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7 min reading time
Too good not to share from my friend Gunter Wessels http://bit.ly/GunterW
His main point: “Appropriateness of care” will guide coverage, payment, and utilization of your devices from now on.
MYTH 1: Device tax repeal will happen.
We don’t see how the device tax will be dropped. The cost offsets required to fill a repeal gap are too large. Now the sustainable growth rate formula (SGR) is out and there’s a bigger hole to fill. The tax has pernicious effects but the overall impact on hospital prices has been small.
Innovation hasn’t ceased. Healthcare investments are back on the rise. Reform-era new devices like Trans-Catheter Aortic Valve Replacement (TAVR) are growing rapidly. Declines in R&D spending are modest and likely due to industry consolidation. Therefore, the device tax remains unpopular, like all other taxes.
MYTH 2: Providers are considering gain-sharing agreements with suppliers.
Providers are forced to take on more population, utilization, and financial risk under the Affordable Care Act (ACA). To spread this risk, long-term partnerships are being established, but these are between providers. Very few suppliers and providers are teaming up because it requires too much from parties with different business models. The contingent liabilities and hazards are almost impossible to overcome.
MYTH 3: Accountable Care Organizations (ACOs) and Patient Centered Medical Homes (PCMHs) are new sales targets.
There is a lot of confusion about ACOs and PCMHs. We don’t advise manufacturers to promote devices and services directly to them. ACOs and PCMHs are focused on clinical integration, process of care-based innovation, and population health management. Devices are not a primary resource in this effort; they are ancillary.
Monitor the actions of ACOs and PCMHs but position your devices in the care-delivery setting where the cases land.
FACT 1: Bundled payments are crimping margins because a good-enough device is just that.
There are thresholds in clinical effectiveness that, when reached, create a price competition and a substitution market. The major driver of this regression toward good-enough is the rise of bundled payments. In these payment schemes, device costs are the primary source of cost reductions, and gain sharing among providers.
Formulary decisions are being made with total costs in mind instead of physician preference. Payers are joining the fray, accelerating the commoditization of large sectors of the device business.
FACT 2: Providers are interested in novel technology IF it improves clinical outcomes, processes and financial returns.
Improving quality and reducing cost simultaneously are ACA imperatives. Innovation in healthcare technology is increasingly difficult for manufacturers because the dimensions of a solution are multiplying.
Clinical capabilities need to be improved, but compatibility with people, process, and technology is also required. And a high-enough reimbursement (to justify the change) is needed. In robotic surgery solutions, for example, we see slow growth because of difficulty in overcoming these obstacles.
FACT 3: Today is a good day to be in the medical device business.
Success is out there for suppliers that can re-orient toward a value-based marketplace. Demographics are driving a huge wave of new patients. Reform is funding healthcare spending. Technology is improving. It is up to this industry to rise and spur provider effectiveness, and efficiency. Doing so will have substantial rewards.
Thanks, Gunter! Reach him at http://bit.ly/GunterW or meet him in person at 10x in San Diego in two weeks.
An invitation: If you have educational content like today’s, email it to me at JHage@MedicalDevicesGroup.net and I’ll consider sharing it with the worldwide group.
Make it a great week.
P.S. Notified body webinar April 28: http://medgroup.biz/mdsap
What I can agree with is, after years of successful sales, products have room to be discounted as production is improved. We don’t typically see this which keeps the cost of devices escalating.
Though I fully intend to prosper through the decade, I think the Med Device Tax may have much more to show us than in these initial 2 years.
By way of reminder, a letter from my wife’s Ob-Gyn, received today, closing her practice, citing, “Evolving trends in the finances of medical care have unfortunately made it impossible for me to maintain a private solo practice…” One less doctor. I think that’s not over, either.
And another trend, of course. Larger practices, larger clinics, and an evolving marketing audience. And much more change to come, creating challenges, which create opportunity.
Michelle A. Wilder
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