{"id":22721,"date":"2017-11-14T19:30:13","date_gmt":"2017-11-15T00:30:13","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digitalizations-impact-on-value-based-healthcare-game-changer-for-medical-suppliers\/"},"modified":"2017-11-14T19:44:47","modified_gmt":"2017-11-15T00:44:47","slug":"value-based-healthcare-game-changer-for-medical-suppliers","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/value-based-healthcare-game-changer-for-medical-suppliers\/","title":{"rendered":"Value-Based Healthcare: Game-Changer for Medical Suppliers?"},"content":{"rendered":"

Digitalization and big-data transformations across all channels of delivering healthcare are revolutionizing the medical industry.1<\/sup> But, are medical suppliers immune to this change? Medtronic Inc., one of the largest medical device companies in the world, contributes to the $140B medical technology market in the United States.2<\/sup> Medtronic\u2019s recent acquisition of Covidien (largest acquisition in this industry), valued at $43B, poses even greater challenges for the company to sustain a strong supply-chain network in this ever-changing environment.3<\/sup><\/p>\n

Hospitals and healthcare networks today have access to innovative technologies to collect large amounts of data through electronic medical records (EMRs), personalized health mobile applications, and other telemedicine platforms. The data collected can comprise of anything from clinician diagnoses, post-op recovery regimens, patient behavior and compliance, to health regulations and more.4<\/sup> Gathering powerful information such as these examples can allow medical professionals and suppliers to work together to customize patient solutions, reduce healthcare costs and improve supply-chain efficiency.4<\/sup><\/p>\n

Having real-time, customer-driven data dramatically changes demand implications between hospitals and medical suppliers. Hospitals are facing more pressure from insurance providers and administrative committees to purchase intelligently due to the data at their disposal.5<\/sup> Furthermore, with the introduction of value-based healthcare models, (where costs are appropriately allocated along the care pathway of a patient), hospitals will be billed based on product usage rather than one-time price.4,5<\/sup> This pivotal change from a fee-for-service model to a value-based healthcare model, where patient outcomes are thoroughly measured, is predicted to considerably reduce healthcare costs. But, will this benefit medical suppliers such as Medtronic?<\/p>\n

Medical suppliers need a method to modify their products to adapt to the value-based healthcare model. As seen in Figure 1<\/em> below, supply and demand can change drastically if suppliers shift their ordering patterns from bulk orders and orders based on history to real-time, need-based, and customized patient treatments.6<\/sup> To remain sustainable as a business, suppliers have to conform from transaction-based demand planning to data-driven strategies. This allows suppliers to focus on products that improve in value for the patient and reduce costs while optimizing production and supply efficiency.<\/p>\n

\"\"<\/a><\/em><\/p>\n

Figure 1. Supply and demand drivers with the growth of healthcare IT. Source<\/em><\/strong>: Delloite 6<\/sup><\/em><\/strong><\/h5>\n

Medtronic is one of the few companies in the forefront of adapting to this new environment. For being a pure medical device company, Medtronic is now investing in healthcare IT, data collection, and altering its devices to provide a whole healthcare service platform. These proactive and strategic decisions will allow Medtronic to thrive in value-based healthcare systems. For example, Medtronic\u2019s largest platform is pacemakers, which are implantable devices that are placed in the heart to correct irregular heartbeats. With the growing rate of heart disease and other similar conditions, pacemakers will only increase in demand.7<\/sup> However, additions to this platform were needed in order to truly account for how value-based healthcare models and data-driven decisions could change the approach clinicians prescribed pacemakers. Recognizing this, Medtronic has invested in remote monitoring systems, where care doesn\u2019t end with an implant. Real-time data is sent to clinicians even once the patient receives the implant.7<\/sup> This technology helps reduce errors, detect irregular behavior, and overall, reduce costs by avoiding readmissions. By investing in early data collection through their established devices in the cardiac market, Medtronic can help clinicians and institutions recognize heath trends earlier whilst controlling future demand for their devices with those same customers.<\/p>\n

