between physicians and hospitals (Robinson, 1999; Shortell, Burns, &
Andersen, 1993). In part this shift in power appears related to shifts in resource
dependency. Pfeffer and Salancik (Pfeffer & Salancik, 1978) explain that the power of one
stakeholder over another depends on the relative importance of the resources that each
controls. If the resources controlled by one party are essential to another party, the
resulting dependence gives greater power to the controlling party. Hospitals then must
pursue their goal of reducing costs in a context of dependencies and power relations in
ways that do not compromise quality of care, patient safety and trust (Montgomery &
Schneler, 2007).
The results of the survey illustrated that the role of the physician/surgeon as the single
decision-maker is migrating toward a new model featuring more centralized and
standardized structure such as value-analysis or P&T committees. It seems predictable that
this shift will continue to move forward as the health-care environment itself shifts in
response to pressures from the Bundled Payment for Care Improvement (BPCI) initiative
authorized by the Patient Protection and Affordable Care Act (CMS, 2013b). The
objective of bundled payments is to align stakeholders’ incentives. One possible way that
has been anticipated to increase the buy-in of physicians is the opportunity to exercise
“gainsharing” between hospitals and physicians across services (Rana & Bozic, 2015).
Gainsharing refers to an arrangement between a physician or group of physicians and a
hospital to share in the cost savings resulting from specific actions taken by providers to

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improve the efficiency of care delivery without compromising overall quality of care (Rana
& Bozic, 2015). For example, in NYU Langone Medical Center in New York City,
physicians have been invited to participate in gainsharing program that encourages greater
alignment of goals (Seligman & Chorney, 2013). Similarly the New Jersey Hospital
Association (NJHA) reported that gainsharing programs generated average annual costs
savings for many of its member hospitals of 8-10 percent. At Hunterdon Medical Center,
Flemington, N.J., the savings climbed even higher to around 30 percent. As a result, the
NJHA has been expanding the gainsharing project to more than 30 hospitals statewide
since 2013 (Shinkman, 2013). However, in this research, only 14% of respondents
believed that some type of gainsharing system was available in their institution. Given the
regulations noted by BPCI, it might be predicted that this number will increase in the
coming years.
5.3.5 Who makes the financial decisions? (APPLY)
The evidence review and consensus-building activities of committees ultimately must
culminate in the step of “applying” the results of the decision-making to generate a final
purchase decision. Results here were mixed, with some hospitals still putting the decision
in the hands of the physician or administrator. More commonly, however, this decision
appears now to be made by consensus, in a few cases driving the purchase to a single
choice, but more typically to a small number of devices that incorporated at least some
extent the physicians’ preferences and requests. Others have also noted that adding
physician preference items to the inventory is still quite common. For example, the VP of
Supply Chain Management at Christus Health, Ed Hardin, was quoted in 2013 as saying
that physician preference items account for about 57% or their supply costs (Lee, 2013).
As the market and regulatory forces change, the retention of physician preference items

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will be under scrutiny as a key target of cost containment, because supply costs in hospitals
are second only to labor costs in size of expenditure (Lee, 2013).
The results of the survey in this research indicate that respondents favor limiting the
number of manufacturing vendors to 2-3 in order to control pricing. This perhaps reflects a
sense of the logistical issues that may arise if only one vendor is chosen, because such a
sole-source system could create difficulties when trying to ensure service and arrange
contract renewals (Montgomery & Schneler, 2007). Nevertheless, limiting the number of
vendors helps hospital administrators and clinical staff to remain familiar with implants’
features and performance and permits the hospital to offer volume guarantees in exchange
for lower unit (Robinson, 2008). Although this approach might interfere with physicians’
clinical choices, examples of physician decision-making influence in examples like that of
the Lahey Clinic, noted above, have demonstrated much success with this approach (Healy
et al., 2000).
5.3.6 The degree of opinion and follow-up by the decision-makers in assessing their
final selections. (ASSESSMENT)
The final stage of the decision-making process is that of “assessing” the appropriateness of
the decisions that were made in order to shape future actions. When “assessing” the
validity of previous purchasing decisions for hip and knee implants, most of the institutions
reported that no structured assessment process was used. Typically, the assessment was
done when the purchasing contract needed to be renewed, but it was not clear whether this
process merely represented a signal to initiate the next decision-making cycle or whether it
also involved a true “assessment” of the efficacy, functionality and safety of the product.
The fact that only a small percentage of respondents indicated that continuous evaluation

