Three things device makers need to know about how the Affordable Care Act is affecting providers.
Healthcare is moving away from a fee-for-service model to a fee-for-performance model, and accountable care organizations (ACOs) will reward providers that cut costs out of the system by letting them share in the savings.
These monumental changes are poised to shift the healthcare delivery model in the United States as well as change the market for medical device companies. For device makers to be successful, they’ll need to take a page out of hockey great Wayne Gretzky’s playbook and “go where the puck is going as opposed to where it has been,” said Warren Skea, of PwC’s healthcare strategy and deals practice.
To anticipate the changes ahead, he told an audience at AdvaMed 2013 that medtech companies need to understand a few things about how their customers are reacting to and being impacted by healthcare reform.
1.) Not all providers are jumping head first into the new fee-for-performance model.
“Your customer is changing, but they’re all changing at a very differential pace,” Skea said.
Sure, there are about 500 providers signed up for ACO pilots, but others aren’t lining up to leave the fee-for-service model behind. “A lot of them are reluctant,” Skea said. “A lot of them believe it’s just another fad.”
2.) Not all of your customers will be around for the long haul.
Declining reimbursement is driving consolidation in physician groups and hospitals, and device companies need to evaluate their customers to ensure they’re targeting the right ones.
“Do you want to spend your time on something that gets acquired?” Skea asked.
To avoid that fate, he urged medtech firms to understand the dynamics of their local markets. “Look at who is going to be the winners and who are going to be losers,” Skea said.
Perhaps the first to be gobbled up, he predicted, will be the providers mentioned above who think pay-for-performance is just a fad. He expects a second round of consolidation to eat up the providers who aren’t hitting the quality measures they need to take advantage of the shared savings promised by ACOs.
3.) The c-suite will have more influence on your customers.
Physicians will always wield a lot of power, but they’re also being influenced by the folks in the board room, Skea said. Armed with actuarial analysis from ACOs, the c-suite is poised to play a larger role in purchasing, he said.
But the information they’re getting is fractured and inconsistent, and executives are still learning how to make decisions based on prevention and prediction. Skea warned that initially, as executives are trying to cut costs from the system, they might default to buying to the lowest priced product. “It’s really a race to the bottom,” he said.
To stop the downward spiral, device makers need to build a value proposition. “Sometimes it takes a nickel to save a dollar,” Skea said, and device makers need to work with providers to find ways to help them lowers costs.
“Educating them on how we can help lower those costs, so [they] can share in these savings is critically important,” Skea said.
He said device makers also need to embrace comparative effectiveness research. “You need evidence to take to the ACOs,” he said.
—Jamie Hartford, managing editor