Digitalization within this ecosystem can also help suppliers change their internal production and inventory days.8<\/sup>\u00a0 Value-based healthcare models provide a better avenue for medical suppliers to adopt characteristics from the consumer goods supply-chain systems (see Figure 2<\/em> below). Suppliers can hold smaller levels of inventories driven by the real-time data collected from healthcare institutions. Smaller level of inventories can lead to a significant amount of cost savings across the industry. Today, medical device companies such as Medtronic, spend roughly 40% of revenues on supply-chain costs. This results in an industry wide cost of $122B.8<\/sup> Typically, in comparison to consumer goods, medical suppliers use a one-size fits all supply-chain model rather than customer or data-driven demand decisions. Digitalization in the healthcare industry and the significant amounts of data can benefit suppliers by allowing them to be more agile in their production and supply-chain processes.5,8<\/sup><\/p>\n

\u00a0<\/em>\"\"<\/p>\n

Figure 2. Inventory days differential between medical suppliers and CPG. Source: McKinsey. 8<\/sup><\/em><\/h5>\n

To suppliers, making company-wide changes at such a large-scale is a daunting task, especially when the benefits might still be unclear. While we know with some certainty that the healthcare industry is moving towards value-based models, will this actually prove to be profitable for medical suppliers? How customized will data-driven demand planning really be? \u00a0Will digitalization help the healthcare industry completely adopt supply-chain models similar to consumer goods companies?\u00a0 These are the questions companies such as Medtronic face today and need to tackle as this industry takes a drastic turn.<\/p>\n

Word Count: 760<\/p>\n

Bibliography<\/u><\/b><\/p>\n

[1] Paralkar, Mandar. \u201cFrom Product to Service: The Changing Role Of Medical Devices.\u201d\u00a0Digitalist Magazine<\/em>, Digitalist Magazine, 17 June 2016, www.digitalistmag.com\/digital-economy\/2016\/06\/21\/from-product-to-service-changing-role-of-medical-devices-04273557.<\/p>\n

[2] Delloite, 2015 Global Life Sciences Outlook Report \u201cAdapting in an era of transformation\u201d, https:\/\/www2.deloitte.com\/content\/dam\/Deloitte\/global\/Documents\/Life-Sciences-Health-Care\/gx-lshc-2015-life-sciences-report.pdf<\/a> ,accessed November 2017.<\/p>\n

[3] Medtronic Inc., \u201cMedtronic Completes Acquisition of Covidien\u201d, http:\/\/newsroom.medtronic.com\/phoenix.zhtml?c=251324&p=irol-newsArticle&ID=2010595, accessed November 2017.<\/p>\n

[4]McKinsey & Company, \u201cHealthcare\u2019s Digital Future\u201d, https:\/\/www.mckinsey.com\/industries\/healthcare-systems-and-services\/our-insights\/healthcares-digital-future<\/a>, accessed November 2017.<\/p>\n

[5] Supply Chain Dive, \u201cJ&J: Embrace Change to Transform Healthcare Supply Chain\u201d, https:\/\/www.supplychaindive.com\/news\/JNJ-healthcare-supply-chain-innovation-change-culture\/445106\/<\/a>, accessed November 2017.<\/p>\n

[6] Delloite, 2015 Global Life Sciences Outlook Report: \u201cMoving Forward with Cautious Optimism\u201d, https:\/\/www2.deloitte.com\/content\/dam\/Deloitte\/ch\/Documents\/life-sciences-health-care\/ch-en-lshc-2016-life-sciences-outlook.pdf<\/a>, accessed November 2017.<\/p>\n

[7] Medtronic Inc., \u201cRemote Monitoring: Stay Connected. Keep Going.\u201d, http:\/\/www.medtronic.com\/us-en\/patients\/treatments-therapies\/remote-monitoring.html, accessed November 2017.<\/p>\n

[8] ]McKinsey & Company, \u201cStrengthening Healthcare\u2019s Supply Chain: A Five-Step Plan\u201d, https:\/\/www.mckinsey.com\/industries\/healthcare-systems-and-services\/our-insights\/strengthening-health-cares-supply-chain-a-five-step-plan<\/a>, accessed November 2017.<\/p>\n

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