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took place in their organization suggests that such purchases are being made in a more ad
hoc manner, as if the products were commodities.
How else might implants be tracked to provide information for later input to the decision-
making process? The concern for administrators who manage supply-chain purchasing at
hospitals is how to obtain and use clinical data that will allow them to choose between
competing devices (Lee, 2013). A few major health systems, such as Cleveland Clinic and
Dignity Health, have formed strategic joint ventures that specifically examine the relative
costs and outcomes of physician preference items (Lee, 2013). For instance, Dignity
Health has formed a joint venture named SharedClarity with United Healthcare and 10
additional health systems with the goal, as enunciated on SharedClarity’s website, “to help
inform healthcare organizations, administrators and surgeons about the best-performing
medical devices through comparative effectiveness studies.” The hope is that these studies
will enable physicians and administrators make informed decision based on clinical proof
rather than manufacturer’s influence (Lee, 2013).
5.4 Future Evolution of Decision-making Processes
It is clear from recent governmental initiatives that the results in this survey mark an
intermediate point in a trend that will continue, in part because of changes in governmental
efforts to promote cost containment. Earlier this year (2015), CMS announced its aim to
have 30% of its Medicare payments under “bundled contracts” by the end of 2016, with a
goal of reaching 50% by 2018. At the same time, CMS announced a more granular
proposal to require bundled payments for hip and knee replacement surgeries in 75 markets
across the country. In addition, 20 major health systems and health plans announced a
goal to have 75% of their contracts based on value-oriented incentives by the year 2020.

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These initiatives provide a significant indicator that the healthcare industry will be moving
towards value-based reimbursement as its predominant model.
The change toward a value-based business model is also reflected by two recent surveys of
hospitals by Kaufman, Hall & Associates, LLC, showing that 42% of hospitals obtained at
least 10% of their revenue from value-based contracts as of February 2015, nearly twice
the 22 percent of hospitals reporting that at least 10% of their revenue came from such
contracts in August 2014 (Grube, 2015). Even more strikingly, the number of hospitals
anticipating that value-based contracts will constitute 50% or more of their revenue within
the next 24 months tripled, from 7% to 22%, over results obtained only six months
previously.
Orthopedic implants continue to be an important target of these initiatives. On July 9,
2015, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule to
implement a mandatory episode-based payment model for lower extremity joint
replacement (and reattachment) care in selected geographic areas. Episode-based care is
defined as all services provided to a patient with a medical problem within a specific
period of time across a continuum of care in an integrated health care system. According to
the Comprehensive Care for Joint Replacement (“CCJR”) model, CMS will test (for five
years through December 2020) an episodic-based payment to hospitals for hip and knee
joint replacement cases beginning on Jan. 1, 2016 (CMS, 2015b). The proposed rule
includes hospitals in 75 metropolitan statistical areas and would impact approximately 900
inpatient hospitals, representing about 25% of the lower extremity joint replacement
procedures for Medicare beneficiaries nationally. Health policy experts conclude that
CMS is actually telling the providers that they must live within a fixed budget. CMS

114
expects that bundling for hip and knee joint replacements will save $150 million over the
next five years (Gorenstein, 2015).
Results of this survey reinforce the well-appreciated challenge of decision-making with a
diverse group of stakeholders. Clearly, the two most powerful stakeholders remain the
physicians, whose responsibilities over patient-care matters affect the quality of care, and
the administrators, who can apply their influence over policies, planning activities
including budgeting, staffing, and procurement of supplies (Shortell, 1983). However, the
balance of power within this dichotomy is changing rapidly, as seems evident by the way
that orthopedic implants are chosen. With the changes in procedure will come changes in
the relative roles of physicians, administrators and government in the process.

115
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APPENDIX A.
SURVEY INSTRUMENT, PRE-FOCUS GROUP-JANUARY 29, 2015

1). What is your current position/title (please check all that apply)
 Orthopedic Surgeon
 Hospital Executive (CEO, CNO, CMO, CFO, Associate Administrator)
 Hospital Purchasing Director/Manager
 GPO/Purchasing Consultant
 Other

2). I am affiliated with a(n): (please check all that apply)
 Academic Health System
 HMO-Type Health System
 Independent Health System
 Community/Specialty Hospital
 Public/State/County Hospital Other

3). My hospital's size is:
 Small - Less than 199 beds
 Medium - Between 200 to 450 beds
 Large - Greater than 451 beds

4). My hospital is located at:
 Northeast (CT, ME,MA,NH,NJ,NY,PA,RI, VT)
 Midwest (IA,IN,IO,KS,MI, MN, MO,ND,NW, OH,SD,WI)
 South (AL,AR,DC,DE,FL,GA,KY,LA,MD,MS,NC,SC,TN,TX,VA,WV)
 West (AK, AZ,CA,CO,HI,ID,MT,NM,NV,OR,UT,WA,WY)

5). How many different manufacturers of hip implants does your hospital utilize?
 1 - 3
 4 – 6
 > 6

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6). How many different manufacturers of knee implants does your hospital utilize?
 1 - 3
 4 - 6
 > 6

