Medical devices are an integral part of the healthcare ecosystem, and any changes to the functioning of this system can have a direct and significant impact on the device industry. A prominent trend in healthcare delivery has been the shift from a traditional fee-for service payment model to a value-based reimbursement model in which physicians, hospitals, medical groups, and other healthcare providers receive payments based on measures such as quality, efficiency, cost, and positive clinical outcomes from private payers or government programs such as Medicare and Medicaid.
As with traditional fee-for service payment models, device manufacturers were only concerned with device quality and cost, while the onus of patient-care and outcomes remained primarily with providers. However, due to healthcare reforms and changes in reimbursement models, medical device manufacturers are pursuing ways to adjust their business models to thrive in the value-driven environment. Here are some key strategies that the device manufacturers have pursued:
Exploring value-based partnerships with providers and/or payers:
Medical device companies are exploring risk-based deals with providers and/or payers to ensure their new technologies are widely adopted and paid for. Cardiac surgeries and hip replacement surgeries are among the most common surgeries conducted in the U.S. and account for a high proportion of total healthcare expenditures. With rising pressure to curtail healthcare costs, it has become imperative for companies that manufacture cardiac and orthopedic implants to demonstrate effectiveness and even bear costs if their devices fail to perform as claimed. For instance, Medtronic formed risk-sharing contracts with more than 140 hospitals and clinics in the U.S. for its Tyrx products (absorbable antibacterial envelopes). According to the agreement, Medtronic will bear the costs in case an infected Medtronic device implanted along with a Tyrx envelope requires replacement and/or removal. Johnson & Johnson and St. Jude Medical are among other players that have outcomes tied to the reimbursement of their cardiac devices.
Within the health insurance space, Medtronic has an outcomes-based contract with Aetna in which payments are tied to how well patients respond after switching from other insulin injections to Medtronic’s insulin pumps. Medical device companies believe that such partnerships will help them capture market share and gain provider consent for their new technologies entering the market.
Offering service-based solutions for providers:
Medical device manufacturers are expanding their product offerings to include solutions that assist healthcare providers in fulfilling value-based contracts with payers. In delivering care with improved outcomes, providers want and need medical device manufacturers to innovate devices that generate data and provide actionable insights to providers. Integrating data capture, cloud storage, and connectivity features into devices increase the adoption of medical devices and facilitate effective healthcare delivery.
Medtech companies have been managing patient care by forming joint ventures or acquiring healthcare providers. For example, Fresenius Medical Care has a network of 65 vascular care and ambulatory surgery centers in the U.S. that provide treatment for health issues associated with end-stage renal disease.
Adopting patient-centric engagement strategies:
Medical device manufacturers increasingly have been developing patient-centric products. They are modifying their products into care management tools by incorporating connectivity solutions or other support services to improve patient experience. The support services include online tools for patient education, telemedicine, consulting services, surgical preparation, surgery room management, rehabilitation, and post-surgery support and cost tracking applications. This trend aims to increase care coordination between patients and physicians by providing comprehensive solutions instead of stand-alone products.
For instance, Stryker has introduced JointCOACH, an online tool to educate patients with all the information required from pre-op through rehabilitation. Such services will provide medical device manufacturers with a variety of payment/incentive opportunities, as these solutions will ensure healthcare delivery well beyond the surgical procedure. The increasing use of health apps and remote monitoring devices collect data that was inaccessible previously. This also helps in providing patient care at home, improving the quality of personalized treatment, and lowering the overall cost.
The value-based healthcare model is here to stay and will bring along a host of risks and opportunities for medical devices. It is vital for medical device companies that want to compete successfully in this new marketplace to understand how their products can help payers, providers, and patients meet healthcare-related challenges.
Comprehensive medical products and solutions that assist providers in lowering healthcare costs without compromising clinical outcomes have become imperative. Device manufacturers will also need to redesign their products as healthcare delivery systems rather than stand-alone devices. Different disease areas will require different value-demonstration strategies, but opportunities abound for companies willing to reshape their approaches to the changing reimbursement landscape.
Indu Pillai is a senior analyst at DRG.