Few surgeons know the price of implantable devices such as orthopedic implants, which are among the most expensive medical devices, often blamed for contributing to rising overall healthcare costs.

Separately, the federal government has been investigating the overuse of implantable defibrillators by surgeons for the past four years and that has lessened the number of procedures.

Still, neither a government investigation nor surprising study results showing the lack of pricing awareness of orthopedic surgeons is going to meaningfully bend the overall cost curve of healthcare. 

Reigning in costs has to be a healthcare industry initiative, and spurred by Obamacare, looks like the shift to fee-for-value is occurring. 

"That slogan - value-based healthcare - has been around for a while. I am telling you that it’s really here now," declared Dr. Deneen Vojta, Executive Vice President and Chief Scientific Officer, Corporate Research and Development, UnitedHealth Group, in an event Tuesday near Minneapolis, hosted by LifeScience Alley, a regional medtech trade association. "The current thinking is that 20% of payments today are fee-for-value and by 2017 it’s projected to go to 60-65%"

Data, big and small, will power this revolution, Vojta said adding that payors are paying special heed to whether covered therapies- whether it be device or drugs - are having the desired outcomes. 

For instance, recently Vojta asked her team to run some numbers on an intervention that UnitedHealth Group covers on behalf of 40,000 diabetic members. She was shocked to find that the intervention - she declined to say whether it was a drug or a device - didn't achieve the clinical outcome that it was expected to have. 

"I ran the data expecting to see this improvement in the indices and it was not there," she explained. 

The lesson was palpable.

"So in the real world with 40,000 people using a particular intervention, there’s no improvement," Vojta noted. "This intervention costs about $10,000 to $15,000 per year. When people like Medicare and UnitedHealthcare and ACOs begin to focus on fee-for-value, those red flags are going to come up. You're going to see dramatic changes in reimbursement and how things are paid for."

So what do device makers and drug makers need to do? They need to build products and services that can show that certain clinical improvements will occur in a certain patient population within a certain point of time.

"You don’t want to just say here’s a new device that has all these new features and you should pay more," Vojta said."You don’t want innovation for innovation’s sake."

But the device industry is chafing under this pressure to show outcomes and the consequent economic impact of a healthier, or less sick patient population. In a recent interview, the president & CEO of LifeScience Alley complained that the definition of what value is under this new healthcare paradigm is fairly vague.

"Now the most important thing that I have to be able to do is quantify the value proposition that nobody has defined for me even though they are telling me 'yes' and 'no' and I don't exactly know what they are asking for," said Shaye Mandle in June. "Nobody says if you are going +3 on outcomes and -1 on cost, that’s the key."

Still, it's important to realize that the days of developing a new drug or device, slapping on a price premium and expecting to get coverage is gone. 

"The current system is not working," Vojta said. "I can assure you we aren’t going to continue to spend. We can’t."

Data can help making the case to insurance companies and ACOs, Vojta advised, noting that she believes companies will do a lot more observational studies and comparative effectiveness in the future.

"There’s going to be a lot of comparative effectiveness [in clinical trials], not just against nothing. Because nobody is taking nothing. There will be comparing product against other things in the market - other drugs in the market and other devices in the market - and we are going to have to see outcomes."

 [Photo Credit: UnitedHealth Group] 

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com

Stryker reported second-quarter earnings late afternoon Thursday, and results were mostly in line with what analysts expected.

In the earnings call, Stryker's senior management both in their prepared statements, and in answers to analysts, provided some insights into how the integration with MAKO Surgical is progressing, their take on tax inversions and thoughts on the Zimmer-Biomet deal among other things, according to a transcript of the call from SeekingAlpha. 

MAKO Integration Harder Than Expected But Gaining Momentum

Stryker made a bold move in 2013 when it paid $1.65 billion to buy robotics surgery company MAKO Surgical. In the earnings call, Katharine Owen, VP of Strategy and Investor Relations, said that the integration has proved to be "more challenging than anticipated" but is slowly gaining some momentum. She noted the following:

• About 20% of 1,000 U.S. sales reps have been trained on the MAKOplasty system that includes the RIO Robotic Arm Interactive Orthopedic System and relevant hip and partial knee implants. The rest of the sales team will be trained by the end of the year so they will be able to talk about the benefits of MAKO to surgeons and sell the implants that go with the robot.
• Stryker will launch a hip product on the MAKO platform in 2015 as well as a total knee system, which is currently in trials. 
• 6 Mako systems  have been sold in the second quarter.

MAKO's potential still remains strong, Kevin Lobo, Stryker's president and CEO said although it will not be realized overnight.

"Mind you, this is going to take time," he added. "It takes time to sell the capital. It takes time to put the implants that we want on the robot and we would be rolling that over a period of time. But I remain extremely bullish on the opportunity long-term."

