MDDI_Medical Device & Diagnostic Industry

MDDI, July 2016

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First Person 18 | JULY 2016 Image courtesy of JItaLIa17/iStOCKPHOtO.COM O n the morning of April 1, hospital and medical device company ex- ecutives woke up to yet another new chapter in bundled pricing: CMS's Com- prehensive Care for Joint Replacement (CJR) initiative. Unlike the Bundled Payments for Care Improvement programs that preceded it, there is no opt-out clause for the 800 hos- pitals designated as participants. The imple- mentation of CJR signals CMS's intent to ramp up pressure for progress toward value- based reimbursement. Making hospitals ac- countable for cost and quality for complete care episodes represents a stepping stone toward broader accountability. Many hospitals will focus on postacute care to drive out the biggest expenses, but there are other cost drivers—specifically, the implants and associated instruments used in the procedure. Efforts to drive these costs down through vendor consolidation and price renegotiation could intensify. Hospitals will need to more closely analyze cost and quality variability, requiring better access and analytics of clinical and financial data. That will call for new models of collabo- ration as providers develop new care paths and interact to ensure patients consistently are receiving the right care, at the right time, in the right care setting. These factors are driving new and increasingly urgent conver- sations about value—among hospital admin- istration, surgeons, care continuum partners, and medical device firms. Here are five moves for device firms to suc- cessfully compete in an increasingly complex and value-conscious market. Rethink Your Commercialization Model Fundamental changes are occurring at the provider level, and this demands reassess- ment of assumptions and practices that may no longer be adaptive. The sales and product delivery process includes mentoring and re- lationship management through reps. Given the growing pressure on provider margins and the lack of differentiation that character- izes some product classes like implants, can your product continue to be price-competi- tive with the cost of rep-mentoring factored in? At least one major manufacturer is ex- perimenting with a "rep-less" model for orga- nizations determined to cut underlying costs as far as possible. It's time to challenge basic assumptions. Given the consolidation across the pro- vider sector and the ongoing centralization of decision making for purchasing, does it make sense to continue business develop- ment structured around surgeons alone? Al- though the shift is far from uniform, purchas- ing decisions increasingly reflect institutional and administrative concerns. Clinical input, while still important, is no longer the single biggest factor. Remaining competitive in this new, more value-sensitive, and institution- ally oriented purchasing process calls for new skills, capabilities, and support processes. This will require stronger C-suite relation- ships and an upgrade in executive level rela- tionship skills and business acumen on the part of account teams. Companies will also need to segment target markets more pre- cisely to match their commercialization ap- proach to the decision-making process and relationship receptivity of each segment. Shift Away from Incremental Improvements The days of "last version plus 7%" are over. Given the intense pressure to reduce high-cost supplies like implants, hospitals are much less willing to pay more for in- cremental improvements. New products or enhancements without a compelling economic and clinical value rationale will increasingly be treated as orphans, hard- pressed to recoup even nominal develop- ment costs. This means deeper analysis of market needs and a more demanding bar for product development choices. Tips on How to Compete in a Bundled Care Environment Bundled payments in orthopedics could be an opportunity for smart medical device firms that are not afraid to change how they do business. MIChAel AbRAMS And GORdOn PhIllIPS

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