The MX Q&A: Welch Allyn

United States senators and House members have been spending their annual August recess taking the temperature of their constituents on healthcare reform. The homecomings have occurred amidst a great deal of clamor. Some of the ruckus has been political theater and some genuine expressions of concern about specific elements of a final reform package, including the public health insurance option and changes to Medicare.

Before the break, committees of both the Senate and the House of Representatives assembled prospective bills that could be ready for consideration when the 111th Congress returns to Washington. Whether the bills survive the summer in their current forms may depend on what senators and congress members hear in their home districts. Compromises reached July 31 in a House committee measure lowered the targeted savings to $1 trillion over 10 years from Obama's $2 trillion target, and dickering in committees of both legislative bodies is expected to continue come September.
Manufacturers Will Adapt
As a major healthcare player, the medical device industry has been making its voice heard. AdvaMed released its own healthcare plan two years ago and has teamed with trade groups such as AMA and AHA to offer a consensus cost-cutting plan that the trade groups introduced in June.
Welch Allyn (Skaneateles, NY) is taking part in this discussion, both through AdvaMed and through its own representatives. Steve Meyer, executive vice president and president United States/Canada, says the manufacturer of diagnostic and therapeutic devices is working closely with “key trade associations.”
The Michigan native, who joined Welch Allyn in 1981 as a sales representative in Detroit, believes the device sector will adapt to reform and may even benefit from it. Meyer notes that Welch Allyn is pleased that preventive care has been a prominent feature of the reform discussion. The manufacturer's product line includes devices such as ambulatory blood pressure monitors, cardiac defibrillators, and patient monitoring systems. These types of “frontline” devices fit well within the reform's focus on preventive and primary care, he says.
In the following MX Q&A, Meyer discusses device industry concerns over the reform effort, possible price pressures, the role of competitive cost-effectiveness, and related topics. Portions of this interview appeared in the July 2009 issue of MX as part of an overall “snapshot” of healthcare reform and its possible effects on the device industry. As the gavels are poised to bring Congress back in session, we believe Meyer's comments deserve fuller exposure.
MX: Does the device industry speak in a unified voice on healthcare reform? Are there differences between big and small manufacturers, or would any distinctions have more to do with the type of devices made?
Steve Meyer: I doubt if there is much disagreement among device companies about the need for healthcare reform, and much about it is still yet to play out. There will be winners and losers but most will adapt. Associations like AdvaMed and others are rapidly developing opinions concerning what's likely to change and how it will impact business. There will likely be more focus on expanding care to the under- and uninsured. In addition, preventive care and more effective management of chronic illnesses will necessitate some adjustments in how clinicians are reimbursed. These incentive shifts will be at the center of how device companies see the impact on their business—at least in the short-term.
What are the worst- and best-case scenarios for device manufacturers?
The worst case would be reduction or complete loss in reimbursement for procedures for which device manufacturers' products are used.
How about for Welch Allyn and its extensive line of products in particular?
For Welch Allyn, the majority of our devices are used in frontline care settings where clinicians are engaging patients to better understand and manage their care—either in primary care physicians' offices or in acute care environments like the ED or med-surg floors. Our focus is on enabling clinicians to more efficiently move patients to or manage them in lower acuity settings. The healthcare reform that is currently being talked about seems to support this endeavor so we are quite pleased at the direction it is taking. Added focus on primary and preventive care supports our strategy to help frontline caregivers find solutions to their patient care problems.
What is Welch Allyn's corporate position on the public insurance option?
Our position is that there is a tremendous shortage in the primary care resources necessary to provide the kind of universal care that is being discussed, and it will remain this way until the incentive schemes are modified. Therefore, there must be a reassessment and corresponding realignment of incentives not just for clinicians but for patients and the payers, too.
What should device company CEOs focus on or worry about regarding healthcare reform? What are the reform concerns of your management team?
Understanding the reform, how it will be paced, and what impact it is likely to have on their business—not just to the revenue side of the equation but also the expense side. Beyond this lies the real opportunity for any enterprise, and that is in determining what new solutions must be developed to enable healthcare to be delivered in the changed environment.
Do you foresee pressure to lower the price of devices?
Pricing pressures are always there, but I think this depends on what parts of the incentive equation change. Most customers are sophisticated enough to understand ROI, and they are constantly looking for ways to manage this formula. A device being used for a procedure that has just had its reimbursement lowered or eliminated has a pretty immediate impact on usage.
