Medtech companies are chafing under unprecedented pricing pressures from hospitals. A recent survey report from L.E.K. Consulting that annually polls hospital CEOs should serve as a wake-up call to the medtech industry to look for innovative ways to partner with hospitals instead of having purely a transactional relationship.
Here’s why the glory days aren’t coming back.
Hospital reimbursement levels are falling and the mix of patients is shifting to Medicare and Medicaid, according to the report. As a result, hospitals are taking four steps to improve profitability without sacrificing patient care and quality - they are consolidating; integrating with alternate care facilities and buying up primary care practices; assuming more risk through accountability; and centralizing and coordinating their supply chains.
Most apparent from these steps are the immediate threats to the traditional medtech modus operandi. The threats are:
Yet, for those medtech companies looking to reinvent their business models to take advantage of the shift in healthcare, there is fertile ground ready to be plowed.
Given the move to the accountable care organizations, any medtech firm that can demonstrate that its products and services leads to improved clinical outcomes and reduces hospitalization rates would be highly coveted, the report implies. Here is what a director of materials management of a New Hampshire hospital told L.E.K. Consulting in its annual survey”
What I would like to see, but is not yet in place is a guarantee, particularly if a MedTech can claim we will use less of a product or reduce length of stay. If a company tells me there is more savings, if they work with us, that is going to capture some attention.
But therein lies the rub. So far, medtech companies haven’t had to prove that their products indeed improve patient’s lives beyond the broad efficacy box they have to check when getting products cleared through the FDA.
The real opportunity however is linked to this very practice of attaching price of a product to clinical or some other agreed-upon value.
How to get there? The report has a not-so-easy answer.
“..., before MedTechs can offer performance guarantees or outcome-based pricing, most will first need to up their game in understanding the incremental economic value that their products and solutions deliver in the first place.”
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