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Why are companies embracing Value-Based Healthcare?

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Image credit: Intuitive Solutions

In recent years, medical device companies of all sizes have embraced Value-Based Healthcare. Medtronic, one of the industry's top companies, is now beginning to see its value-based care programs pay off, as mentioned by its CEO Omar Ishrak during the company’s third-quarter earnings call.

"I know I have spoken a lot about Value-Based Healthcare, but I'm particularly pleased to see this translate into real numbers, which have real differentiating value for Medtronic."

Let’s briefly analyze two factors that have influenced medical companies to embrace Value-Based Healthcare.

New business models

Medtronic has built a completely new business model around the outcomes related to Tyrx, an absorbable antibacterial envelope that is used to maintain a stable environment for pacemakers and implantable cardioverter defibrillators and release antimicrobial agents for about seven days, exactly the length of the riskier period for post-surgical infection.

Even though the use of the product will not trigger incremental reimbursement, Medtronic focused on the value it brings when avoiding infections. Hence, hospitals understand the benefit of Tyrx when maintaining their own margins and the overall winning situation for patients, providers, and payers.

Following this approach has extended into other areas of Medtronic, also with the Smart Shot Performance Guarantee.

The process has been applied to other business models at Medtronic and although most of these programs are three to six months old, the company is increasingly partnering with stakeholders such as payers, providers, and other interested organizations to lead the change for fee-for-service models to value-based programs.

Market pressure

PwC’s report “Top Health Industry Issues of 2018” emphasizes that recent changes have pushed pharmaceutical and medical device companies to consider new ways to justify pricing, manage legal and regulatory uncertainty, and develop innovative cross-sector collaborations to demonstrate the value of their products.

The industry has a critical goal to emphasize value over volume, thus protecting prices from increased pressure and controls.

We might still have some unknowns for this year, but it seems there may be plenty of familiar dynamics like new business models, increasing patient power, growing focus on value, and new partnerships that will influence more companies to embrace Value-Based Healthcare.

Volume-based discounts and similar agreements can no longer provide differentiation in the minds of decision-makers. Have you reviewed your business models to see how value can benefit them? Contact us if you need more examples or would like to discuss your particular business.