3 Threats and 3 Opportunities for MedTech in New Healthcare Paradigm

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:

  • Nearly 90% of survey respondents that comprised 150 hospital CEOs and other senior decision makers report that reducing costs is among their top five most pressing needs.
  • A director of materials management at one Massachusetts hospital said: “The purchasing process has become much more complicated and restrictive. All supplies and new technology that are proposed for use have to go through a value/cost analysis committee. The days of the clinician getting to use a product because of sheer preference are behind us.”
  • To cut costs, hospital administrators plan to increase rationalization of suppliers going forward, particularly in invasive and large medical devices.

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.

  • Despite cost constraints, about 60% of hospital C-suite executives would be interested in buying additional services from medtech companies, particularly in clinical IT and analytics, operations management and efficiency, and education, training, and compliance.
  • They want to see medtech firms prove that their solutions can improve the quality of patient care, lower hospitals’ overall costs, or increase the efficiency of their clinical staffs.
  • A CEO of one California hospital said, “If a MedTech can come in and show cost-benefit, that is highly, highly important for us. We want to see that the product is beneficial to patients and helps reduce utilization.

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.”

[Photo Credit: iStockphoto.com user pichet_w]

 -- By Arundhati Parmar, Senior Editor, MD+DI



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Threats and Opportunities

Threats and opportunities often are two sides of the same coin. Fortunately, the article here does reflect that in the reference to companies taking advantage of the challenges hospitals are facing in managing their costs. Perhaps my only complaint would be that the sign that shows threats and one direction and opportunities in the other shoot in fact have opportunities and threats going in both directions.

Threats and Opportunities

Ah, Patrick. Perhaps I should have gotten trained in creating stock art as well in addition to reporting and editing.

But you make a fair point. Threats and opportunities are indeed two sides of the same coin.