Don't Do Tax Inversions For the Wrong Reasons

As of July 1, Stryker has opened a regional European headquarters in Amsterdam enabling the orthopedics company to gain some tax advantages in 2015. Tax inversions have come to the limelight after Pfizer's failed bid to buy U.K.-based AstraZeneca that would have allowed the company to move headquarters outside of the U.S. and gain a lower tax rate and while accessing overseas cash without having to pay tax on it. While Pfizer's bid was rejected, Medtronic and Covidien are well on their way to create a new medical technology company with headquarters in Ireland.

Other companies have followed suit and there is some talk in political circles to stem this tide of U.S. companies fleeing abroad for tax advantages. When asked about inversions and whether given the political environmenment companies would be less likely to do inversions, Lobo responded that it depends on on the rationale for the deal.

As you know some of the deals that have been done, have been done really largely for financial reasons. In those cases, it's a cause for pause [for companies] if the main driver of the deal is financial. However, if the deals are more strategically driven, I really don't see having much of an impact at all until legislation is actually enacted and what we are seeing in the press is the likelihood of near-term legislation doesn't seem very probable.

So again, I would bifurcate into two areas. Those that are very financially driven, I think those companies will pause a little bit. Those that really are strategically, that's a bigger part of the logic and then as an inversion as maybe icing, I think those will continue to be pursued.

The Biomet-Zimmer Deal Is Not That Surprising

In April, Zimmer announced that it was planning to buy rival Biomet for $13.35 billion, underscoring the wave of consolidation in the medtech world. When an analyst asked Lobo to comment on how the Zimmer deal positively or negatively affects the Michigan company if it does close, Lobo didn't directly answer the question but made a broader comment on the acquisition.

Certainly, this consolidation within recon is something that we have been anticipating. It's not a big surprise, the Zimmer, Biomet, that that would happen. Having five competitors in a market that's not growing close to double digits normally would lead to some form of consolidation. So it's not totally surprising. The market has been pretty well disciplined thus far and we expect that that will add extra discipline to that.

 [Photo Credit: iStockphoto.com user MCCAIG]

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com

For the fourth year in a row, MEDevice San Diego will bring together the best in Southern California's medtech community. If you are planning to attend the conference and showcase on Sept. 10 and 11, here are some not-to-be missed opportunities for learning and connecting.

Keynotes on Hot Topics

Personalized medicine and device interoperability are two equally important and exciting topics that hold much promise for how healthcare will look in the future.

Rob Brainin, vice-president and general manager at Thermo Fisher Scientific who currently leads the Enterprise Genomics Solutions business, will talk about how healthcare can be transformed by bringing personalized medicine to the average clinic. He will also address advances in device technology that are influencing personalized medicine, while also answering the question of how device value will be affected when customized therapies will become available. Brainin delivers the keynote on the first day of the conference. 

The lack of interoperability is costing the healthcare industry billions of dollars. Joseph Smith, chief medical and science officer at West Health Institute, will address the challenge of medical device interoperability and how it is unsustainable to have devices that are not integrated into the electronic medical record, and what's needed to close the loop. Smith will provide the keynote on Sept. 11.

A separate panel discussion on interoperability will occur in the afternoon on Sept. 11 with speakers from Starfish Medical, Massachusetts General Hospital, University of Cincinnati and Logic PD. 

Hear from FDA Official

Joni Foy, director of the Office of Device Evaluation, which is part of FDA's Center for Devices and Radiological Health, will talk about how to strengthen 510(k) de novo and PMA submissions for an effective regulatory approvals process. Foy will also talk about new guidance documents and how they can inform product development. She will speak on day 1 of the conference.

The Consumer is Your Friend

Two speakers will talk about developing devices for the consumer that not only addresses how the device industry has a new customer they can think about but also how devices can actually move the needle on patient engagement, a big challenge in all of healthcare.

A speaker from Scanadu, the company that is competing for the Tricorder X prize and has turned heads through its successful crowdsourcing campaign for its at-home medical diagnostic products, will talk about the consumerization of healthcare and how device firms can take advantage of that. Koen De Lombaert, director of clinical development at Scanadu, will also provide the latest trends in the consumer-centric devices. 

The other company that has developed consumer-centric devices is Misfit Wearables. Matthew Diamong, the clinical lead from the company, will talk about how to design wearable devices as well as how wearables can be used to prevent and treat chronic disease. Both speakers will speak on Sept. 10.

We have you Covered If Interest Is Product Development And/or Business Development

Two tracks on business development and product development delve deeper into each topic. Those interested in business development can learn about how to raise money, how to commercialize novel technology faster and requiring less money and how to engage medical device consumers in today's multitouch environment.

