rift between medical device developers and healthcare providers deepening

Rift between Medical Device Developers and Healthcare Providers Deepening:

Costing Pressures and Pending Reform has Created a Contentious Dynamic

Venkat Rajan

Today’s Presenter

Venkat Rajan, Industry Manager

Frost & Sullivan

2

� Introduction

� Overview

� HC Reform

� Medical Device Excise Tax

� Pricing Transparency

� Comparative Effectiveness

Conclusion

3

� Comparative Effectiveness

� GPO’s

� Suppression of Physician Owned Hospitals

� Sunshine Act

� Increased Dependence on Lower Cost Alternatives

� Conclusion

Introduction

�From 1980 – 2000, medical technology and other healthcare breakthroughs have contributed to:

• 4% increase in life expectancy

• 16% decrease in annual mortality rates

• 25% decrease in elderly disability rates

� U.S. per capita cost of care far exceeds other developed nations, while outcomes seem to lag. Why? Are we really paying more for less?

4

�Medical Technologies receiving undo burden of blame for rising healthcare costs and its current instability.

�While pharma biotech innovation happens in a lab, medical technology innovation requires open dialogue between hospitals, doctors, and developers.

�HC Reform and the changing landscape have put providers and technology developers at odds creating a contentious environment thus hampering collaboration.

Medical Device Excise Tax

�2.3 % tax on classes of medical devices not sold directly to consumers.

�To go in effect on all sales after December 31st, 2012.

�In March the American Hospital Association (AHA), the Federation of American Hospitals, the Catholic Health Association, and Health Industry Group Purchasing Association filled a filled to the Internal Revenue Service (IRS)

5

oStated concern that device manufacturers would not fulfill their portion of “shared responsibility” under the Affordable Care Act.

oMentioned that device companies could reap windfall from the tax by passing through the tax to customer and concurrently deducting the tax to reduced income.

oRequested IRG oversight of implementation.

Pricing Transparency

�Bi-partisan push for increased pricing transparency.

�Comparative prices abroad create misconceptions of pricing determination domestically.

�Assumption exists that indirect purchases (distributors, GPO’s) provide greatest value.

6

�Lowest ASP within a certain product class eventually becomes the standard.

�U.S. subsidizing industry viability for the rest of the world.

Comparative Effectiveness

�Providers, as found in pharma studies are looking for robust comparison data of treatments and/or brands.

� Providers looking to move towards Pay for Performance and Accountable Care models.

oAs payment no longer tied to specific procedures and actions, it makes the need for comparative effectiveness research more imperative.

Technology developers leery of how comparative effectiveness has been used in

7

�Technology developers leery of how comparative effectiveness has been used in other developed nations to delay adoption of new technologies.

Distribution Structure-GPO’s

�Hospitals increasingly relying on GPO’s to help control costs of devices.

�GPO’s and distributors not subject to medical device taxes.

�In February Medtronic announced the cancellation of $2 Billion dollars worth of GPO and suply contracts for cardiovascular and orthopedic products.

oWas met with immediate rebuke from hospital and GPO associations.

8

oWas met with immediate rebuke from hospital and GPO associations.

oOther developers have chosen to play it opportunistically.

Suppression of Physician Owned Hospitals

�Hospital associations were particularly aggressive in making sure the Affordable Care Act included legislation restricting physician owned hospitals.

�Case against those entities included issues around patient selection, services offered, and leveraging profitability to hire away from community facilities.

�Legislation effectively a death knell for an entire business model.

9

oNew doctor-owned facilities that are not certified as Medicare participants by Dec. 31, 2010, no longer will be allowed into the program.

oExisting physician-owned facilities face immediate restrictions on expansion.

�Product developers had seen those facilities as potential key early adopters and potential champion for new technologies and treatments.

oPhysician owned institutiuns were seen as free from the same beurocratic decision making process, more nimble,

Sunshine Act

�Sunshine act creates further barriers between clinicians and product developers.

�Product selection increasingly moving away from clinicians to administrators and technology review panes.

� Consultation ≠ Bribes.

�A few acts of impropriety between industry and paid clinician consultants have cast

10

�A few acts of impropriety between industry and paid clinician consultants have cast suspicion on industry as whole.

�Further delays to product development process, regulatory approval process, adoption post market launch.

Move towards lower cost alternatives

�Refurbished Equipment.

�Medical Reprocessors.

�Exist outside of the same scrutiny and oversight imposed on OEM’s.

�Rise of Generics?

11

�OEM’s forced to participate and undercut own products.

�Foreign made lower cost devices originally targeting emerging markets, could make their way to U.S.

Next Steps

� Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. ([email protected]) 1-877-GoFrost (1-877-463-7678)

� Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth (www.gil-global.com)

Register for the next Chairman’s Series on Growth: Driving Innovation – The What,

12

� Register for the next Chairman’s Series on Growth: Driving Innovation – The What,

Why, and How. Visions and Benchmarks as the Innovation Key (October 5th)

(http://www.frost.com/growth)

� Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities(www.frost.com/news)

Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

What would you like to see from Frost & Sullivan?

13

Emerging Trends?

Strategic Recommendations?

Other?Please inform us by rating this presentation.

Frost & Sullivan’s Growth Consulting can assist with your growth strategies

Follow Frost & Sullivan on Facebook, LinkedIn,

SlideShare, and Twitter

http://www.facebook.com/FrostandSullivan

http://www.linkedin.com/companies/4506

14

http://twitter.com/frost_sullivan

http://www.linkedin.com/companies/4506

http://www.slideshare.net/FrostandSullivan

For Additional Information

Britni Myers

Corporate Communications

Healthcare

(210) 477-8481

[email protected]

Venkat Rajan

Industry Manager

Medical Devices

(210) 247-2427

[email protected]

15

Chris Olsen

Vice President of Sales

Healthcare

(650) 475-4561

[email protected]

Daniel Ruppar

Research Director

Healthcare

(210) 247-2428

[email protected]

rift between medical device developers and healthcare providers deepening

Business