healthcare

How Can Medical Device Companies Win in Value-Based Healthcare? By Investing in Service Design. Now.

How Service Can Help Go Beyond the Device.

February 11, 2017
by Mike Dunkley
kneehero

1.

Fee-for-service healthcare is unsustainable. It’s clear that future business models will transition from volume- to value-based care. Uncertainty in the current political environment may give medical device manufacturers pause around this transition, but the underlying fundamentals—rising costs, an aging population, and increasing prevalence of chronic disease, for instance—are strong. Recent developments, such as the deal announced by General Electric and New England Baptist Hospital for bundled payments in hip and knee replacement, highlight the fact that large employers (and also private payors), not just government, are driving change. Value-based care will, now and in the future, take a larger and larger bite out of healthcare payments.

2.

We will continue to debate about what constitutes value, how outcomes are measured, the timeframe for evaluation (60 days, 90 days, 10 years?), and the way it should be viewed for different patients—but the value-based business model has, without doubt, arrived. The question, “How should medical device manufacturers best react to this new business environment?” is paramount, and the stakes are high.

Consider CMS spending in orthopedics: Medicare spent $7 billion on hospital costs associated with hip and knee replacements in 2014. The combined revenues of the top three orthopedic device makers topped $25 billion in 2015. Bundled payments present a financial risk to hospitals from losses associated with individual cases and from competitive pressures posed by increased transparency on outcomes and costs. These risks place pressure on device manufacturers to offer more to their hospital customers.

3.

To deliver effective value-based outcomes, device manufacturers must move beyond product-centric business models and use service design to create more comprehensive healthcare experiences for the future. Service design goes further than business process optimization—indeed, done right, it looks beyond the status quo to define a future vision, one that may be radically different from current care-delivery models. The design process starts with understanding and defining the complex needs of patients and other key stakeholders across the patient journey and translates this understanding into a cohesive end-to-end experience by elegantly dovetailing products with related services.

In short: Service design can help your company understand what happens before, during, and after your customers’ engagement with your device across the care continuum—and that kind of consideration will allow you a true advantage over those firms focused solely on their technology.

4.

Orthopedics provides a good illustration of the current activity and value potential for device companies. Payment structures are in place and the competitive landscape for hospitals and device manufacturers is intense. Initial moves toward value fall into two categories:

(1) The surgical procedure, the implant, and associated tools
—and—
(2) Post-operative care and the opportunity to support the patient and clinical care team through joint rehabilitation.

The following four examples show how device manufacturers are retooling their offerings to focus on value.

4a.

ConforMIS offers custom knee implants and custom fixturing, designed to improve operation room efficiency and patient outcomes such as reduced pain, improved joint function, and enhanced bone preservation. Despite these stated patient benefits, ConformMIS frames its OR-focused product offering in terms of the economic benefits it offers hospital customers—earlier discharge from hospital and decreased use of higher-cost skilled nursing facilities.

4b.

Stryker Performance Solutions offers its hospital partners a detailed assessment of their orthopedic care delivery with the goal of identifying performance improvement opportunities that address cost and quality. Stryker, via ongoing monitoring of Medicare payment data, provides a detailed cost breakdown to its partners as a foundation for continuous process improvement. Finally, the company has developed a service called JointCOACH to help engage patients and provide navigation through the joint replacement process.

4c.

Zimmer Biomet has created a solutions business and is building out a portfolio of product/service offerings aimed at delivering value across the episode of care. Its recent acquisition, RespondWell, is a tele-rehabilitation service designed to offer post-operative physiotherapy to patients in their home. The goal: to facilitate a high-quality recovery in a cost-effective way.

4d.

Medtronic is tracking in a different direction, in a break from its heritage as a premium technology company, to embrace low-cost implants as a key value driver. The acquisition of Responsive Orthopedics in 2016 provides the foundation to augment this low-cost product offering with a joint-replacement service that targets improved outcomes across the episode of care covered by the bundled payment.

5.

These initiatives represent first moves by the industry towards delivering value-based care. You should read them with an eye toward how they might apply to your business. In any case, one thing is certain: in the future, a comprehensive approach will be necessary, and will require the right mix of products and services, appropriately targeted to drive lower cost and improved outcomes. Given service offerings will form an essential part of the value equation for device manufacturers, how is your company thinking about the product-service mix?

Image by F Delventhal/ CC/by-sa/2.0

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