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Today's Health-Care Industry Focuses on Cost Containment

An MD&DI January 1997 Feature Article


An interview with Clateo Castellini
Chairman, President, and CEO, Becton Dickinson and Co.

There is no doubt that today's market for health-care products and services is changing. At a time when progress continues to be made along the information superhighway, patients, their families, and their employers are looking for ways to contain medical costs while still reaping the benefits of new medical technologies. It is the market in which manufacturers of medical devices currently find themselves, and it is certainly different from the medical marketplace of 100 years ago, as Clateo Castellini, chairman, president, and CEO of Becton Dickinson and Co. (Franklin Lakes, NJ), can attest. As head of a century-old company that earns nearly $3 billion in annual revenues from domestic and overseas sales, Castellini has a global perspective on the device industry. In this interview with MD&DI, he discusses the trends and challenges that will face medical product manufacturers in the years ahead.

What are the major changes occurring in today's health-care marketplace, and how are they affecting device companies?

Health-care costs have grown out of proportion in the United States, and society is beginning to make major adjustments to contain these costs. As a result, several trends are emerging. Hospital and purchasing groups are forming to take advantage of economies of scale, which concentrate hospital purchasing power as never before. Three organizations--the Columbia Health Care System, the Voluntary Hospital Association of America, and Premier--now have purchasing power over 70% of the hospital beds in the United States. This sort of consolidated purchasing also takes place outside of the United States. In many countries, purchasing power lies with the government, which provides health-care coverage.

As a result, device companies must respond to their customers' efforts to contain costs. For example, Becton Dickinson has reorganized its selling activities so that hospital organizations contract with the entire company. Customers now deal with only one entity as opposed to the separate Becton Dickinson business units that contacted them previously. We used to operate with seven or eight such independent business units, each with its own costs and shipments.

Now, the customer sees one company, one order, one shipment, and one invoice for Becton Dickinson products. Where traditionally our company representatives sold to doctors, nurses, and laboratory personnel in the hospital, they now write a contract with top hospital management for the whole product line. Acting as one company allows us to reduce costs. It's a big change in our way of doing business compared to 10 years ago.

Advances in information technology have also helped device companies in terms of product delivery and cost containment. Information technology allows a company to consolidate its orders and automate much of the distribution process. For instance, customers are now able to replenish their supplies of a company's products automatically when those supplies fall below a specified level.

What types of medical products and procedures do you expect to emerge as a result of current cost-containment efforts?

As health-care laboratories become fewer in number and larger in size, bigger laboratory diagnostic machines with higher throughput and lower unit cost will continue to be sought. Automation becomes crucial to accomplish this, and automated diagnostic instruments will fill this need.

At the same time, health-care cost containment has triggered the need for small, low-cost, quick-response diagnostic machines to be used at a patient's bedside in a clinic, doctor's office, emergency room, or home. Examples of these sorts of products are small automated blood analysis systems and small hematology instruments used in clinics and doctors' offices.

Another promising product is the prefilled syringe. In U.S. hospitals, hospital pharmacists generally fill syringes with medications every morning. In Europe, nurses usually fill syringes at a patient's bedside. With ready-to-use syringes, however, accurate dosages can be administered easily, saving hospitals both time and money. Syringes may be basic, low-cost products, but they are used by every specialty on every hospital floor, and they're sold by the billions around the world.

New technology will of course aid in making medical procedures possible in the next 15 years that are less costly, less problematic, and less time-consuming, and that allow patients to return home faster. For instance, we can expect to see more techniques like laparoscopic surgery, which minimizes trauma, speeds the operation, is simpler, and costs less.

Disease management will also play an important role in the future. This concept addresses cost containment and emphasizes new technology. Today's new health-care organizations like to see someone who can manage a disease--someone who can diagnose it, offer a drug therapy for it, and provide a device to deliver the drug. Companies that can provide these elements will be in a good position.

Becton Dickinson has for years been helping patients manage diabetes by supplying insulin syringes and tests for blood-sugar levels. We are moving deeper into diabetes management by supporting the International Diabetes Center's Staged Diabetes Management program, which is a scientifically based, clinically piloted model for reducing variability and improving diabetes patient care through better control of glucose levels. This sort of disease management program is likely to become more common in coming years, when device companies will work more closely with pharmaceutical companies to diagnose and treat certain diseases.

In theory, many drugs would work very well if they had an easy-to-use test. For example, the correct dosage for Merck's drug for osteoporosis depends on calcium concentration in the patient's bones. To date, patients need to have their calcium monitored on a large hospital machine. But what if we could develop an easy-to-administer test at home or in the doctor's office that would give precise readings of calcium levels? In such a case, the diagnostic test and the drug's success would go hand in hand. We expect to see more tests like this one that would be used in concert with drug therapy and that would be easy to administer at home or in the doctor's office.

There will also be more partnerships and alliances between diagnostic, device, and drug companies to solve disease problems together. Here we will deploy our special skills to solve a problem and, when limited to these projects, we will not be regarded as a competitor of the pharmaceutical company. The increasingly more costly, more difficult task of finding new drugs encourages this ad hoc approach.

How is the global market for health-care products and services changing?

Health-care spending in countries with underdeveloped health-care systems falls many times below that in the United States, Europe, or Japan, but the ratio is rising as these countries increasingly democratize and allow public participation. As emerging countries begin to upgrade their health-care systems, they begin to adopt our products.

While health care hasn't yet reached large groups among the populations of lesser-developed countries, economic and political improvements in such regions are bound to push health-care spending to higher levels. When people start participating more, the first thing they want is better health care. Such economic improvements around the world will create strong demand in underfunded health-care systems and will help the device industry grow.

What sort of management techniques will companies need to implement to be successful in this global environment?

I believe in the implementation of a participatory management approach that turns away from hierarchical, command-control style management. To gain the power of an organization that is committed, involved, and participatory, you need to dismantle the hierarchical structure in which the privilege of making decisions resides at the top and others are merely followers. We're currently doing this at Becton Dickinson. We are turning the organization almost upside down and replacing top-down management with more self-managed teams in which people know what they have to do and then go do it. We also need to make people independent in their jobs, so they can try things that are more innovative and imaginative and can make mistakes without the fear of always having to be right.

Part of spreading this new management approach is to work with middle management to make them comfortable with something they might feel threatens them. Much of corporate America is coming around to this management style.

Copyright © 1997 Medical Device & Diagnostic Industry
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