Adapting to Value-Based Contracting Requires a Strong Change-Management Strategy

As leading medical device firms shift to value-based pricing strategies, other medical device companies must understand the intrinsic value of their products and adapt to the evolving reality of healthcare delivery to remain competitive.

In the shift, medical device manufacturers are tying select product costs to quality outcomes. Under contract with either a payer or provider, the manufacturer gains preferential-product status, or even exclusivity, and is paid for a product that achieves a specific patient outcome quality metric. In exchange for the preferential status, the manufacturer assumes risk if the product does not reach the anticipated quality metrics, either through product reimbursements or costs associated with unplanned patient care. 

This risk-sharing arrangement bases manufacturer revenues on the true value the product brings to the patient outcome, rather than a preset or, arguably, arbitrary market-based rate. 

“We are moving, just like the rest of healthcare, to a value-based model, where we get paid in some fashion for actually achieving the outcome,” Medtronic CEO Omar Ishrak told The Wall Street Journal. “It’s a step we have to take to make sure that the value we create with our technologies is truly realized. And when it gets realized, we will get paid fairly for it.” 

Under such terms, Medtronic signed close to 1,000 risk-sharing contracts for its TYRX antibacterial sleeve alone, a product traditionally viewed as an extra expense that cut into the reimbursement for a pacemaker or ICD implant procedure. 

And in a joint press release with UnitedHealthcare, Medtronic shared that value-base care models are proving their value. Results from an analysis of over 6,000 members with diabetes on new insulin delivery systems and previous generation insulin pumps demonstrated 27% fewer preventable hospital admissions compared to plan participants who are on multiple daily injections of insulin. 

While these are just two examples, they go to show that if large organizations like Medtronic and UnitedHealthcare can successfully implement these changes, so can your company. 

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