But this isn't a new phenomenon. It's been the leading driver of certain procedures moving from the hospital to ambulatory surgery centers. Device companies have adapted to those changes as well.
What are the chances that hospitals or other healthcare providers will pressure device manufacturers to lower the prices on their products?
The chances are high. On the one hand I would expect the competitive environment to increase, especially in the more commoditized areas. “Just good enough is what I need” may be the mantra of customers in the new environment. Frankly, I think it's that way today. On the other hand, for those who are innovating and can demonstrate real solutions to problems that exist now, there will be plenty of opportunity.
If there were pressure to reduce device prices, wouldn't the greater number of insured and larger sales volume act as a counterweight to lowered device prices?
I think this depends entirely on how rapidly the uninsured are actually covered. More importantly, it's how they are covered in terms of what gets paid for and how they are [incentivized]. I believe we need to think [of it as] an environment which in some ways is an “open field.” You can't just think about the numbers of new patients coming in.
In reality, today, most [people] who want some form of care can get it. What we really need to think about is where they are served and where the focus will be. If it's on prevention and better management of chronic disease, then that says a lot about where the market is going to be moving. Today, incentives are very much aligned around reactive care—in other words fixing things that are “broken.” I don't think there are many reimbursement codes for prevention.
I think it's interesting that, as manufacturers, we all operate in a regulated environment [that] focuses heavily on surveillance and on corrective and preventive actions as a means to help insure patient safety. Yet our system of healthcare delivery has its incentives organized around correction, primarily. This is why we are pleased to see health reform's added focus on prevention, better disease management, and comparative effectiveness whose aim is to determine which procedures or treatments among others are the most effective.
Would makers of some type of devices benefit more from healthcare reform than manufacturers of other types of devices?
Devices which, when compared to others, can be shown to be more effective for a given procedure can certainly benefit more from reform. All things considered, that does not necessarily mean they are the lowest cost to acquire up front. Also, given the focus on preventive and chronic disease management, device companies [that] operate in these areas should be in a good position to benefit.
What input does Welch Allyn expect to have in the reform discussion?
Our government relations team is working with our government representatives to provide inputs to the legislation which is currently under development. In addition we work closely with key trade associations like AdvaMed, HIDA, AAFP, and others.
Will an emphasis on devices and treatments that improve the quality of patients' lives lead to growing pressure on the device industry's R&D efforts? On your company in particular?
Assuming reform is understood, and it requires directional change in strategy, this will indeed inform and change R&D efforts. For us, we believe an increased focus on frontline care, and, in particular, primary care that reform will bring, fits nicely into our strategy. I'm sure as reform plays out, we will find it necessary to adjust development efforts.
AdvaMed's senior executive vice president David Nexon has said medical devices “are a relatively small and constant share of healthcare costs.” According to one news story, Nexon does not see medical device prices as a significant driver of rising healthcare costs overall. What do you think?
I believe in the grand scheme of overall healthcare spending, devices play a relatively small part in driving healthcare spend and therefore would not be a big contributor to rising costs.
Does Welch Allyn support implementing competitive cost-effectiveness studies?
While evaluating the risks and benefits of how current and new medical devices may improve treatment decisions, it is important to note that comparative effectiveness research is done in a transparent manner and allows for public input throughout the process. Patient safeguards, as well as the use of credible clinical research, are musts for comparative effectiveness to achieve the intended goals of ensuring patients receive high-quality care. Cost should not be the deciding factor as this may lead to improper care, [and that could] raise overall healthcare costs and negate its intent.
In June the consensus group that includes AdvaMed announced four areas where improvements could save up to $1.7 trillion in healthcare over 10 years. They are more efficient use of healthcare tools, methods to reduce costs for all stakeholders, streamlining the claims process, and better management of chronic disease. Where will device manufacturers have the most say or play the greatest role?
Medical device manufacturers play a small role in each of the four areas. It is our goal to ensure patients receive the right care at the right time, and the use of our medical devices plays a large factor within that role. Providing physicians with our tools to increase utilization of care is a significant achievement and provides us with an opportunity to ensure patients continue to receive high-quality care.

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