7). What are the mechanisms that you use to make decision about the specific
brands of hip & knee products to be purchased? (please check all that apply)
 We have decision-making committee(s) (e.g., Value Analysis
Committee, P&T Committee)
 The decision is made by the hospital administrator/director
 The decision is made by the surgeons/physicians
 We use the same committee as that for drugs (e.g., P&T Committee)
 We use a separate committee for orthopedic products only
 We use one committee for all medical technologies and equipment
 Cannot answer
 Other

8). What is the primary mechanism by which you make purchasing decisions
in your facility?
 Committee (e.g., Value Analysis Committee, P&T Committee)
 Hospital administrator
 Surgeon/Physician Preference Cards
 Cannot answer
 Other

9). In your facility, who or what group initiates the request for purchasing of
medical equipment?
 Surgeons/physicians
 Hospital administrators/directors
 Formal committee process
 Other

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10). What is the current representation of your decision-making committee? (please
specify a number)
 Surgeons/Physicians
 Hospital Administrator/Directors
 Patient Advocates/External Groups
 Other

11). How often does your committee meet?
 Weekly
 Monthly
 Quarterly
 Seasonal (e.g. Budget Period)
 Ad-hoc (as needed)
 Cannot answer

12). How satisfied are you with the membership of your decision-making
committee? Not Satisfied Extremely Satisfied
0 1 2 3 4 5 6 7 8 9 10

13). Given the opportunity, how would you restructure the membership of your
decision- making committee? (please specify a number)
 Surgeons/Physicians
 Hospital Administrators/Directors
 Patient Advocates/External Groups
 Other

14). Do you have an assigned individual(s) who are responsible for collecting the
necessary data to be used in the purchasing decision?
 Yes (please specify)
 No data is collected formally
 Cannot answer

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15). Which of the following factors are taken into consideration when making the
decision in your institution? (please mark all that apply)
 Financial Information (e.g., ROI, Reimbursement Policies, Expenses, etc.)
 Patient and Scientific Outcomes
 Physicians' Preference
 Influencers
 Cannot answer
 Other

16). In your opinion, how important is the following information/data in purchasing
decision- making? (Please rank in order of importance)
1 2 3 4 5
HTA recommended or Quality outcome data
Manufacturers' information and Catalogue description
Presentations/justifications by surgeons/physicians/clinicians
Academic and scientific literature
Financial information/Impact assessment

17). In your opinion, which of the following applies to your decision-making
process when acquiring medical equipment?

Strongly Agree Neutral Strongly Disagree
Agree

Disagree

We use a transparent and formal process to
decision making

We use numerical matrix (e.g. ranking system)
to make purchasing decisions

I believe our purchasing decision matrix is an effective
system to judge Hip & Knee implants

We make ad-hoc decisions without utilizing
any formal matrix

We have a formal negotiation process
with the manufacturers prior to finalizing
the purchasing decision making

The decision is straightforward and can
be made without extensive clinical data

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18). State your level of agreement/disagreement with the following statements
regarding your hospital's product purchasing policies:
Strongly Agree Unsure Strongly Disagree
Agree Disagree

The hospital administration approves all
implant requests from surgeons/physicians

The hospital and surgeons/physicians work
closely to get the best pricing

The hospital has a process to pass on cost
savings when surgeons/physicians help cut
implant costs

The surgeons/physicians have leverage over
hospital as to what implants to purchase

The decision-making committee's efforts to cut cost
have not been successful

The hospital has standardized implant choices
from one or two vendors

The surgeons/physicians have threatened to drop hospital
admitting privileges, because they are frustrated with
fewer implant vendor choices

The surgeons/physicians maintain financial relationships
with the manufacturer(s)

19). Does a novel or custom device go through the same purchasing decision process?
 Yes
 No
 Unsure (please explain)
 Cannot answer

129
20). How does your organization or committee handle patients with "expedited
cases" or "compassionate use" instances?
 We take care of patients' needs regardless of cost A special committee
meeting is called
 We coordinate with all stakeholders (e.g., surgeons/physicians,
administrators, manufacturers etc.) informally
 Cannot answer
 Other
21). In your institution, what is the mechanism by which you monitor the hip & knee
device choices made by your decision-making processes? (please mark all that apply)
 We never monitor the final list
 We continuously monitor surgeon/physician outcomes for the type of device
used in patients
 We monitor reimbursement trends and its ratio to overall cost of the devices
 We remove the devices from our list when the surgeon(s) with highest volume
leave our institution
 Cannot answer
 Other

22). How do you assess the validity of your decision and choice of hip & knee
implants?
 We evaluate our decisions continuously
 We re-evaluate when a purchasing contract must be renewed
 We wait until there is a problem with patients and/or payers, before re-
evaluating Cannot answer
 Other

