beyond the product: service expansion opportunities for medtechs
DESCRIPTION
Historically, an evolution toward high-value services has been a natural part of the development of hardware tech companies. Hospital systems in the U.S. and other developed markets are looking to centralize and coordinate supply chains more effectively. This increasing demand from customers—as well as competitive pressure from low-cost Asian device companies—will force established MedTechs to introduce ancillary service offerings around their core hardware products. Several MedTechs are already developing broader solutions, but the shift doesn’t come naturally to many companies that traditionally put “product excellence” above “customer excellence.” This Executive Insights discusses the need for innovation in a shifting healthcare landscape. Like hospital systems, consolidation among MedTechs will almost certainly happen, and survivorship in this area will be determined by innovative services and solutions.TRANSCRIPT
L E K . C O ML.E.K. Consulting / Executive Insights
EXECUTIVE INSIGHTS VOLUME XVI, ISSUE 11
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Beyond the Product: Service Expansion Opportunities for MedTechs was written by Jonas Funk, Managing Director in L.E.K. Consulting’s Chicago off ice, Bob Lavoie, Managing Director in L.E.K. Consulting’s New York off ice, and Lucas Pain, Managing Director in L.E.K.'s Chicago off ice. For more information, contact [email protected].
Hospital systems in the U.S. and other developed markets are
increasingly looking to centralize and coordinate their supply
chains. To help achieve this strategic goal, they are looking to
work with fewer suppliers but to deepen their relationship with
these select vendors, seeing them as trusted partners in helping
them address their key challenges. These challenges include
achieving improved IT systems, improved workflow efficiency,
fewer hospital-acquired infections and fewer readmissions. In
L.E.K.’s most recent annual hospital study, which surveys nearly
200 senior decision makers at U.S. hospitals, respondents
reported that they are increasingly turning toward external
suppliers to address their challenges rather than trying to
hire or train internal resources to do so.
Beyond the Product: Service Expansion Opportunities for MedTechs
This shift presents opportunities for different types of suppli-
ers, including GPOs, distributors, manufacturers and various
other service providers, all of whom are rushing to offer broader
solutions. L.E.K. believes that even in a crowded market place,
MedTech manufacturers are well positioned to expand into
broader services as part of an overall transition to a “customer
excellence” value proposition for hospitals as opposed to
MedTechs’ traditional focus on “product excellence” (see
Figure 1).
From a historical perspective, an evolution toward high-value
services is a natural part of the maturation of hardware tech
Increasing Importance of "Customer Excellence"
High quality/ differentiated
products
Identification of attractive new technologies
Scale economies in R&D and production
Product Excellence Customer Excellence
Deep understanding of customer needs
Presentation to right audience by right team
Clear articulation of value proposition
Integrated portfolio with value-added
services
Most attractive solutions
for customers
Source: L.E.K. analysis
Figure 1
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L E K . C O MINSIGHTS @ WORK®
has a more important service element than most disposable or
implantable devices).
Other tech companies are rushing to catch up. In late 2013,
Medtronic announced the formation of its “Hospital Solu-
tions Business,” a unit that is managing cath labs for European
hospitals. The Minnesota-based company similarly completed
an acquisition of Cardiocom, a telehealth and remote moni-
toring firm. As described in Medtronic’s press release, the
acquisition reflected “Medtronic's transition toward expanding
the company's medical device product offerings to broader
healthcare services and solutions, providing meaningful clinical
and economic value for hospitals.” In a similar vein, Medtronic
is also introducing its “Rethinking Blood Conservation” service
program to help hospitals reduce their blood usage and related-
costs. Given that Medtronic’s current CEO, Omar Ishrak, previ-
ously led GE Healthcare, this expanding service capability should
not be surprising, but it should send a warning to MedTechs
that have been slow to pursue this direction: Inaction may lead
to obsolescence.
Page 2 L.E.K. Consulting / Executive Insights Volume XVI, Issue 11
EXECUTIVE INSIGHTS
companies. Just ask IBM, which once was a computer hardware
company but has successfully transformed itself into a pre-
dominantly service-orientated giant. For established MedTechs,
increasing demand from customers – as well as competitive
pressure from low-cost Asian device companies – will eventually
force the development of ancillary service offerings around core
hardware products – or even standalone services. It’s the future
of the industry. The question is who will arrive first and with the
most compelling offerings.
