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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

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

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

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

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

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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