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:

• Studies have shown that patients recover faster in the comfort of their own homes
• Care can be tailored to the patient’s healthcare needs and finances
• Care can come to the patient rather than vice versa
• Exposure to budget-busting hospital infections is eliminated
• Education and behavior modification can be best addressed with lower-cost, community-based resources
• Patients’ family and friends generally supplement the care management process³

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?

Step One
Bring hospital-based technology into the community and into the home, for example, through:

• Post-acute/outpatient EMRs that coordinate decentralized care teams
• Portable lab tests that enable real time, actionable results
• Hospital-grade technology that resembles consumer products
• Connected diagnostics and therapies with cloud-based data analytics
• Virtual patient connectivity with caregivers

Step Two
Develop these solutions to support evidence-based care pathways:

• Start with the evidence from literature or other health systems
• Establish your own evidence with customers
• Brand the evidence-based pathway as your own

Step Three
Fill the gaps in your portfolio to provide an integrated disease management solution by:

• Integrating solutions that can close gaps in care and power better outcomes
• Easing implementation for customers by not asking them to be integrators of disparate technologies and services

Step Four
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.

Step Five
Extend your technologies and services to prevent disease and change behaviors by:

• Screening patients in the home with home-based diagnostic services
• Providing educational content and behavioral modification programs via tele-health or in-person

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:

• Aetna contracting with Medtronic to reduce and manage its obese population
• Humana contracting with Abbott to reduce and manage its heart failure population
• Medicare contracting with Dexcom to reduce and manage its diabetes population
• Blue Cross contracting with NxStage to manage its chronic kidney disease population

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.