As value-based payment models increasingly shift risk and accountability to healthcare provider, medical device companies must change the way they do business.

Kim White and Matt Althage

The healthcare industry is facing enormous pressure in the form of spiraling cost inflation, lagging quality indicators, rising insurance premiums, and increased demand for price transparency to deliver better health outcomes at lower prices. The historical fee-for-service business model that rewards the volume of treatments and encourages unnecessary care without reference to outcomes is being challenged by public and private payers. Payers are experimenting with value-based payment models, such as bundled payments, population health management, and capitated payments, that are shifting risk to healthcare delivery organizations in order to increase their accountability for the cost and quality of the care they provide.

CMS has committed to disbursing half of its total payments through value-based payment agreements by 2018, and a private payer alliance has likewise committed to a 75% target for its total payments received by 2020. CMS has demonstrated its commitment with the implementation of mandatory value-based payment through its Comprehensive Care for Joint Replacement initiative and is proposing a similar initiative for selected cardiology procedures. These programs make providers accountable for the cost and quality of care across the acute care episode and the 90 days that follow.

Delivery's Response to Increased Risk and Accountability

Delivery organizations have pursued multiple strategies in response to their growing accountability for cost and quality. Perhaps the most common tactic is horizontal consolidation. By creating ever-larger systems, providers expect to gain greater control over vendor relationships and obtain more favorable purchasing terms. Delivery organizations also believe that consolidation will strengthen their position when negotiating with payers for reimbursement.

Another method delivery organizations are using to control cost and quality is to experiment with new care models and to leverage technology to lower cost. New care models including accountable care organizations, patient-centered medical homes, and population health management, are designed to incentivize care coordination. Technologies such as telemedicine and remote monitoring extend expertise at lower cost than traditional delivery methods.

Delivery organizations are also trying to manage variation in the cost of care by developing and implementing care paths and treatment protocols. Some of these outline general clinical decision points, while others go as far as defining the specific products to be used. As delivery organizations develop better methods for controlling cost and quality, device manufacturers must understand the implications of these changes and how they will affect their business in the future.

Product Adoption and Reimbursement is Not Guaranteed

In a value-based payment environment, providers will seek products and services that help them reduce variation in average cost per case that does not yield downstream clinical or cost benefits. In light of this, device manufacturers will need to reexamine their value story and the extent to which it resonates with these stakeholders. Product line extensions that don't deliver such benefits may find their access and sales limited by payers and even provider institutions focused on value. Instead, manufacturers will need to establish a clear value proposition for their products and services that is supported with data that substantiates their claims.

As delivery organizations consolidate and implement new procedures to gain control over costs and quality, institutional objectives are becoming a more significant factor in the purchasing process. In this environment, decision-making processes are becoming more centralized and the decisions about which products to use and what vendors to carry are increasingly made by committees comprised of physicians and administrators.

Faced with the need to evaluate increasingly complex products, these committees are evolving their own processes to structure decisions. Such a health technology assessment (HTA) process prescribes the steps for examining medical device safety and efficacy, clinical and economic value, and cost-effectiveness. As HTA processes grow more sophisticated, they will require corresponding capability on the manufacturer side to compete. Manufacturers will need to expand the scope of R&D efforts to capture data during clinical trials that can support economic and clinical value claims; they'll need to understand earlier and more specifically how product users and payers perceive their products' value proposition relative to existing choices; and they will need to ensure that representatives have the skills and collateral to influence executive level decision makers and effectively convey the product's value proposition.

Ensuring Success Today While Preparing for Tomorrow

Device manufacturers must develop the capabilities that allow them to succeed today while ensuring they are ready to operate in a different model. Three key factors required for success in this environment merit further discussion:

Demonstrate Economic and Clinical Value. In the past, device manufacturers have relied on safety and efficacy data required for regulatory approval. Today, as HTAs become more influential in the product adoption process, manufacturers will need to demonstrate value to a new class of stakeholders that includes clinicians, hospital administrators, payers, and even consumers. The first requirement here is that manufacturers understand the unmet needs of these stakeholders and how the product is used medically and perceived economically. Next, manufacturers will need hard evidence on the value their product creates from both a clinical and an economic perspective, presented in a way that is accessible to decision makers. To demonstrate the product's economic and clinical value proposition, manufacturers can use the patient-centered outcomes or cost-effectiveness data that is often examined within the HTA process. Third, in order to generate the needed data and demonstrate differentiation required for product adoption, economic and clinical value must be considered early in the development process ,when manufacturers can build the appropriate QoL and cost-effectiveness endpoints into their clinical trials. And finally, data will need to be updated throughout a product's life cycle through postmarket research studies that use real-world evidence to demonstrate comparative effectiveness against the standard of care.

Build Strategic Account Management Skills. As administrators and cross-functional committees become more involved in the purchasing process, device manufacturers need to ensure sales teams have the strategic account management skills to approach this new audience. Strategic account management is more than high volume physician sales--it requires continuous management of complex relationships that provide an in-depth understanding of the purchasing preferences of provider organizations. It straddles the role between sales and marketing and requires strategic insights on market trends with the intention of determining future unmet clinical and economic needs. Strategic account managers can utilize these new insights and leverage their relationship management skills to drive direct sales agreements with providers while maintaining the ability to address external stakeholders such as group purchasing organizations. Strategic account management will require leadership to build an organization that focuses on delivering value to customers rather than engaging in volume-based sales tactics that have minimal impact on outcomes or downstream costs.

Explore Opportunities to Add Value. Value-based payment models shift risk to providers. As they transition to these models, they'll look to manufacturers to help them alleviate their own uncertainty. Manufacturers can partner with providers by offering complementary products or services that reduce errors, close treatment gaps, enhance patient satisfaction, improve outcomes, reduce costs, or increase efficiency. Manufacturers could also provide business support services including consulting on patient flow management. By developing collaborative relationships that seek to manage costs and improve outcomes, manufacturers can demonstrate differentiation and gain a competitive edge in the value-based marketplace. However, when evaluating which products or services to offer, companies will need to determine if the required capabilities can be developed internally or if additional strategic partnerships or acquisitions are needed.

Conclusion

Device manufacturers are operating in a rapidly changing healthcare environment that is shifting risk and accountability to providers through value-based payment models. Companies that quickly develop the capabilities to operate in a value-based marketplace will be prepared to win in this evolving environment.

Kim White, MBA, is a vice president at Numerof & Associates, a St. Louis, MO-based consulting firm.

Matt Althage is a research analyst at Numerof & Associates.

[image courtesy of STUART MILES/FREEDIGITALPHOTOS.NET]