130
23). Please rate your level of satisfaction with the following:

Strongly Agree Neutral Strongly Disagree
Agree

Disagree

The final decisions made with regard to hip &
knee implant acquisitions

The process by which the final decisions were made

The transparency of the data and information that led to
the final decisions

The ability to share pros and cons candidly when
making purchasing decisions

The degree to which my opinions are valued
and taken seriously
Final decisions balance fairly with the view
of different stakeholders

My influence on the decisions has decreased over
the last decade

The views of different stakeholders are divergent

24). Which of the following do you believe is most important in decision-
making when purchasing hip & knee products? (please rank in order of
importance)
1 2 3 4 5 6 7 8 9 10
 Cost containment Quality outcome
 Surgeon/Physician satisfaction
 Patient satisfaction
 Reimbursement status
 Support from manufacturer (e.g, resources, trainings etc.)
 Bundled large volume purchasing options/discounts Product safety record
 Previous experience with the known product
 Other

131
25). Do you personally agree with the importance of factors used by your decision
making committee/process in your institution?
 Yes
 No (please explain)

26). It will be helpful if you can comment/provide additional information and/or trends
with regard to acquisition of orthopedic hip and knee implants

132
APPENDIX B.
SURVEY INSTRUMENT, POST-FOCUS GROUP-LAUNCHED ON MARCH 10, 2015

1. What is your current position/title (please check all that apply)
 Orthopedic Surgeon

 Hospital Executive (CEO, CNO, CMO, CFO, Associate Administrator)

 Hospital Purchasing Director/Manager

 GPO/Purchasing Consultant

 Other

2. I am affiliated with a(n): (please check all that apply)
 Academic Health System

 HMO-Type Health System

 Independent Health System

 Community/Specialty Hospital

 Public/State/County Hospital

 Other

3. My hospital's size is:
 Small - Less than 199 beds

 Medium - Between 200 to 450 beds

 Large - Greater than 451 beds

4. In what area is your hospital located? (please mark all that apply)
 Northeast (CT, ME,MA,NH,NJ,NY,PA,RI, VT)

 Midwest (IA,IN,IO,KS,MI, MN, MO,ND,NW, OH,SD,WI)

 South (AL,AR,DC,DE,FL,GA,KY,LA,MD,MS,NC,SC,TN,TX,VA,WV)

 West (AK, AZ,CA,CO,HI,ID,MT,NM,NV,OR,UT,WA,WY)

5. To the best of your knowledge, approximately how many hip & knee surgeons practice at your
hospital? (please use the slider to provide answer)

Not Applicable
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Hip & Knee Surgeons

133
6. To the best of your knowledge, approximately how many different manufacturers of hip
implants does your hospital utilize? (please use the slider to provide answer)

Hip Implants
Not Applicable
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

7. To the best of your knowledge, approximately how many different manufacturers of
knee
implants does your hospital utilize? (please use the slider to provide answer)
Not Applicable
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Knee Implants

8. In your facility/hospital, what are the range of mechanisms that you are used to make
decisions about the specific brands of hip & knee products to be purchased? (please check
all that apply)

 We have decision-making committee(s) (e.g., Value Analysis Committee, P&T Committee)

 The decision is made by the hospital administrator/director

 The decision is made by the surgeons/physicians

 We use the same committee as that for drugs (e.g., P&T Committee)

 We use a separate committee for orthopedic products only

 We use one committee for all medical technologies and equipment

 Cannot answer

 Other

9. What is the primary mechanism by which you make purchasing decisions in your facility?
 Committee (e.g., Value Analysis Committee, P&T Committee)

 Hospital administrator

 Surgeon/Physician Preference

 Cannot answer

 Other

134
10. In your facility, who or what group initiates the request for purchasing of medical equipment?
 Surgeons/physicians

 Hospital administrators/directors

 Formal committee

 Industry Representatives

 Other

11. Do you have a purchasing decision-making committee?
 Yes

 No

12. What is the current representation of your decision-making committee? (please specify an
approximate number, if a definitive one is not known)

Not Applicable
0 2 5 7 9 11 14 16 18 20 23 25

Surgeons/Physicians

Hospital Administrator/Directors
Patient Advocates/External Groups
Other (please specify all that apply)

13. How often does your committee meet?
Weekly

 Monthly

 Quarterly

 Seasonal (e.g. Budget Period)

 Ad-hoc (as needed)

 Cannot answer

 N/A

14. How satisfied are you with the membership of your decision-making committee?
Not Satisfied Extremely Satisfied
0 1 2 3 4 5 6 7 8 9 10

135

15. Given the opportunity, how would you restructure the membership of your decision-making
committee? (please specify a number)

Surgeons/Physicians
0 3 5 8 10 13 15 18 20 23 25

Hospital Administrator/Directors
Patient Advocates/External Groups
Other (please specify all that apply)

16. Which of the following factors are taken into consideration when making the
decision in your institution? (please mark all that apply)
 Financial Information (e.g., ROI, Reimbursement Policies, Expenses, etc.)

