As the healthcare industry continues to embrace value-based care, medtech companies are increasingly looking to go beyond their traditional product-and-price business models and explore new ways to demonstrate the value of their offerings to providers. In a recent Wall Street Journal article, Medtronic Chairman and CEO Omar Ishrak gives insight into the leadership mindset of one company that’s executing a value-based care (VBC) vision that aligns with its existing portfolio of products and services.
As Ishrak explains in the article, the fee-for-service model “is just not a sustainable model,” a position that we at ZS agree with. By moving away from simply selling a technology with just the “promise” of better outcomes to a model that puts its money where its outcomes are, Medtronic is setting an example that demonstrates how the conversation—and the corresponding actions—are shifting toward VBC.
What are Medtronic leaders doing to advance the company’s VBC strategy? Let’s examine the moves that Medtronic appears to be making against ZS’s five fundamental factors for creating a successful medtech value proposition, to get a better understanding of what business decisions might drive the future success of their strategy.
- Addressing the customer’s mission-critical needs: The offering needs to be mission critical, or aligned with the customer organization’s overarching priorities. When referencing how Medtronic is aligned with its customers’ mission critical priorities, Ishrak points to Medtronic’s own corporate mission: “to alleviate pain, restore health, and extend life.” Furthermore, Ishrak describes how Medtronic’s outcomes-based proposition is more focused on providing “additional assurance” on outcomes, and less about reducing costs for providers. Other companies often describe their own forays into VBC as a way to reduce costs or optimize operations for providers, so it’s interesting to see Medtronic taking a different stance here.
- Ensuring that the offering is relevant for all stakeholders: Ishrak doesn’t focus here, but he does allude to the challenge faced by all players in the industry today: The fact that current “incentive structures” make VBC “a risky proposition” for manufacturers to try to drive this change with customers. Companies who succeed here will define a value proposition for their products, services and solutions that enables them to stay relevant to their traditional stronghold of clinical stakeholders, while also appealing to hospital executives. It’s a balancing act that needs to be managed carefully.
- Linking the product to outcomes with financial impact: Medtronic’s position here is very clear: By contracting with customers based on performance on specific outcomes metrics, and stipulating financial penalties for Medtronic if those outcomes aren’t delivered, the proposition is compelling for customers. Healthcare providers want these risk-sharing agreements to have “‘teeth,” and this is a good example of that principle. By “productizing” the value and aligning it clearly to customer financial metrics, Medtronic has established a simple value proposition compared with other competitors that are trying (and often struggling) to create bespoke contracts with customers to create value with a more intangible set of consultative solutions.
- Using robust—and sometimes customized—data: There are a few challenges here. First, manufacturers must clearly link their devices or services to robust measurable outcomes, eliminating other variables. Medtronic has clearly considered this a priority, as Ishrak asked in the interview, “Can it be measured? Can it be baselined? Can you proactively monitor it?” Second, customers are increasingly asking to measure a device’s performance in terms of their own outcomes data, rather than relying on clinical studies. Many providers expressed dissatisfaction with the “off-the-shelf” data found in clinical studies conducted in partnership with academic institutions, as these outcomes may not be replicable in the real world. It seems that Medtronic may have heard the same feedback from customers, as Ishrak describes how the company’s outcomes-based contracts are also focused on “cohort[s] of patients where the risk of infection is highest.” This has two effects: First, it creates a specifically measurable effect on a patient population being managed by a provider or a payer, and second, it potentially eliminates variability and demonstrates higher impact on outcomes.
- Establishing achievable outcomes for the customer: There are many ways to do this, whether through the simplicity of the device itself, or through training, ongoing support, or additional services and systems that help customers achieve the outcomes. In this case, Medtronic relies on the simplicity of its device (an antibacterial sleeve that requires very little change to the surgeon’s implantation technique) and the reputation that these contracts have built. And so far, there have only been a few cases in which the outcome wasn’t achieved.
It’s great to see some of medtech’s biggest players starting to talk more openly about value-based care. This kind of visibility gives Medtronic extra credibility when bringing a new value proposition to its customers. It also gives competitors some insight into the moves being made, and a chance to reflect on their own strategies—and to evaluate what is and isn’t working. There’s little doubt that other players will encounter similar issues along their respective journeys, or that they may find opportunities to leverage one or more of the five fundamental success factors outlined above to successfully position their own value-based offerings against competitors.