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Redefining Product Value in Today's Market

Medical Device & Diagnostic Industry
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Originally published July 1996

Candace Littell

Unprecedented changes in health-care financing and delivery are reshaping the way that health-care providers view the role of medical technology in patient care. Emerging from this transformation is a growing demand for medical device manufacturers to demonstrate the benefits of their products in new, meaningful ways for both buyers and clinical users.


Increased merger and acquisition activity among health-care providers has led to greater purchasing leverage, enabling these large organizations to negotiate for best price. Many of these large providers are networks that combine the services and buying power of alternate-care facilities, home health agencies, nursing homes, and physician group practices.

Adding to this trend are recent mergers among health-care purchasing alliances. In late 1995, for example, American Healthcare Systems, Premier Health Alliance, and SunHealth Alliance joined forces, resulting in a consolidation of about $10 million in annual medical product contract purchases, equivalent to about 20% of annual shipments by U.S. medical technology manufacturers.

Health-care providers are also turning to standardization of product purchases as a way to further increase group buying power and to standardize treatment. In a recent survey of 30 health-care system executives, 90% indicated that they will implement supply, equipment, and pharmaceutical formularies within the next three years.1 Of particular interest among respondents was standardizing purchases of orthopedic implants, angioplasty catheters, and cardiac pacemakers--all products that until now have escaped the reins of group purchasing because of strong physician preference.

As concentration of provider buying power continues, these organizations are positioned to demand even deeper price discounts, combined with new and innovative risk-sharing arrangements, sophisticated distribution, and other value-added services.

The key challenge for manufacturers facing these trends is to halt the seemingly endless downward price spiral. To do so, companies must take at least two measures.

First, they must shift the purchasing focus from unit cost to total cost. Manufacturers must convey to purchasers the benefit of their products in the context of the overall process of care. The issue should be not only how a technology affects a provider's supply budget, but also how it affects the total cost of a medical procedure, inpatient stay, or episode of illness.

Second, companies must differentiate their products through the clinical and economic outcomes measures that matter most to key buyers. Manufacturers must identify the perspective, interests, and information demands of new purchasers, and address these demands with solid evidence.


Historically, physician preference has been a strong determinant of product purchases. Physicians recognized the nuances of incremental product improvements and were ready adopters, often with minimal proof of benefit from the manufacturer.

Under a system of managed care, however, the influence of physicians in medical product purchasing has declined. In many instances, multidisciplinary groups are key decision makers on technology acquisitions. While these groups consider differences in product attributes, they are strongly driven by price. In defining clinical performance, they tend to focus on identifying those products that are acceptable, rather than those that are superior. As a result, many product attributes that were important to physicians (such as product design or ease of use) are far less meaningful for today's purchasers.

Determining who these new purchasers are and what they need to know is essential for a manufacturer to effectively differentiate its products. Failure to identify and understand the new dynamics of purchasing, the key players involved, and the product attributes that are important to them leaves a manufacturer with little more to compete on than price.


Once the perspective and interests of key purchasers are determined, a company can then explore new, meaningful ways to convey product benefit or outcome, compared with alternative products, procedures, or services. For medical devices, such comparisons can occur at several levels.

Intervention Level. For some products, the most meaningful outcomes relate to the overall health intervention involving the technology. For example, which intervention results in lower mortality for heart attack patients--bypass surgery or coronary angioplasty?

Procedure Level. For other products, outcomes may relate to a specific medical procedure involving the technology. For example, in the case of angioplasty, what are the long-term survival and complication rates associated with the use of balloon catheters versus atherectomy devices?

Product Level. For still other products, outcomes are unrelated to a specific medical intervention or surgical procedure. Here, the appropriate measures are those that enable purchasers to compare one manufacturer's product with another's. Such products are often perceived as commodity items, where no meaningful difference in patient outcome can be quantified for the purchaser. For each of these levels of specificity, manufacturers have a wide range of outcomes measures at their disposal, and the list continues to expand.

For several years now, objective clinical outcomes measures have been routinely used in assessing the effectiveness of life-saving medical procedures, as well as in reporting relative provider performance. Such measures typically include patient survival, complication rates, and the incidence of repeat procedures. Examples of products for which objective clinical measures may be appropriate include PSA screening (where the impact of such screening on the long-term survival of men is an issue), and coronary stents (where questions of restenosis and the rate of redo procedures are prevalent). Objective clinical outcomes measures are often necessary to convey the benefit of breakthrough premarket approval (PMA) products where significant questions of effectiveness exist. These products are also often expensive (either on a unit-price or an aggregate-cost basis) or controversial, and involve competing health interventions.

There have been significant developments in subjective clinical outcomes measures in recent years. These focus on patient functioning and quality of life and include measures of daily activities, pain intensity, and social functioning and overall satisfaction. Some measurement instruments are specific to certain clinical specialties or diseases, such as the UCLA Prostate Cancer Index, the Seattle Angina Questionnaire, or the Mayo Hip Score. Subjective clinical measures can be useful in conveying the benefits of products where patient functioning, discomfort, or quality of life are the key basis of product differentiation. Such products might include orthopedic implants and more advanced cardiac pacing devices. These products can be either 510(k) or PMA devices, and are often related to an existing intervention in highly competitive, established markets.

Not all devices yield clinical outcome differences that are sufficient to compel purchasers to select one product over another on that basis. For these "health-outcomes-neutral" products, economic outcomes measures may be the only basis for product differentiation. Such measures focus on total cost, rather than per-unit cost, and require that a product's impact be observed across the entire process of care. Economic outcomes measures might include patient length of stay, costs per procedure or per case, nursing productivity, operating room productivity, maintenance costs, or liability costs. Economic measures may be useful in differentiating products that are perceived as commodity items, such as wound-care products, bedside tests, and operating room supplies.

A key element in determining economic outcomes is to identify the perspective of the study--that is, determining to whom the costs and benefits accrue. Consider the case of a higher-priced patient monitoring device, for example. The materials manager's perspective might relate to the difference in unit price. But the perspective of the nursing supervisor in the ICU may be broader, relating to a potential reduction in nursing time (and related costs) because the product eliminates the need for frequent recalibration.

To determine the impact of a product on provider productivity, a manufacturer must measure the differences in resources consumed owing to use of the product, as well as the cost of those resources, based on the perspective of key audiences. Various approaches exist to measure resource consumption, including medical record review, patient bill review, patient and provider interviews, or even time-and-motion studies (which measure resources used based on detailed recordings of labor and nonlabor resources expended).2 These approaches can differ significantly in their expense, time to perform, and usefulness of results, depending on the product to be evaluated.


Selecting the measures that best convey a product's clinical and economic benefit, in ways that are meaningful for key purchasers, is one of the greatest challenges facing medical device manufacturers today. It requires an in-depth understanding of the factors that drive decisions about whether to adopt the product, the key players in those decisions, and the outcomes measures that matter most to those decision makers. It is only through this strategy that manufacturers can control the downward spiral that is inherent in today's system of price-based competition and, instead, compete in a system that recognizes value.


1. "Docs' Purchasing Clout Fizzling," Hospital & Health Networks, June 5, p 22, 1995.

2. U.S. Congress, Office of Technology Assessment, Tools for Evaluating Health Technologies: Five Background Papers, BP-H-142, Washington, DC, U.S. Government Printing Office, February 1995.

Candace Littell is president of CL Littell & Associates, Inc., a health-care consulting firm in Woodstock, VA.

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