 Patient Preference

 Clinical Outcomes

 Physicians' Preference

 Influencers (e.g., payers, sales reps., government developed technology assessment)

 Cannot answer

 Other

17. In your institution/facility, do you have an assigned individual(s) who are responsible for
collecting the necessary data to be used in the purchasing decision?

 Yes (please specify)
 No
 Cannot Answer

136
18. In your opinion, how important is the following information/data in purchasing decision-
making? (Please rank in order of importance - 1 being most important and 6 being the
least important)

1 2 3 4 5 6

Quality outcome data
Manufacturers' information and Catalogue description
Presentations//justifications by surgeons/physicians/clinicians
Academic and scientific literature
Financial information/Impact assessment
Governmentally/payor developed practice guidelines/cost
effectiveness analysis

19. In your opinion, which of the following applies to your decision-making process when
acquiring medical equipment?

Strongly Agree Neutral Disagree Strongly
Agree

Disagree

We use a transparent process to make decisions
We use numerical matrix (e.g. ranking system) to make purchasing decisions
Our mechanism to make purchasing decisions is an effective way to judge hip and knee implants
We make ad-hoc decisions without utilizing any formal matrix
We have a formal negotiation process with the manufacturers prior to finalizing the purchasing decision making
The decision is straightforward and can be made without extensive clinical data

137

1. State your level of agreement/disagreement with the following statements regarding your
hospital's product purchasing policies:

Strongly Agree Neutral Disagree Strongly
Agree

Disagree

The hospital administration approves all
implant requests from surgeons/physicians

The hospital and surgeons/physicians work closely
to get the best pricing

The hospital has a process to disburse financial incentives
to surgeons/physicians when they help cut implant costs
(e.g., Gain- sharing)

The surgeons/physicians have too much control over hospital
with regard to implant purchase

The decision-making committee's efforts to cut cost have not
been successful

The hospital has standardized implant choices from one
or two vendors

The surgeons/physicians have threatened to drop hospital
admitting privileges, because they are frustrated with fewer implant
vendor choices

The surgeons/physicians maintain financial relationships
with the manufacturer(s)

2. In your institution, what is the mechanism by which you evaluate the hip & knee device choices
made by your decision-making processes? (please mark all that apply)

 We never review the choices made
 We continuously evaluate clinical outcomes for the type of device used in patients
 We evaluate reimbursement trends and its ratio to overall cost of the devices
 We revise the devices' choice when we see major change in utilization (e.g., drop in volume,
 surgeon departure, etc.)
 Cannot answer

 Other
3. What is your primary mechanism of assessing the validity of your decision and choice of
hip
& knee implants?
 We evaluate our decisions continuously

 We don't evaluate our decisions

 We re-evaluate when a purchasing contract must be renewed

 We wait until there is a problem with patients and/or payers, before re-evaluating

 Cannot answer

 Other

138
4. Please rate your level of satisfaction with the following:

Very Satisfied Somewhat Dissatisfied Very
Satisfied

Satisfied

Dissatisfied

The final decisions made with regard to hip &
knee implant acquisitions

The process by which the final decisions
were made

The transparency of the data and information
that led to the final decisions

The ability to share pros and cons candidly
when making purchasing decisions

The degree to which my opinions are valued
and taken seriously

Final decisions balance the degree to which
stakeholder views are balanced

I am satisfied with the way that my influence
on decisions has evolved over time

5. Do you personally agree with the importance of factors used by your decision-making
committee/process in your institution?

 Yes
 No

139

6. Which of the following do you personally believe is most important in decision-
making when purchasing hip & knee products? (Please rank in order of
importance - 1 being most important and 9 being the least important)

1 2 3 4 5 6 7 8 9

Cost containment
Quality outcome
Surgeon/Physician satisfaction
Patient satisfaction
Payor Reimbursement status

Support from manufacturer (e..g, resources, trainings etc.)
Bundled large volume purchasing options/discounts
Product safety record
Previous experience with the known product

7. Does a novel or custom device go through the same purchasing decision process?

 Yes

 No (please explain)

 Cannot answer

140

8. How does your organization or committee determine purchasing decisions for patients with
"expedited cases" or "compassionate use" instances?

 We take care of patients' needs regardless of cost (would you like to add more information?)

