Aligning medical device suppliers and hospitals in a value-based healthcare environment
The current medical device support model may not be sustainable in a value-based healthcare environment. As the U.S. healthcare system shifts from a volume-based (fee-for-service) to a value-based payment model (pay-for-performance reimbursement, i.e., bundled payments), medical device suppliers will need to find ways to increase efficiency, drive value, reduce cost while becoming an integral component of coordinated care. In this post, we discuss the health care reform factors that are impacting medical device companies, the challenges and recommendations for medical device companies.
Bundled Payments are defined as the reimbursement to health care providers on the basis of expected costs for clinically-defined episodes of care. Bundled payments discourage unnecessary care, encourage coordination across providers, potentially improves quality and reduces health care cost. Providers will have to begin to take on the risks associated with managing a patient over his or her lifetime.
As a result, this will dramatically impact the way hospitals make purchase decisions. Once driven by individual physicians, purchase decisions will be driven by committees of administrators and purchasing managers equipped with information on product prices. These decisions are being made on the basis of clinical and economic benefit, rather than individual clinician preference.
In addition, value-based purchasing will shift where hospital purchasing decisions occur. Specifically, selling that used to occur at a local hospitals will now be made centrally to executives in a large hospital system.
Furthermore, another pricing strategy employed by hospitals is capitation. Capitated pricing is a model established that allows healthcare providers to purchase medical products and devices from a variety of companies at set levels based on the level of the product. This requires medical device companies to establish their products to fall into each of these categories (typically three; standard, high and premium) by a certain set of characteristics that make these products “equal” based on value. Then the healthcare provider will pay each medical device company the same amount for any product in each level.
Finally, meaningful use is defined as the implementation of electronic medical records (EMR). Achieving different stages of meaningful use qualifies hospitals to receive payments from the government. It also allows hospitals to make data-driven decisions and collect their own outcomes data on specific products. This will likely result in hospitals being equipped with more patient outcomes data on medical devices and limit the number of suppliers they work with based on predictable, quality outcomes that are efficient and low cost.
Given these value-based health care initiatives, we have identified four strategic imperatives for medical device companies:
Provide more predictable operating room efficiency
Improve operative environment of safety
Reduce variability in quality
Reduce cost of care
In order to drive these imperatives, medical device companies will need transition to becoming ‘healthcare solutions’ companies by aligning their priorities with hospitals and coordinating care for every patient to ensure the best outcomes.
Source: BCG. Fixing the Medtech Commercial Model. 2013