Service Models to Improve Lithotripsy Contracts

Client Issue/Challenge

A large health system on the West Coast spends $1M annually on outsourced lithotripsy and laser services. Ten unique suppliers are utilized to serve 11 different markets and six of the markets leverage multiple vendors. The contracts in place with lithotripsy and laser providers have a variety of pricing and service models. Fully outsourced model with usage-based pricing structure and equipment lease service model with tiered pricing structure and volume commitments.

The health system was experiencing three major challenges sourcing lithotripsy services:

Physician-Ownership: Urologists have ties to local lithotripsy services providers, which may result in significant sensitivities and increased pushback from clinical stakeholders.
Remote Locations: Many of the client’s hospitals are located in remote areas making access to labor and standardization efforts more challenging
Laser Services: Some lithotripsy vendors bundle laser services into lithotripsy contracts and others do not; this can complicate true conversion opportunities

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Approach

Pathstone launched initiative efforts by reaching out and holding meetings with the health system’s Chief Nursing Officers and Chief Finance Officers to identify the appropriate stakeholders to join the lithotripsy services project work team.

After meeting with work teams to confirm our understanding of lithotripsy services at each hospital, Pathstone issued a detailed data request to all lithotripsy and laser vendors servicing the health system. The pricing and utilization data collected was then analyzed to generate meaningful insights and to build a business case highlighting significant discrepancies across the health system.

The project work team selected to issue a competitive request for proposal (RFP) to all incumbent providers to test the market and to ensure all hospitals were receiving best-in-class pricing and service levels. Pathstone reviewed and consolidated supplier proposals into a presentation that empowered stakeholders to make data-driven decisions on the future state of lithotripsy services at his or her facility.

Impact:

Pathstone’s clinical purchased service consultants achieved value for the health system in two ways. First, negotiating with incumbent providers to achieve more competitive pricing and increased service levels. Second, transitioning low-volume hospitals from contracts where pricing was contingent on volume commitments to contracts with usage-based pricing models.

Due to geographic location, supplier proposals revealed that standardization and consolidation efforts would not yield significant financial value for the health system.

Key Takeaways

Determine appropriate service model. A pricing model with volume commitments will likely benefit hospitals with high volumes and steady demand; a usage-based pricing model will likely benefit hospitals with low volumes or unsteady demand.

Do not overlook relationships with local players. While large health systems can often leverage volumes to drive down cost, we have found success negotiating rates with local players.