How the Supply Chain Can Help the Medtech Industry Prepare for Healthcare Reform

Make no mistake about it: healthcare reform is coming. And that’s the case whether Obama or Romney is elected this November, regardless of which party controls Congress, or whether there is a split Congress.

August 9, 2012

4 Min Read
How the Supply Chain Can Help the Medtech Industry Prepare for Healthcare Reform

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In general terms, the new healthcare paradigm will favor the quality of healthcare delivery over the quantity of it. The United States will be forced to take costs out of the system overall. “We have a set pool of money to spend on healthcare and we have to learn to deal with it,” says Karen Conway, executive director, industry relations at GHX (Louisville, CO), who will speak on the topic in an upcoming event sponsored by MD+DI titled “Medtech Supplier Partnerships.”

Comparing healthcare spending to a balloon, Conway says that past efforts to curb costs may have squeezed certain areas, but increased them in others. But now, the balloon has no choice but to deflate. “We must take costs out of the system,” she says.

Karen Conway

“The same thing has to happen with risk,” Conway adds. “You hear a lot of talk about payers shifting risks to providers of care — the delivery systems. I would argue that we have to look at how to take risk out of the system as a whole and I think [medical device companies] can play a very big role in that as well.”

In light of these changes, Conway recommends that medical device companies reassess their supply chain. “The supply chain can play a really important role in achieving the objectives of healthcare reform,” she says. When medtech companies consider the supply chain, their thoughts typically go upstream—to their suppliers. It’s worth taking a broader view, however, which includes understanding what is happening downstream—with your customers.

Complicating matters is the vendor–customer dynamic inherent in the relationship between, say, hospitals and industries serving them; there is often a lack of trust between them. An adversarial relationship between the two parties can crop up based on price negotiations. “There will always be a natural tension between buying and selling organizations, but there are so many other opportunities to focus on problems that impact both hospitals and device companies and if the two parties worked together, they could fix them.”

In light of this, Conway recommends that the medical device professionals keep abreast of the issues hospitals across are facing. “Your customer’s world is turning on its head,” she says. “Right now, executives at a hospital make money by filling beds. In the next few years, everything is going to change. They will make money by keeping people out of the hospital. That is a dramatic shift.

It may be a truism, but vendors that best understand the needs of their customers will be the most successful. For device makers, this involves helping your customers lower costs, become more efficient, improve visibility, and so forth. Hospitals could return the favor by sharing more demand data to device companies. “If you are getting more data than you traditionally haven’t gotten from your customer, if you can get more utilization data, how can that drive down your inventory costs?” Conway asks. “How can that increase your inventory turns? What can that do to help you lower costs in the face of higher costs such as the medical device tax?” 

Offsetting the Cost of the Device Tax

“The amount of money that the medical device tax is costing you may be comparable to the amount of money that you could save if you had more of a focus on demand planning, and if you are able to reduce your SG&A costs or the cost to serve, your healthcare system customers, if you are able to better control your inventory costs. increase your inventory turns, and reduce the amount of waste from expired product in the field,” she says.

“I am not saying people shouldn’t be looking at certain aspects of healthcare reform that they might want to tweak or improve, but the bottom line is, we have to change how healthcare is delivered in this country,” she says. “I would much rather be part of the preparation process than wait for all heck to break out with my customers and then scramble to respond. Because it is the ones who are going to work with the customers to adjust, to adapt to this new world who are going to succeed.”

Brian Buntz is the editor-at-large at UBM Canon's medical group. Follow him on Twitter at @brian_buntz.

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