Hospitals Have Spoken: How Medtech Can Benefit From the Affordable Care Act’s Focus on Outcomes

Brian Chapman and Yuta Ito

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Lost in all of the noise about the constitutionality of the individual mandate, insurance exchanges without suppliers, websites that don’t work and canceled policies that don’t comply is a much more encouraging and lasting impact of the Affordable Care Act: accelerating the outcomes-focused orientation with medtech vendors as the unintended beneficiaries. Forward-thinking medtech companies can start better positioning themselves now to take advantage of this opportunity.

The ACA is accelerating a change already under way in healthcare by aggressively driving financial incentives for hospitals tied to patient outcomes, and penalties for re-hospitalization; incentives for physicians to join accountable care organizations and a race for scale has prompted M&A activity in local healthcare ecosystems; and more. In January 2015, the U.S. Secretary of Health and Human Services announced that the federal government’s goal is that by the end of 2018, 90% of all Medicare fee-for-service payments will be tied to quality or value, as will 50% of Medicare payments through alternative payment models.

The impacts have been felt across the industry, and hospitals are being thrust squarely into center of it all, forced to take responsibility for much more of the care continuum than ever before. We see physician practices folding into hospital systems, and rehab, outpatient and extended care facilities all becoming affiliated or owned outright by hospitals systems.

Competitive forces, in general, and the Centers for Medicare & Medicaid
Services specifically are reshaping the healthcare landscape—and opening up a unique opportunity for medtech manufacturers to transition from serving as suppliers to becoming partners with their hospital customers, working together to ensure favorable outcomes for patients and profitable growth for both parties. Given the new environment, it doesn’t have to continue to be a zero-sum game in which hospitals improve their costs by attacking manufacturers’ margins. In the new world, where poor clinical outcomes hurt a hospital’s bottom line, hospitals will be laser-focused on quality and performance, and medtech vendors can play a critical role in helping them achieve those aims.

The future of healthcare could present a win-win for medtech and hospitals, but to make this win-win scenario a reality, medtech vendors need to develop new value propositions that emphasize selling outcomes rather than products. They also need to build the capabilities to deliver on these value propositions and design new business models that allow them to capture their share of the value created in the outcomes-focused ecosystem.
 
They’ll also have to persuade the skeptics: A recent ZS survey found that many hospital executives aren’t yet convinced that medtech vendors can help them address their biggest priorities, so the industry needs to boost hospital executives’ confidence that medtech manufacturers can function as more than suppliers, partnering with the hospitals to improve the total patient experience and helping ensure quality outcome

 

About the Experts





Brian Chapman is a Principal in ZS’s Evanston, Ill. office and leads the consulting practice for ZS’s Medical Products and Services team. While at ZS, he has worked with companies on a range of sales and marketing issues, including sales force effectiveness, organizational design, opportunity assessment, channel design, new product launch strategy, value proposition development, territory alignment and incentive compensation. Having spent several years working and living in Europe and Asia, Brian focuses on both US and global projects.





Yuta Ito is a business consulting manager in ZS's Evanston, Ill., office and a member of the medical products and services team. He has worked with a wide range of leading medtech companies in North America, Europe and Asia spanning various commercial issue areas, such as go-to-market strategy, strategic account selling, segmentation and targeting.