J&J Device Chief: The Days of Selling an SKU and Getting Paid are Changing

The worldwide chairman of Johnson & Johnson's medical devices business underscores how the world of healthcare purchasing is beginning to shift. 

Arundhati Parmar

That the device industry is undergoing a seismic shift was no where more apparent than at the annual AdvaMed conference that kicked off in San Diego this week. 

On Tuesday, in a panel discussion, speaker after speaker reiterated the importance of meaningful innovation, clinical outcomes and data as the weapons that the industry can leverage to emphasize the value of their innovation to hospital buyers and others. Healthcare reform and the Affordable Care Act have accelerated a move to a value-based system from a fee-for service era and hospitals are looking to cut costs and improve outcomes.

"I think this is important - the notion that technological enhancement and clinical outcomes actually are part of the economic argument because it's the only way you push back," said David Cassak, managing partner and co-founder, Innovation in Medtech, publisher of The Medtech Strategist, who was also the panel moderator.

Part of the push back can also come from willingly engaging in risk-based or outcomes-based contracts, where device makers can demonstrate the value of their products. For instance, Medtronic through it Tyrx antibacterial mesh device for implanted cardiac devices will share in cost savings if it can reduce the number of implant-related infections in patients. If a patient does get an infection, then Medtronic will have to bear the cost of treating it.

Johnson & Johnson is also engaging in these kinds of contracts. In the AdvaMed panel discussion, Gary Pruden, worldwide chairman of Johnson & Johnson's medical device business said that it has entered into such partnerships with "more than a handful of customers" both in the U.S. and overseas, but declined to provide furhter detail.

"I  think the days of us saying ‘Listen, I sell you an SKU and you give me a price' is starting to change and some of our customers are asking us to take risk on value-based outcomes," Pruden said, in response to a question. "In other words, 'Are you willing to put your money where your mouth is to help us work to improve outcomes?' And the answer is we are willing to do that."

But he warned that such relationships are in early stages and there is a lot of mistrust that has to be overcome between device makers and the hospitals they serve.

It’s early and by the way those are tough sledding because most of our customers today are expecting a Trojan horse strategy," Pruden declared. "So building that trust, building that relationship, being willing to step up and take some risk I think is important."

The goal he said is moving from a transactional relationship with the hospital to a more of a strategic, business-to-business relationship.

The changing nature of the relationship between device makers and hospital customers is expected to only get more acute in the future, given that physicians - previously the main entity that device makers cultivated a close relationship with - are becoming employees of the hospital. This is also reducing their their influence as other interested parties including hospital administrators and purchasing departments gain a stronger voice in device selection processes.

Arundhati Parmar is senior editor at MD+DI. Reach her at [email protected] and on Twitter @aparmarbb 

[Photo Courtesy of Johnson & Johnson]