 We use the same committee and call in a special meeting

 We coordinate with all stakeholders (e.g., surgeons/physicians, administrators, manufacturers etc.) informally

 Cannot answer

 Other

9. It will be helpful if you can comment/provide additional information and/or
trends with regard to acquisition of orthopedic hip and knee implants

141
APPENDIX C.
SURVEY RESULTS PRODUCED BY QUALTRICS
1. What is your current position/title

Other
Consultant
Chairman, Orthopaedic Surgery; Chief, Adult Reconstructive Surgery
Multiple hospital Chief Medical Officer
Health Care Consultant
Clinician/administrator private practice
Program Manager Clinical Resources
Board of Director of Hospital System
Risk, IC Analyst/Director
Ortho sales rep

2. I am affiliated with a(n): (please check all that apply)

142

Other
Professional Services Firm
Work with hospital, physician leadership to
build NEWCO Private practice
Solo private practice
Independent Consulting Firm

3. My hospital's size is:

4. In what area is your hospital located? (please mark all that apply)

5. To the best of your knowledge, approximately how many hip & knee
surgeons practice at your hospital? (please use the slider to provide
answer)

# Answer Min Value Max Value
Average
Value
Standard
Deviation
Responses

1
Hip &
Knee
Surgeons

1.00

15.00

6.59

3.72

54

143
6. To the best of your knowledge, approximately how many different
manufacturers of hip implants does your hospital utilize? (please use
the slider to provide answer)

# Answer Min Value Max Value
Average
Value
Standard
Deviation
Responses
1
Hip
Implants
0.00 9.00 3.89 1.94 62

7. To the best of your knowledge, approximately how many different
manufacturers of knee implants does your hospital utilize? (please use
the slider to provide answer)

# Answer Min Value
Max
Value
Average
Value
Standard
Deviation
Responses
1
Knee
Implants
1.00 9.00 3.95 1.72 62

8. In your facility/hospital, what are the range of mechanisms that you are used
to make decisions about the specific brands of hip & knee products to be
purchased? (please check all that apply)

Other
We decide as a group
Hospital System has construct pricing for all major
vendors We have an overall Health System committee that then
puts together an ortho specialty committee for product
selection/choice Not purchased
GPO
We set price caps and have available those
manufacturers who will agree to the price offered for
reimbursement. Bundled Corporate Purchase Agreements

144
9. What is the primary mechanism by which you make purchasing decisions in
your facility?

10. In your facility, who or what group initiates the request for
purchasing of medical equipment?

Other
RFP
both Hosp Adx and Surgeons
Hospital system has construct pricing for all major vendors
Health system Clinical Effectiveness Committee
GPO
Combination of ortho dept and purchasing/ value
analysis, every 3 years or so we re- evaluate our
joint implant contracts. As surgeons we have
contracted with 2 vendors.
Bundled Corporate Purchase Agreements
Other
Any and all of the above
Hospital System office we input from orthopedists
Surgeon requests go thru our Hospital Orthopedic Dept
Committee.

145
11. Do you have a purchasing decision-making committee?

12. What is the current representation of your decision-making committee?
(please specify an approximate number, if a definitive one is not known)

Other (please specify all that apply)
nurses, pt , dpharm
none
Nursing and Phramacy
GPO partners
Clinicians, Educators
Or nurses
Representatives from corporate
vendor and GPO
Corporate administrator
health system representative
GPO representatives
DMM, VA Program Manager, OR Business Manager
staff/education/ biomed/ infection control
Committee is set by the corporate with
physicians/administrators Sales reps are invited to provide/present information on
their products

146
13. How often does your committee meet?

14. How satisfied are you with the membership of your decision-making
committee?

15. Given the opportunity, how would you restructure the membership of your
decision-making committee? (please specify a number)

147

16. Which of the following factors are taken into consideration when making
the decision in your institution? (please mark all that apply)

Other (please specify all that apply)
I wouldn't restructure
pharm d, admin, pt
none
none
Clinicians, Educators
its fine
Vendors
GPO
Corporate - finance
Corporate and manufacturer representative
manufacturer representative with data
GPO representative
None
DMM, VA Program Manager
staff
outside GPO with information on trends
0
I would add bedside staff
No change. All surgeons can participate.
corporate representation
sales reps and/or product safety directors
bedside nursing
No changes
80% surgeons 20% other

148
Other
none
GPO recommendations

17. In your institution/facility, do you have an assigned individual(s) who are
responsible for collecting the necessary data to be used in the purchasing
decision?