Product developers can learn how to create wireless medical devices, the challenges and benefits of miniature wireless diagnostics, and designing for biocompatibility, sterilization and cleaning.   

Meet and Greet Suppliers 

Take a break from the keynotes and panel discussions to meet with more than 40 exhibitors that are part of the Tech Showcase. Touch and feel the materials being exhibited and talk face-to-face with contract manufacturers and service providers. Head to a cocktail reception at the end of the first day to network some more.

[Photo Credit: iStockphoto.com user EduLeite]  

-- By Arundhati Parmar, Senior Editor, MD+DI
arundhati.parmar@ubm.com

Leading medtech companies are searching for revenue in global markets like China to augment slow to flat performance in domestic markets. However, in order to be successful, companies must fully understand key market characteristics and cultural nuances to ensure sustainable market acceptance of their products. For China, in particular, successfully navigating the medtech ecosystem requires structured consideration along four key concepts.

1. Dissecting China’s Growth Economy

The China market is growing, but where and how? For the medtech ecosystem, China has experienced explosive growth over the past five years. Fortified by demographic shifts, increased healthcare access, low overall healthcare market penetration, fragmented markets with undefined leaders, and the rise of local players, the China medtech market is expected to continue its ascent in the near future.

Looking at the growth rate of the China medical device market by product sector, as the chart shows below, medical equipment still dominates the market, but consumables are showing promising signs of growth.

James Varelis, Principal, PwC Health Industries

2. Understanding Government’s Role in Medtech Regulation, Purchasing

While medical device regulations are relatively new in China, they are quickly evolving. In particular, the government's tendering process of medical devices is assuming a more important role in how medical devices are procured, especially capital intensive medical equipment. Therefore, pricing is no longer the first priority to consider in medical device purchasing.

What does become more important is understanding the nuances of the tendering system, the key criteria for purchasing decisions, and the data that drives these decisions. Unfortunately, there is not a national standard for tendering systems and they may differ greatly between provinces. Additionally, recent tender system reform may require a nationwide system to be implemented which could create additional barriers for manufacturers.

Andrew Chen, PwC Director and China Medical Device Leader, believes that, “The China healthcare market is undergoing a series of transformations. The device industry will follow the footsteps of the pharma companies, which saw the raising of the bars for regulations, pricing, market access, and product requirements.Many companies miss the opportunity because they lack the forward-looking view and only react to an issue after the fact.”

Understanding the complex and multileveled role of the Chinese government can assist to navigate the medtech world there. 

The market approval process is also difficult to navigate, while being important to understand. As it stands now, there is a separate process for domestic and imported devices, both of which are receiving a greater level of scrutiny. And once the device has been approved, it must be re-registered in four years using the same process used for initial approval. This is considered by most as inefficient and costly, but that’s the current reality.

3. Paying Close Attention To Chinese Healthcare Reform

By expanding insurance coverage and government expenditure, healthcare reform in China has improved overall access to healthcare. Recent trends have illustrated greater percentage of government spending has been on reform initiatives, and it is expected to at least maintain this level into the foreseeable future.

However, it is unclear if these initiatives will drive efficiencies or erect hurdles, or how much this is specifically applicable to medtech, so it becomes increasingly important keep a close eye on hot button reform topics (i.e. tendering system, etc.)  

In addition, as more and more hospitals are undergoing the reform process, profits have shifted from those generated from consumables to those generated from service charges.  The focus has been on the solutions that a medical device company can provide to improve hospital performance. The desire to shift from point of care to disease continuum management, volume vs. performance, is no different from the health care provider (HCP) requirements in the U.S.

However, careful consideration of different business models to engage the HCP while they evolve through the journey is key. PwC has successfully helped several of our clients in designing multichannel solutions for companies in China.

4. Commitment in China. Getting “glocal” to stay competitive

With many different and unique sub-markets, China is a complex market that is not easily defined when it comes to growth opportunities. Penetrating into the different market segments requires patience and commitment, and establishing the right control measures to balance the risk versus reward decision.

The first mover advantage in China still exists, but the emergence of strong domestic players makes it increasingly difficult to be successful. Multinational companies need to focus on how to be Global-Local or ‘glocal’ to ensure their operations are nimble and effective. Domestic and multi-national corporations (MNCs) alike need to delicately balance macro-global strategies with locally tailored market needs.  

--- By James S. Varelis, Principal, PwC Health Industries, Pharmaceutical & Life Sciences sector

Clinicians and doctors take note. When it comes to honesty in disclosure, patients prefer a computer-simulated human to the real thing. According to a first-of-its-kind study released by the University of Southern California (USC) and published in the journal Computers in Human Behavior, virtual humans (VHs) elicited more honest answers from patients about their symptoms, regardless of how potentially embarrassing the information was.