Manufacturers should work to fill gaps in their portfolios to master disease management rather than focusing solely on one particular device category.
There’s a massive shift taking place in U.S. healthcare, and too few device manufacturers are using it to their advantage. With health system costs ballooning more than $100 billion over the last five years while inpatient admissions remain flat, health system executives are concluding that their inpatient-centric, treatment-centric business models are the wrong strategy. The inpatient setting is simply too expensive with too few patients utilizing it to effectively distribute the costs. This is causing profit margins to shrink at the same time as readmission penalties harm providers that fail to keep patients out of the hospital.
Recognizing the dire nature of the situation, former President and CEO at the Geisinger Health System David T. Feinberg M.D. (now CEO of Google Health) articulated his strategy in a Fixing Healthcare Podcast: “I run a health system and we have about 13 or so hospitals and I think my job is to close every one of them.”2
The United States spends $3 trillion on healthcare each year, and 86 percent of these costs are due to chronic disease. If chronic disease could be managed at lower-cost, lower-acuity settings or be prevented altogether, the impact to health spending could be significant.
There is no lower-acuity, lower-cost setting than the home. Its potential benefits are clear:
The shift to outpatient care is gaining momentum as high-deductible health plans continue to blunt elective procedures and Accountable Care Organizations (ACOs) improve on their population health mandate. Urgent care clinics and mini-ERs now permeate nearly every community. But until care can be effectively delivered in the home, the benefits of home-based care will fail to be realized.
This is where device manufacturers come in.
For an inpatient-centric medical device company looking to expand or break into the outpatient and home setting, creating anything beyond a hospital-based widget can seem daunting. It helps to remember that hospitals will pay them according to the value they provide. If they enable outpatient and home-based care, their value will increase. If they enable the optimal management of disease, they will be valued even more. If they enable the prevention of disease, they will be valued the most. So where does a device company begin its expansion into the outpatient and home space?
Bring hospital-based technology into the community and into the home, for example, through:
Develop these solutions to support evidence-based care pathways:
Fill the gaps in your portfolio to provide an integrated disease management solution by:
Start looking at yourself not as a manufacturer, but as a service provider. With Step Three accomplished, you can remotely monitor or even manage patients in their home for a monthly fee.
Extend your technologies and services to prevent disease and change behaviors by:
Instead of owning share in a device category, forward-thinking manufacturers are filling gaps in their portfolios to own share of a disease management category (e.g., heart failure, chronic kidney disease, obesity, COPD). If they can demonstrate superior management of a disease, then payers will directly contract with them to provide it. Imagine these scenarios:
Health systems are weighed down by their business models that are more focused on treating disease than managing and preventing it. They’re struggling to adopt strategies that bend the cost curve. They resemble today’s cable companies whose business models continue to inflate prices, ignore innovation, and lose customers.
Agile, forward-thinking device companies can take a page from the Netflix playbook by implementing steps toward entirely new business models that connect care all the way into the home. Several device companies are seizing the opportunity and have progressed along many of the steps listed here while many others cling to the status quo, destined to learn the hard way.
1. American Hospital Association Annual Survey, 2019, https://www.aha.org/statistics/fast-facts-us-hospitals.
2. Fixing Healthcare Podcast, “Episode 3: Dr. David T. Feinberg says fixing healthcare is ‘the simplest thing we can do’,” October 2018,
3. M Smith, 2013. “Best Care at Lower Cost: The Path to Continuously Learning Health Care in America.” https://www.ncbi.nlm.nih.gov/books/NBK207234/.