Lessons med device industry can learn from pharma


Shaden Marzouk, MD MBA

Chief Medical Officer, Cardinal Health

The U.S. healthcare system is undergoing fundamental change. Consumers are increasingly focused on lower costs and more convenient access to care. Healthcare delivery stakeholders have to work toward expense reductions without compromising quality. All of this is occurring within an atmosphere of declining reimbursements, pay-for-performance metrics, and a shift from acute sites of care to outpatient centers and the home. Employers are also driving expenditure-conscious practices. Despite this milieu, CMS is projecting health spending to grow at an average rate of 5.8% from 2012-2022 – 1% faster than expected average annual GDP growth – to be 19.9% of GDP by 20221.

It is becoming apparent that additional ways to curb expenses are needed. Cost and operating efficiencies – while maintaining the highest levels of quality – can be achieved by retooling existing business models. Various devices with historically high physician preference actually have lower clinical differentiation. Many of these devices have received incremental innovation over time, often without evidence for the value of these changes. Yet, device prices and a high-cost sales and service model have not kept pace with the healthcare environment. Is there a better approach to medical device selection? Can we learn from what occurred in the pharmaceutical space after the introduction of lower cost, clinically acceptable substitutes?

There are some parallels between the wide acceptance of generic pharmaceuticals and opportunities in the medical device industry. Generic pharmaceutical penetration was driven by expenditure concerns, waning innovation, legislative acts and consumer incentives. This confluence of factors fueled the development of comparable drugs at a lower price. Currently, systemic economic pressures, increasing consumer healthcare burdens, and incremental innovation are all opening the door for clinically equivalent devices.

Essentially, the healthcare environment is providing an opportunity for high quality, fiscally responsible devices. According to the American College of Healthcare Executives 2014 CEO Survey, financial challenges are a top five issue for CEOs2. Specifically, orthopaedic and interventional cardiology device expenditures are a major concern for hospitals. As providers consolidate and physician employment rises, cross-functional purchasing decisions are made. Physicians are progressively asked to work with administrators to make buying choices that do not compromise patient care, but are cognizant of the economic environment.

To enable fiscally responsible decisions, three things need to occur:

  • High quality, equivalent medical devices should be readily available at lower price points
  • Medical device decision-makers need to be willing to consider economics as long as quality is not compromised 
  • Trust has to exist between patients, providers, industry, and payers

Lower cost alternatives are becoming available, particularly in the aforementioned focus areas of orthopaedics and interventional cardiology. However, lower price points are not enough of a value proposition. Quality, credibility, and ease of substitution are important components of clinically equivalent product value. Also, systemic savings can be achieved by leveraging supply chain and distribution efficiencies, and separating sales activities from service delivery. Data insights, coupled with the introduction of service options ranging from training and inventory planning to economic alignment programs, can reduce reliance on industry presence in procedures. Analytics can additionally bring evidence to medical device selection.

The current healthcare environment affords an opportunity for change. Device-makers can work with providers and payers to provide evidence for product performance and related-process efficiencies. While this requires a rethinking of existing models, the impact on society could be very beneficial. The goal would be to empower patients, providers, payers, and administrators to provide high quality care that accommodates fiscal responsibility.

1National Health Expenditure Projections 2012-2022;http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/proj2012.pdf
2ACHE.org; http://www.ache.org/PUBS/research/ceoissues.cfm