149

Yes (please specify)
Purchasing director
Analysts in contracting, finance and utilziation combine to analyze
Outcomes Analysis/Cost Analysis
Drs
administrators
materials mgt
Chief Supply Chain Officer
Clinical trial division
materials management and GPO
Sourcing manager
Materials Manager
Hospital employee
Corporate employee in finance
Finance office
Supply Chain Director
supply chain/contracting
Supply chain and contracting office - corporate
corporate purchasing and outcome specialists
Finance department
Hospital administrator's representative, usually someone from finance
Purchasing mgr and materials personnel
CFO
GPO representatives contracted with hospital
Hospital purchasing agent
contract mgr, clinicl resource, inventory, department manager
finance administration
business/finance operations
hospital finance gives data on costs surgeons: data on outcomes/preference
finance business office and GPO
Administrator
Service administrators and directors
Service line administrator (Orthopedics)
finance office data analysis
Accounting
The CNO gathers all data for discussion
Purchasing
Purchasing rep gets the bids from reps of 3-4 companies that we are considering.
corporate finance looks at all hospitals
hospital finance department - they also ask reps for information
Administrators do this.

150
18. In your opinion, how important is the following information/data in
purchasing decision- making? (Please rank in order of importance -
1 being most important and 6 being the least important)

19. In your opinion, which of the following applies to your decision-making
process when acquiring medical equipment?

151
20. State your level of agreement/disagreement with the following statements
regarding your hospital's product purchasing policies:

152

21. In your institution, what is the mechanism by which you evaluate the hip &
knee device choices made by your decision-making processes? (please
mark all that apply)

Other
we support materials management to negotiate better
pricing GPO provides information on trends
Hospital administrators always ask for better pricing
and threaten to block the sales reps from the O.R.

153

22. What is your primary mechanism of assessing the validity of your decision and
choice of hip & knee implants?

Within the matrix of physician practice patterns and cap pricing, we have had only a few
manufacturers not participate

23. Please rate your level of satisfaction with the following:

154
24. Do you personally agree with the importance of factors used by your
decision-making committee/process in your institution?

155

25. Which of the following do you personally believe is most important in decision-
making when purchasing hip & knee products? (Please rank in order of
importance - 1 being most important and 9 being the least important)

26. Does a novel or custom device go through the same purchasing decision
process?

156

No (please explain)
reviewed by CMO and committee per request
special devices for exceptions
Varies with type of implant
exception for individual cases are made based upon special needs
case by case
value analysis committee
Essentially yes, but may need IRB approval
We don't have the need to do so in our organization
We don't have the need for custom device- not enough cases
We act based on patient's needs in the academic environment
We are not set up for this type of procedures
Requires sign off from finance
The product is ordered without review of pricing or reimbursement or quality
outcomes. If decision is made to get a custom device then the surgeon makes that
determination We handle case-by-case
We are contacted by the surgeon to work with him and the hospital administrator
approved on case by case basis

27. How does your organization or committee determine purchasing decisions for
patients with "expedited cases" or "compassionate use" instances?

28.
29.

We take care of patients' needs
regardless of cost (would you like to
add more information?)

Other
Patients are sent to us for the
expertise of our surgeons. That's their
last stop.
we try to negotiate a reasonable solution
There is a well defined quick add
process for items and it works well.
depends on the situation
We are a tertiary hospital and surgeon
tells us what he needs in these cases.
Department chair can approve a
request deemed urgent.

157
28. It will be helpful if you can comment/provide additional information and/or
trends with regard to acquisition of orthopedic hip and knee implants.

29. Text Response
No comment
trend towards utilization based on payor reimbursement
As the market begins to consolidate more and more the
"standardization" give back is less impactful.
no additional information
No further information to add
Purely price based. All implants are looked at like a
commodity, when for complex cases, service and
implant selection are important.
no comment
Nothing to add
Value is becoming the driver
volume discounts negotiated from national vendors has
helped us but surgeon ability to select from a short list of
vendors has kept up the quality surgeon input into
controliing costs has not produced rewards for surgeons
and their patients
trend is to have "shelf pricing" for implants
in a state of flux right now
I have worked at two different hospitals where they set a
price for hip/ knee implants and all the vendors have to
match that price. DO not have any comments
None
I believe the best approach is to have participatin by the
key surgeons and the key hospital representations (not
"administration") and that they have a good relationship for
trust, honest dialogue and equal decision power. I like to see a better utilization of committees and
decision making process pertaining value based
purchasing. Orthopedic service lines are very important
but can be very expensive (no profit margin) if costs of
implants are not managed.
Difficult to navigate the current system and policies. Hard to
make decisions. no comments
I am from the manufacturer's side. It has been difficult
to negotiate and get implants into health systems.
We still have to work with surgeons and use their
influence over their choices. None
None
We have a specialty orthopedic committee and handle all
our orthopedic service lines issues through that
committee and group. The joint replacement surgeons discuss this periodically
and in urgent special meetings as the need arises. We
are sensitive to cost containment but since we are an
academic center where complex cases are referred we
need more implant choice options.
None
Although we try to make the best decisions based on
quality and price, still there are times that our cost
surpasses the actual need of the patient. The quality is
always good, because our surgeons are very good, and
the quality of implants they use are also high.
.
None

