Op Ed: Obama's Healthcare Act is a Win for the Medical Device Industry

The Patient Protection and Affordable Care Act (ACA) is the broadest change to the U.S. healthcare system since the creation of Medicare and Medicaid. Although the act is phased in over eight years, the dramatic increase in access—more than 32 million new lives and 15 million better insured beneficiaries—will overwhelm the system, causing a prolonged funding crisis starting in 2015.

Fredrick W.K. Brown

I see a window of opportunity for the medical supply, device, and diagnostics industry to benefit from the ACA by implementing targeted strategic programs before the massive influx of new beneficiaries.

Half of the 32 million newly insured will be covered under Medicaid; competing successfully in the Medicaid market means being a low-cost provider. Winning companies within this segment are investing now to achieve scale economies, improve operational efficiencies, test differentiated tiered pricing, and contract with critical install bases to prepare for the 2014 Medicaid opportunity created by the ACA.

In 2014, the other half of the newly insured and the 15 million better insured will demand the tests and procedures that they now cannot afford. To win in this segment, successful medical technology companies are implementing outcome-based differentiation, branding, and acquisition strategies to support higher prices and benefit from expansion in specialty target segments.

Larger than the opportunity of improved access is the opportunity for the industry growth arising from the ACA’s increased focus on quality, effectiveness, prevention, and chronic disease management for all patients.

Over the next three years, the industry’s innovative companies will be able to raise prices in excess of the new taxes imposed by the ACA. Those companies that do not act quickly and aggressively to build a reserve and reposition themselves now during the next five years, risk being absorbed or failing outright between 2015 and 2020.

Concurrent to these independent strategic initiatives, the industry must collectively shape the implementation of the ACA to its advantage.

The industry should lobby to influence the ACA’s implementation; consider the proposed repeal of the 2.3% excise tax on domestic sales of all medical devices, which disproportionately penalizes smaller, innovative medical technology companies.

There also is an opportunity to influence the Patient Centered Outcomes Research Institute created by the ACA, through board representation and lobbying. It communicates medical device enabled best practices through the provider community. The industry must ensure that best practices are communicated and implemented faster through provider networks. Otherwise, the ACA’s tying of quality standards to reimbursement threatens to freeze innovation and penalize new adopters of technology.

To improve their influence, medical technology companies should align with non-governmental organizations and the Pharmaceutical Manufacturers Association (PhRMA), to reduce the negative impact of the ACA’s Independent Payment Advisory Board, shape FDA policy and approval speeds, push the adoption of innovative best practices, and advance intellectual property protection.

 

Finally,  industry must improve public confidence in the relationship between manufacturers, teaching hospitals, and physicians. Promoting financial benefits of the industry’s products and services to providers will remain a critical sales strategy for many companies. Yet adopting ethical standards at an industry-level to create uniform standards that preempt state disclosure laws will increase public confidence, control the agenda, and reduce the costs of duplicative reporting systems at the state level.

Companies not experimenting with business models, not consolidating market and technology strengths, and not positioning to capture the value from the rapid influx of newly and better insured segments, will find themselves suddenly competing in a new environment against competitors that are better prepared.

So, what is the worst strategy for the industry? To do nothing but hope the ACA will somehow be rendered ineffective.

—Frederick W.K. Brown is healthcare practice managing director for Troy, Mich.-based Ducker Worldwide, a strategic consulting and research firm.