Navigating The Post-Affordable Care Act Storm

By Doug Roe, Chief Editor

I recently had the opportunity to attend AdvaMed2015 - The Med Tech Conference. The Advanced Medical Technology Association’s flagship event is the largest annual gathering of senior executives in medtech. When I landed in San Diego — a city known for its perfect fall weather — torrential rain and wind whipped about me. While I was waiting at baggage claim, I downloaded the conference’s cutting-edge mobile app. When I looked up, I was alone and the conveyers were all empty. My bags had traveled on to Seattle. It was a sign of greater storms to come.  

The week prior to the show, it was announced that long-standing AdvaMed president and CEO Steve Ubl would be moving on to a similar role with Pharmaceutical Research and Manufacturers of America (PhRMA), and the search was on for his replacement. Obviously, the timing was not ideal, but AdvaMed did an exemplary job of keeping the conference’s focus on course through this second storm.

By Tuesday (my luggage showed up), the weather outside began to heat up, and so did the discussions I had in the hallways between sessions. As in previous years, AdvaMed presented a broad scope of panel sessions to choose from, including finance, business development, innovation, digital medicine, legal, regulatory, quality, and compliance. But one central theme resonated throughout: How will the industry survive the storms of a post-Affordable Care Act (ACA) world?

Against this fast-changing healthcare ecology backdrop, how can care providers and med device manufacturers work toward a solution? The first step seems to be better understanding one another. The unique business challenges of each group were never given much attention in the traditional patient pay-per-service healthcare model. Now that quality of service and cost reduction is the new paradigm, identifying efficiencies that can be leveraged across the entire patient treatment life-cycle requires that health care providers and manufacturers understand each other’s strengths and weaknesses.

Care Provider Challenges

In one hallway discussion, I spoke to an executive from a large care provider about the challenges his organization faces in the current payer environment. “We can be compared to a supermarket chain; we live on a 3 to 4 percent profit margin,” the executive said. “We can no longer pay for the bells and whistles.”

Part of the recent transition to take on more accountability for those margins includes consolidation with other hospitals, physicians, and treatment centers. The larger footprint commands improved buying power with suppliers. It also creates the ability to streamline the complete coordination of care. “To survive, we need to be more of a business that is profit-and-loss (P&L) driven,” the hospital executive said.

This aggressive consolidation correspondingly produces many layers of employee and system overlap, as well as increased complexities in the combined supply chains. Areas of cost-saving opportunity, for sure, but historically these areas have not been core competencies in these institutions. “There is not much room for mistakes,” the hospital executive pointed out. Dealing with these large horizontal challenges is forcing the decision-making loop higher and higher. This evolution requires a new kind of “buyer” – if you will – one that has a C-suite job title and an advanced business pedigree.

Device Manufacturer Challenges

How are these changes affecting med device manufacturers? With fewer — mostly large —hospital customers, suppliers need to offer greater product variety and improved costs to continue to earn business. “We have to continue our path of acquisitions,” shared atop medtech CEO, explaining how to diversify product portfolio and drive down costs.

Also, the new reimbursement model is not defined by the most innovative solutions, but the most effective — only what is needed. “We are redefining our overall R&D processes to better target quality of care,” the device CEO told me. “And we need to retrain our entire sales force.” The sophistication of the buyer and the new economic-driven outcomes are in opposition to the historical purchasing models. Medtechs must leverage their expertise, infrastructure, and resources to foster partnerships with providers.

We went on to discuss some of these novel partnerships. In 2013, Medtronic launched its Hospital Solutions business, designed to provide a variety of services to directly improve hospital operational efficiency. One area of service, the European catheterization laboratory program, has shown early promise: Medtronic contracts with a hospital to set up a new cath lab and maintain the facility, and the hospital pays per-procedure. The medtech giant is expanding its services to include post-surgery therapy, patient monitoring, and home care.

Also, Johnson & Johnson’s Depuy Synthes Advantage recently launched its Outpatient Joint Replacement Program. On top of its portfolio of orthopedic surgical products, the program offers education, training, and support for the outpatient setting.

These risk-sharing approaches offer benefits to both parties. To succeed in the post-ACA world, medtechs and service providers must continue to evolve and reinvent, not only by retooling internal business models, but also through collaboration and innovative partnerships.

Stayed tuned to MedDeviceOnline as we expand on these themes in The Power Of Provider Partnerships and The Challenges Of The Evolving Hospital Landscape.

For more information on AdvaMed and its initiatives, visit http://advamed.org