Healthcare Provider Organizations Are Rapidly Consolidating: 3 Ways Medical Device OEMs Can Compete For Their Business

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1 Healthcare Provider Organizations Are Rapidly Consolidating: 3 Ways Medical Device OEMs Can Compete For Their Business May 2016 Contributing Author: Pat Kallal

2 How Medical Device Companies Can Lead Integrated Healthcare Systems to the Cost and Quality of Medical Care They Are Seeking Steven Brill, in his New York Times best-selling book, America s Bitter Pill, 1 provides a detailed account of the evolution of healthcare reform, from the genesis of the Affordable Care Act to the less-than-perfect implementation of the law and the exchanges. A key takeaway of the book is that the result of healthcare reform was a mixed bag. On the positive side, about 10.3 million previously uninsured Americans were able to obtain coverage coverage that doesn t have astronomical deductibles with preexisting condition exclusions that place most of the financial burden on the customer (patient) and their family. On the negative side, the law did little to reduce medical expenditures. Sure, there were givebacks from providers, device makers and pharmaceutical companies, and payers are now required to meet at least an 80% medical loss ratio, but the promise that reform would reduce the United States ever-increasing healthcare expenditures was not fulfilled. With healthcare expenditures still on the rise, there is a significant opportunity for healthcare organizations to step up and drive down costs. 1) Brill, S. (2015). America s Bitter Pill. New York, NY: Random House

3 What can we do to reduce healthcare costs? In healthcare reform policy circles, there is a lot of talk about integration specifically, integrated healthcare systems. This means change in the size and scope of providers and payers in the following two ways: 1. Providers will begin offering insurance coverage for care within their own hospitals and clinics 2. Insurance companies will establish or acquire hospitals and clinics for their members to use with their insurance In Minnesota, we already have great examples of these systems Health Partners offers both a network of hospitals and clinics as well as insurance, and insurance giant UnitedHealth Group already manages a handful of its own clinics. And in the most recent move of provider and payer integration, Fairview Health Services and UCare announced the merging of their operations. According to UCare President and CEO, Jim Eppel, the merger will, pave the way for a truly value-based and integrated system. With the joining of healthcare delivery and healthcare coverage under one umbrella, these organizations will move from a cooperative ecosystem in which payers work with providers to set networks and negotiate reimbursement rates, to a head-tohead competitive environment in which integrated healthcare systems are fighting to control the total health of the patient. This also means capturing the full share of the patient s healthcare wallet, and the stakes will be high you either manage the entire health of the patient or you don t manage them at all.

4 How will the competitive environment change in healthcare? As provider and payer integration increases across the country as it has in Minnesota, the market will shift to a highly competitive environment with the following characteristics: Healthcare Delivery Efficiency: In order to retain existing patients and attract new ones, an integrated healthcare organization will need to do a better job at convincing patients that their organization provides the best care at the lowest cost. The close monitoring and communication of healthcare quality and cost will be key. Focus on Customer Experience: Patient experience will be key as business models move from business-to-business (between payers and providers) to business-to-consumer (between integrated healthcare systems and patients). Patients not only demand high quality and affordable care, but feel that engagement and empathy is particularly important in their patient experience. The healthcare system is currently set up to support transactional relationships between the patient and doctor in a fee-forservice model. As the payer and provider move under the same organization, the management of quality and cost will be better aligned and these organizations will be highly motivated to establish long-term, trusted patient-doctor experiences. Total Health Management: Because these organizations will be responsible for the total health and treatment costs of the patient, they will become increasingly interested in expanding their reach into the home. A 2011 study published in Health Affairs2 reported that remote monitoring of patients with chronic conditions was associated with 7-13% reductions in healthcare spending per patient while also achieving noticeable changes in health outcomes. To achieve similar medical cost reductions and health outcome benefits, these organizations will want to find new ways to monitor patients, predict or mitigate acute episodes and potentially administer care remotely. 2) Integrated Telehealth And Care Management Program For Medicare Beneficiaries With Chronic Disease Linked To Savings. Health Affairs,

5 As integration expands, what does this mean for medical device companies? The goal of healthcare organization integration is cost efficiency, so the simple answer is that medical device companies will compete on the incremental efficiencies they provide to improve the overall quality and cost of care for patients. Patients will judge integrated healthcare systems on these quality and cost metrics, therefore it is logical that medical device companies will be treated the same by the doctors and administrators of these organizations. While medical devices previously needed to provide maximum benefit to the patient, the burden will increasingly be placed on device OEMs to show both value to the patient and value to the cost and quality of care for the integrated healthcare system. But coupled with the burden to show the incremental value of their devices is an opportunity for medical device companies to position themselves as the facilitator of the relationship between integrated healthcare systems and patients. To effectively compete, medical device companies will need to do the following: 1. Understand their customer s customers 2. Create actionable intelligence and show its link to better patient outcomes and reduced healthcare expenditures 3. Help care move outside of the hospital/clinic

