Philips, Siemens score big hospital bundling contracts, highlighting demand for value-based healthcare

Enormous, multi-year hospital contracts that leverage the scale of Royal Philips ($PHG) are key to the new HealthTech focus for the company. The conglomerate expects that as hospital systems themselves continue to consolidate and its own healthcare offerings continue to expand, it will be able to secure more all-encompassing, large deals as these healthcare providers look to cut costs through bundling.

Now, Philips has landed its biggest fish to date--a half-billion-dollar, 15-year contract with WMCHealth, a 7-hospital health system based in Valhalla, NY. The system is the largest integrated health provider in the Hudson Valley; it has almost 300 healthcare partner organizations.

The deal includes the provision of a range of clinical and business consulting services, as well as technologies such as imaging systems, patient monitoring, telehealth and clinical informatics solutions. The companies expect the deal will improve healthcare delivery, particularly in radiology, cardiology, neurology, oncology and pediatrics.

As part of the collaboration, Philips will have a joint on-site team with WMCHealth that's dedicated to maximize its participation in New York's Delivery System Reform Incentive Payment (DSRIP) program, which aims to improve its Medicaid program participation. Its main goal is to reduce avoidable hospital use over the next 5 years by 25%.

"In order for us to make the large-scale improvements that will truly impact the lives of our patients, we need to think longer term and be able to adapt quickly as technology evolves," said President and CEO of WMCHealth Michael Israel in a statement.

"Our alliance with Philips not only gives us access to the latest in connected digital health technologies, it will allow us to collaborate on pro-active health management and co-create new patient-centered models of care for the Hudson Valley area. Together, we are working to keep the Hudson Valley healthy through a model that supports innovation and transformation in a value-driven environment," he added.

Philips claims that in other similar partnerships, hospitals have successfully improved radiology volume and cut MRI waiting times in half. In addition, these groups have seen a 35% reduction in tech spending while improving clinical quality, the company said.

Frans van Houten

The $500 million deal certainly dwarfs the major hospital contracts that Philips scored last quarter--which altogether totaled about €150 million ($169 million). These included a 7-year deal with Providence Health & Services for installation, maintenance and upgrades of Philips IntelliSpace picture archiving and communication system across all its hospitals, as well as a deal with the Mount Sinai Health System to create a digital pathology database and develop algorithms to enable more personalized patient care.

The conglomerate's imaging informatics software is in use at about 1,200 hospitals to manage studies that involve almost 400 million images.

"With health systems facing increased pressure and more complex challenges than ever before, and patients starting to take a more active role in their care, we can no longer accept the status quo," said Philips CEO Frans van Houten in a statement.

"Health systems need a dedicated partner that can bring not just technology, but also deep healthcare and consumer expertise, resources and solutions that will help accelerate the transformation of their organization and ecosystem," he added.

Philips wasn't alone in securing a major new hospital contract--Siemens Healthcare named a €110 million ($124 million),15-year contract with Canada's William Osler Health System. The conglomerate will provide management services and solutions for its medical imaging equipment, which includes over 190 diagnostic imaging devices across radiology and cardiology. It's one of the biggest deals the company has ever done in North America.

- here are the releases from Philips and Siemens
- here is Bloomberg coverage of the Philips deal