High Technology to Cut Costs
At first glance, Stryker Corp.’s Mako Surgical Robot system does not appear to be a money-saver. Costing more than $1 million per robot and with higher operating room expenses than traditional knee surgeries, the Mako system requires a significant investment. Stryker executives, however, note that Mako reduces the total cost of treatment. Surgical complication rates for Mako patients are generally 36 percent lower than those undergoing traditional surgeries, and any complications that arise are roughly 66 percent less expensive for Mako patients. With an average readmission cost for joint surgeries of $15,000 (and often borne by the hospital in this era of value-based reimbursements), reduced complications are a strong justification for investment. Since its introduction, the Mako robot has been used in over 100,000 procedures.
Mako’s designers recognized and incorporated skyrocketing healthcare costs into their product design. Though the robot does not necessarily deliver better surgical results than traditional methods, it does provide consistently reliable placements of cuts, joint positioning, and attachment. Surgeries performed with the Mako system are intended to deliver reliable medicine rather than one-off masterpieces by exceptional surgeons.
New Ideas Applied to Old Products
Another approach taken by device designers has been to make better use of existing products. A good example of this is Becton, Dickinson and Company’s (formerly CR Bard’s) Advance Foley catheter kit. Developed in 1929 and used today in the tens of millions, this urinary catheter has not changed much over the past nine decades. Though it is generally found in every hospital in the world, the Foley catheter has a known infection risk. Hospital-acquired infections (HAI) are a financial drag on the healthcare system, costing an estimated $9.8 billion in 2015 (urinary tract infections accounted for $1 billion of that total). CR Bard engineers discovered that many infections arose not from improperly sterilized catheters or incorrect use of the device, but from the bacteria that hospital staff picked up as they gathered all the components for a Foley catheter insertion from different cabinets.
The Bard solution was elegant. All necessary components were packaged in a single sterile tray, eliminating the vector of contamination. Costly HAIs were reduced, making the Advance tray an economically and medically smart choice. A new approach incorporating the need to reduce costs led to a new product of greater efficacy while cementing Bard’s market share in urinary catheters.
An Ounce of Prevention Is Worth a Pound of Cure
Device professionals often expect to see their products in hospitals. While devices used in acute care settings may be life-saving, products that keep patients out of the emergency room offer health benefits and large cost savings. 3M’s Intelligent Control Inhaler, currently under development for various conditions (including asthma), is one such dual-benefit product.
Asthma is one of the most expensive conditions to treat in the United States, both individually and collectively. In the United States, 8.9 million physician visits, 1.9 million emergency room visits, and 479,000 hospitalizations are attributed to asthma every year. Direct and indirect costs from asthma are over $56 billion annually. The most common cause of asthma emergencies is, surprisingly, skipped doses of medication.
3M’s new product tackles this oversight. Asthma inhalers were introduced in 1956 and have changed little since then. However, they are only effective if they are used regularly. 3M engineers are addressing the “skipped dose” problem by linking electronics in the Intelligent Control Inhaler to an app on the patient’s smartphone or tablet. The app reminds the patient to use the inhaler on schedule as well as sharing usage data with the patient and provider(s). By keeping patients on their treatment plan, costly emergency treatments are avoided.
Device Design and the Supply Chain—Talking to Strangers
Reducing overall healthcare costs through informed device design is an opportunity for companies at all supply chain levels. Design houses and contract manufacturers with design departments can concentrate on new products with cost-saving features. Contract manufacturers offering Design for Manufacturing services can differentiate themselves from competitors by highlighting manufacturing changes that improve a device’s clinical and economic effectiveness. Companies focused on assembly, kitting, and logistics can bring together existing products in new ways that carve costs out of healthcare budgets. While the future for cost-saving products is rich, suppliers will succeed only if they begin talking to buyers and payers—constituencies that have largely been absent from medtech design and manufacturing discussions.
Medical device OEMs have long considered healthcare being comprised of groups called the “5 Ps.” These groups—patients, physicians, providers (hospitals and clinics), payers (insurance companies and government reimbursers), and policy makers (legislatures and government agencies)—define the healthcare market. Traditionally, a contract manufacturer deals with the 5P world through the OEMs it supplies. Those supply chain players who have contact with healthcare entities are usually speaking to physicians to gain insight on how to build better devices. Hospital buying groups are rarely consulted, and discussions with insurance companies and their government equivalents are few and far between. To be successful in a cost-savings world, designers and manufacturers must broaden their focus to include the needs of these ever more powerful groups, for they view healthcare as a set of costs to be managed.
Suppliers cannot solely solicit physician input when designing a medical device. For decades, products were made or broken on the willingness of doctors to specify the kinds of devices they wanted. As long as doctors were powerful in care settings and insurers could raise premiums to pay for these wish lists, physicians were the most important of the 5P groups, at least to device manufacturers. In the last 15 years, buying power has shifted away from doctors to a new model where device purchases are a jointly made by physicians and the guardians of healthcare budgets. In addition to being clinically effective, new devices must be demonstrably superior in the treatment room and to the bottom line.
The roles of providers and payers is growing as healthcare spending approaches 20 percent of U.S. GDP. Over two thirds of American hospitals have been merged into systems with sophisticated, centralized buying groups. Similarly, close to two-thirds of U.S. physicians are now part of corporate practices often linked to hospital chains. Insurers have also consolidated in the face of unsustainable costs. There are fewer, savvier points of sale and reimbursement, and these decision makers are interested in savings. For device manufacturers, understanding how these organizations make decisions will prove critical to their success.
To prosper in an increasingly cost-driven world, suppliers must understand precisely how devices are purchased and paid for. Being able to incorporate cost-saving features and explain how a new or reworked device brings down the total cost of healthcare will be an essential part of the sales process. Embracing the outlooks of providers and payers as well as physicians will be a critical factor for supply chain success in the future.
Tony Freeman is president of A. S. Freeman Advisors LLC, a mergers and acquisitions advisor and strategic consulting firm. He can be reached at firstname.lastname@example.org.