158

We renegotiate our implant contracts every 2 to 3
years. We use an 80/20 rule. 80% of implants
need to be from two primary vendors and 20%
can be from other vendors.
Unfortunately, implant preference is largely dictated by
the involved surgeons ties to the implant manufacturer
and financial relationships which are not always
transparent. There is quite a bit of cost analysis and
administrative oversight but so far the administration
shies away from pushing surgeons to use any given
implant besides just providing financial data to all joint
surgeons so that they can see the cost impact of their
implant choice.
No comment
The next generation of a RepLess model is appealing in
that the onus of the surgical procedure should be held
by the physician and OR staff, not the rep.The cost
savings assocaited with this change is alos necessary
to support the finacial stability of healrthcare
providers/hospitals. Use of automated trackign systems
will also gain ground in assisting with bar code
tracking/automation of the required trackign processes.
PPI for ortho has been managed outside the VA
process and has general been addressed strictly by
negotiating pricing agreements. There has been no
market share movement in this category or reduction in
the number of vendors in use.
It is best to limit the number of implant vendors to 2 only.
There needs to be an alignment between
hospital administrators and surgeons. It is
recommended to use less than 3 vendors. Would like to have the VAC committee recommend
fewer implant vendors. Makes it easier to evaluate
costs and quality outcomes. WE are working through our Value Analysis
Committee to standardize implant choices and limit
the purchases to 2-3 vendors. Similar process for spine kmolants
Would like to get better directions from hospital
administration and surgeons. As directors we are told to
cut costs, but also keep surgeons happy. Sometimes we
have to deal with the conflict. It will be good that all
decisions are finalized by VAC, and everyone respects
it.
Also, too many vendors. We have to try to
streamline and choose couple of vendors, and stick
to that decision.
Contractually set cap pricing via administration and
national representation. Physicians understand
process and transparency exists. Local sales
representatives are not directly involved in the
process to limit their influence. Understanding withn
the department that the process may have vendors
not continue to be able to provide their products at
facility.
Tension has occurred when this happened a few
years ago. One surgeon moved his cases until vendor
met cap months later.
We try to work with our orthopedic surgeons closely
and align with their requests and patient care needs.
The relationships can be strengthened if the sales rep
didn't have so much influence on the surgeons. The surgeons were allowed to pick two vendors for
hip and knee implants and the hospital negotiated
the contract Surgeons are reimbursed too little and manufacturer are
reimburse too much we are looking at pricing much more closely than in the
past, but still have a long ways to go with regards to
cost-effectiveness Our facility works with vendors to get the best pricing
working with the drg Improved value of contracts over time.
physicians & hospital should work together
Nothing further to add

159

We are part of a major health system in Colorado and
California states. All decisions are made by
corporate, and they have been utilizing bundled
payment matrices where possible. Many committees
are being formed to tighten the process. My hospital is
small, so we have only 1 vendor that provides with the
implants, as we don't have a large orthopedic volume in
our facility.
It has been hard to deal with hospital administrators on
this issue. They want to use only one or two product
vendors. The recent tactics are that the hospital finance
chiefs call all of us into meetings, and give us a cap
price and want us to match the price. At times, it is very
difficult, since some of them have special "constructs"
and it is hard to match the reference price.
up to this point, the most important factor has
been physician preference, but this may change
in the near future The vallue of the implant and the connection of the
surgeon to the manufacture is taken into
consideration. none
Nothing to add

Statistic Value
Total Responses 54

160
APPENDIX D.
CROSS TABULATION RESULTS PRODUCED BY QUALTRICS
DECISION-MAKING ON ORTHOPEDIC IMPLANTS – VBP/HTA, CROSS TABUBLATION (72
RESPONSES)

161

162

163

164

165

166

167

168

169

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Creator Mosessian, Caroline (author)

Core Title Value based purchasing: decision-making processes underlying hospital acquisitions of orthopedic devices

School School of Pharmacy

Degree Doctor of Regulatory Science

Degree Program Regulatory Science

Publication Date 01/28/2016

Defense Date 12/04/2015

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag bundled-payments,CCJR,cost containment,decision-making processes,hospital executives,Hospitals,OAI-PMH Harvest,orthopedic devices,orthopedic implants,orthopedic surgeons,outcomes measures,procurement,quality of care,value based care,value based purchasing

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Richmond, Frances J. (committee chair), Jamieson, Michael (committee member), Pacifici, Eunjoo H. (committee member), Patzakis, Michael J. (committee member)

Creator Email mosessia@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c40-204794

Unique identifier UC11279296

Identifier etd-MosessianC-4073.pdf (filename),usctheses-c40-204794 (legacy record id)

Legacy Identifier etd-MosessianC-4073.pdf

Dmrecord 204794

Document Type Dissertation

Format application/pdf (imt)

Rights Mosessian, Caroline

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA