Shifts in Patient Care: Strategizing for Reimbursement Claims and the Positioning of Medical Devices

It seems that the rapid structural changes in the medical device market amongst providers are creating a momentum that we have not seen in the past – or at least not since a long time. In this blog we are looking at two changes that have an influence on the market in the short term, and substantial impacts in the longer term.

It is clear that the industry, product development in particular, is catching on with the current trend in healthcare (specifically in Europe) to shift from:

  • long (longer) operations to (surgical) interventions
  • stationary to ambulatory
  • the traditional (usual) medical specialist to “others”
    for example, from spinal surgeons to interventional radiologists, or to other interventional specialists and anesthesiologists, or even to nurse practitioners or other specialists

The main objective of these changes is to reduce the cost of the intervention, maintaining the quality of care and reducing rehabilitation time.

The last point -of rehabilitation- is an interesting one:

So far the focal point has been to reduce medical cost, getting the patient faster out of the (hospital) system, and off the budget of the medical payers. The fact that the patient shifts from medical expenses to other social expenses is becoming a factor. Returning home is one thing, but going back to the workplace is another, and in healthcare systems that are publicly funded, medical- and social costs may become more of an issue in an aging and greying society.

In the US the situation is traditionally different. Due to the involvement of corporate life, corporations bring the element of rapid return to the workplace into the equation; for example, through more attention to prevention. In Europe, largely medically-serviced through public systems, attention to this issue is limited.

The larger and more diversified healthcare companies have adapted to these changes. They re-directed product development and gave substantially more attention to the e-health aspects, intent on simpler, smaller, portable solutions, at a lower cost of ownership.

The shift from expensive procedures/operations to lower cost interventions, and from expensive specialists and physicians to less-expensive practitioners, has a number of consequences.

We identify two:

The industry is experiencing an increasing resistance from medical specialists.

  • First in the US, and now also in Europe, it is witnessing lengthy (longer) operations being transferred to other areas of care, and seeing medical devices entering the market that allow different treatments, i.e. sometimes shorter ones, sometimes ambulatory, and often done by other specialists of practitioners.
  • The resistance often makes sense when the intervention’s largest benefit is the fact that it reduces total cost for the hospital and for the payers, whilst the medical specialists see risks being introduced.
  • On the other hand, legitimate improvements that allow equal care, that is faster and less invasive, are not easily adopted.

It is obvious that other interventional specialists (mentioned earlier) see an opportunity and take control of some of these techniques and approaches.

In the past -even in the recent past- we could identify and categorize patients and procedures that would be directed to orthopedic (spinal), neurology, interventional radiology, pain specialists (anesthesiologists) and to other newly developing profiles. Now there is a trend that aims at interventional, where the technology and methodology is defined, independent from pathology or patient category.

The industry sometimes encounters difficulties to adapt to the situation. It is a challenge to shift the attention from the traditional orthopedic/spinal department to other interventional specialties. The manufacturers are sometimes facing a “loyalty conflict” and are caught between a rock and a hard place. The less-than-smooth introduction of a new technology, the shifting attention from the traditional department to another department, the unknown changes from an existing annually-returning revenue versus revenue from new technologies, translates into a variety of dilemmas.

Traditionally, existing revenue, installed base, and long standing relationships have been the foundation of long term success. However, all of the above form a barrier for new market entrants. In regards to the introduction of these new technologies from new entrants, companies without a relationship nor an installed base, face a loyalty dilemma.

There is also another issue that challenges the industry with the introduction of new technologies.

The tariffs and DRG’s are changing a lot more rapidly than in previous years. It originally took 1-2 years to adapt the DRG’s to altered (lowered) prices, or to include different technologies and other price reduction elements. Now there is a tendency to achieve this more rapidly, sometimes even in a 6-12 months period.
This suggests that it is not necessarily the most favorable strategy to launch new products, methods and technologies, with the maximum claim. Neither is it in anybody’s interest to reduce the cost of an intervention to the absolute minimum. The reduction of costs for the manufacturer will be followed quickly by a reduction of the DRG tariff.
This could result in dissatisfied surgeons as part of their remunerated services are being replaced with new technology, whilst hospitals hope not to face a maximum reimbursement claim and hope to continue to make some revenue from inpatient stays. Meanwhile the payer is expected to be relieved, as they pay less when lower DRG tariffs are introduced.

The more prudent companies have already discovered that it makes sense to strategize with greater focus on the long-term and on the sustainability of reimbursement claims, by limiting procedural accelerations to a reasonable rate.

Instead of introducing a change from stationary to ambulatory, by potentially presenting a treatment solution with a slightly increased patient risk whilst cutting a substantial number of inpatient days -it may make more sense to reduce the time of the intervention in such a way that the patient stay is reduced in a responsible and safe manner, and a respective reduction of the DRG-tariff will be acceptable to all stakeholders.

In the TforG initiated recent biannual Europe interviews with senior staff of the medical device industry there was a question on “the marketing issues of paramount importance” currently surfacing.

Only a third of the people interviewed mentioned the issue of product claim and positioning, but when they did, it was high up on the priority ladder. It is worrying that the issues related to product development, positioning, claims and DRG consequences are not taking a higher priority for the majority of companies.
In a large diversified company it may indeed not be of the utmost importance, yet in a smaller, single product (technology) company, it could mean the difference between success and failure.

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About Helgert Van Raamt

Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.