6 How Medical Device Companies Can Effectively Compete 1. Understand their customer s customers. As healthcare is moving toward B2C, medical device companies will need to deeply understand the key segments of integrated healthcare systems customers. What are the demographics and psychographics of each segment? What are the distinctive behavioral and attitudinal characteristics of each segment? Jason Voiovich, Chief Customer Officer at Logic PD, wrote a two part analysis titled Next generation segmentation for medical device OEMs 3 that identifies the types of B2C customer segmentation that medical device OEMs will need to consider. Most important for medical device companies to use in understanding their customer s customers are the following segmentation approaches: Demographics and psychographics the descriptive statistics of the target audience (including age and gender) are basic, but when used in conjunction with other approaches, they can paint a clear picture of the customer Channels to market as the method of medical care evolves and decentralizes, understanding where (not just in the clinic) consumers prefer to receive care will be incredibly important Behavioral determining how people want to be treated by their healthcare providers is already an important factor in shaping patient experiences. OEMs will need to spend even more time studying patients and teaching integrated healthcare systems what their patient populations want in their medical care 3) Jason Voiovich (2016) Next generation segmentation for medical device OEMs, Parts 1 and 2. Logic PD Insights,

7 How Medical Device Companies Can Effectively Compete 2. Create actionable intelligence and show its link to better patient outcomes and reduced healthcare expenditures. Medical devices have done a good job of creating data and connecting systems to centralize data. However, little is currently done by systems or devices to analyze that data and create actionable intelligence. Actionable intelligence is the next step in delivering high quality healthcare. In GE s most recent annual report4, GE Healthcare President & CEO, John Flannery wrote that, First, we built robust digital expertise. Five thousand of our software engineers are now trained on one target: transforming endless streams of data into actionable insights-realizing that lives depend on every refinement of knowledge. GE understands that data on its own is not valuable. Analysis and intelligence is valuable. And to increase the quality of care delivered, systems can do some of the heavy lifting when it comes to analyzing trends of patient populations or making recommendations for care plans. Flannery continues, We developed outcomebased solutions that cost less and make better use of clinicians time. Soon, doctors will be able to instantaneously sift through data from millions of diagnostic imaging scans, thereby spotting diseases earlier and more accurately. GE is focusing both on the quality and cost of care by letting technology take over many of the manual tasks completed by providers. The more that OEMs move away from solely creating data and towards creating intelligence, the more valuable their devices will be to doctors, administrators and patients. 4) GE 2015 Annual Report. GE,

8 How Medical Device Companies Can Effectively Compete 3. Help care move outside of the hospital/clinic. Remote health monitoring is a hot topic right now, and for good reason: preventable chronic conditions make up a majority of our national healthcare expenditures, but the ability of doctors to effectively treat them in the clinic is limited. The health status of any patient with a chronic condition is dependent upon the sum total of a number of small daily decisions made by the patient (e.g. Do they exercise? Do they follow a recommended diet? Are they adhering to their medication regimen?). Doctors need a view into these daily decisions as well as a view into the downstream effects of these decisions (e.g. What are their blood sugar readings for the past week? Have they experienced any cardiac issues in the past 24 hours?). According to the mhealth Physician Task Force at the Healthcare Information and Management Systems Society (HIMSS)5, there is an opportunity to improve the patient experience through better remote monitoring: the quest to improve behaviors at an individual and population level is stymied by lack of resources, provider training, and provider time. Moreover, research suggests that longitudinal motivation is the most effective method to improve behavior, in contrast to the one-time office-based encounter that most physicians use. Mobile health technologies for remote patient monitoring (RPM) may overcome these resource and provider obstacles. Digital health presents a key opportunity for health systems to achieve the so-called triple aim (improving individual patient experience; improving population health; and reducing per capita cost of care). Medical device companies that focus on removing these barriers to establishing consistent, longitudinal physician-patient interactions will be the best prepared to compete in the increasingly connected digital healthcare system. These systems will need to meet the patients outside of the clinic, and medical device OEMs have the opportunity to facilitate that relationship. Devices need to collect accurate and relevant data about the patient, translate this data into intelligence for the doctor and facilitate communication between the doctor and patient. This last point is especially critical. According to a 2013 Harvard Business Review6 article, patients, especially those with chronic conditions, judge their healthcare experience based on the empathy and engagement shown by their doctor. It sounds simple, but if devices can make it quick and easy for doctors to consistently communicate with patients outside of the clinic, they will show more engagement in their patients health. According to a 2014 article in the Patient Experience Journal7, this continuum of clinical and non-clinical interactions are critical to the patient experience. 5) (2014), The Value of Remote Patient Monitoring (RPM) Physicians Perspectives, mhealth Physician Task Force, Healthcare Information and Management Systems Society, 6) (2013), Understanding the Drivers of the Patient Experience, Harvard Business Review, 7) (2014), Defining Patient Experience, Patient Experience Journal,

9 Conclusion There are many opportunities for medical device companies to be the facilitator between integrated healthcare systems and patients in this new consumer-driven healthcare business. Medical device OEMs that understand the tenets of quality and cost from the patient s perspective, and help healthcare delivery professionals meet patients when and where it s convenient for each patient, will be well-positioned to meet the demands of these new healthcare organizations.

10 Let us know if we can help you navigate this brave new digital world. Contact Logic PD today to learn more. Tel: Contributor: Pat Kallal Strategic Research Manager Logic PD About Logic PD: Logic PD collaborates with clients to help them throughout the complete product lifecycle to accelerate their growth and capture value. Logic PD provides services at any stage in the product lifecycle by helping customers understand their business, user and technology needs and specializing in helping them meet digital business requirements. With services in analytics and research; design, engineering and manufacturing; and product support services, Logic PD helps its clients identify opportunities, reduce risk, and control costs to deliver innovative products to market faster. The company is headquartered in Minneapolis. Minneapolis Eden Prairie Montevideo 2016 Logic PD All Rights Reserved. Rev