The competition is already heating up. In recent years, many
MedTech companies have worked to “go beyond the product”
in the pursuit of broader solutions and general customer excel-
lence. So far, GE Healthcare, which already offers broad services
and solutions to support its product portfolios, has gained
a reputation among industry experts as a leader in services
(see summary of its services in Figure 3). In our hospital study,
hospital administrators affirmed GE’s leading service position,
ranking it well above other MedTech companies, including
above its capital-equipment peers (capital equipment naturally
GE Healthcare Scoring on Services Versus Other Large MedTechs
GE Healthcare
0
Note: *How do these particular MedTech companies perform on the following dimensions?Source: L.E.K. Strategic Hospital Priorities Study
Seimens
J&J
Philips
Medtronic
Stryker
Baxter
Becton Dickinson (BD)
Abbott Labs
Boston Scientific
Synthes
Carefusion
Covidien
St. Jude
Number of Respondents
Figure 2
KCI
Hospira
C.R. Bard
Smith & Nephew
Edwards Life Sciences
272625242322212018 191716151413121110987654321
Illustrative
302928
EXECUTIVE INSIGHTS
L E K . C O MINSIGHTS @ WORK®L.E.K. Consulting / Executive Insights
Examples of GE's Service Offerings
Product-related services• Comprehensive Services Solutions/CompreCare manages equipment maintenance and contracting• Performance Solutions provides capacity management to improve operational and clinical performance • Clinical Product Education course offers e-learning courses and user training sessions to clinicians using GE products
Operations efficiency services• The Centricity RCM (revenue cycle management) solution offers an advanced billing system that automates patients access, billing, collections, and business reporting
Clinical care delivery services• GE’s EMR system is designed to interface with multiple practice management systems (e.g., Centricity Cardio Enterprise)• The Anesthesia Information Management System (AIMS) streamlines anesthesia documentation• Omnyx is a fully integrated and scalable digital pathology solution
Hospital strategy services• GE offers financing programs for corporate (e.g., purchasing a business), real estate (e.g., senior housing, nursing facilities), and life science (e.g., pharma companies) • Leadership Systems help healthcare organizations develop talent, including recruitment-specific content• GE also looks externally to bolster its credentials, as shown by last year’s acquisition of the consulting firm Finnamore
Example Service Offerings from GE Healthcare
Source: L.E.K. analysis
Figure 3
Leadership Systems
Source: L.E.K. Consulting
Framework for Hospital Services
Figure 4
Categories of Service Needed By Hospitals
Product related Operations efficiency Clinical care delivery Hospital Strategy
• Directly related to managing or using equipment and devices
• Enabling reduced administrative and operational costs
• Enabling outsourced data, analytics and/or clinical support
• Supporting revenue, expansion or strategic initiatives
Product acquisition and supply chain
management
Product service, support and managed
services
Operations management and
efficiency improvement
Outsourced non-clinical functions
and departments
Non-clinical analytics and services
Clinical IT and analytics
Care coordination services
Outsourced clinical services
Clinician and patient education
Financial and capital services
Marketing, branding and awareness
Hospital management, growth strategy and service optimization
Research and academic support
Serv
ices
an
d S
olu
tio
ns
Pro
vid
ed t
o H
osp
ital
s
1 2 3 4
EXECUTIVE INSIGHTS
L E K . C O MINSIGHTS @ WORK®Page 4 L.E.K. Consulting / Executive Insights Volume XVI, Issue 11
As another prominent example, Michigan-based Stryker has
been beefing up its service line up. Its acquisitions of Ascent,
a leading device reprocessor, and Marshall Steele, a hospital
performance improvement consulting firm, complement what
it calls its “Stryker Solutions” business.
However, despite these examples, most MedTechs are struggling
when it comes to introducing services alongside their products,
particularly with respect to how to monetize new offerings. The
traditional MedTech focus on product excellence historically
meant that any service offering (for example, product training
or assistance during surgical procedures) was given away for
free as a way to support product pull-through, rather than be-
ing seen as a stand-alone, profitable business line. As a result,
many MedTech companies are only recently thinking about
ancillary service opportunities and how to incorporate them into
broad offerings that expand the top line as well as the bottom
line. An obvious, key ingredient to enabling monetization of a
service is to provide clear evidence of the incremental economic
value that the service actually provides; many MedTechs have
not thought to do this or have failed to do so in a compelling
way or with compelling evidence.
L.E.K. has developed a framework to define the relevant
universe of service areas that are applicable to hospitals and
into which MedTechs could expand. We have also mapped
service companies within this framework that could be targeted
for potential partnerships and/or acquisition. The framework
includes 13 segments with four broader categories of potential
services:
•Productrelated:Directly related to managing or using
equipment and/or devices
•Operationsefficiency:Enabling reduced administrative
and operational costs
•Clinicalcaredelivery:Enabling outsourced data,
analytics and/or clinical support
•Hospitalstrategy:Supporting revenue expansion or
strategic initiatives
Source: L.E.K. research and analysis
Example Services to Hospitals within Operations Efficiency
Figure 5
Operations Efficiency2
Operations management and efficiency improvement
Outsourced non-clinical functions and departments
Non-clinical analytics, services and IT
• Lean consulting, training and implementation
� Workflow and patient flow process design � Health information exchange (HIE) consulting � Department workflow solutions (e.g., lab workflow) � Reimbursement processes (e.g., new/stacked HCPC codes) � Process implementation � Benchmarking and cost analysis � Staff rationalization/CBA consulting
• Compliance process design and implementation
� EMR system design, integration and training � Procedural coding (non-clinical staff)
• IT-enabled solution implementation
� Patient / asset tracking systems (e.g., patient flow software) � Reporting systems (e.g., billing, census data tracking) � Workflow management (e.g., scheduling software) � Documentation (e.g., interaction recording)
• Outsourced administrative functions
� Inventory management services (e.g., order automation, efficiency benchmarking) � Patient billing and collection services � Accounting/back-office services � IT/help desk services
• Utilization benefit management (e.g., radiology benefit management)
• Waste management services
� Red bag waste management (hazardous materials handling and disposal) � Device and instruments disposal � Sharps/other medical waste management
• In-house administrative functions � Revenue cycle management � Coding � Patient billing and collection services � Accounting/back-office services � IT/help desk services
• IT-enabled analytics � Key performance indicators � Quality metrics
EXECUTIVE INSIGHTS
L E K . C O MINSIGHTS @ WORK®L.E.K. Consulting / Executive Insights
Within each of these segments, an additional hierarchy of
sub-segments exists. For example, within clinical care delivery,
we have identified several more specific service areas in which
outsourced service providers currently exist (or could exist).
When asked whether hospitals would be interested in ad-
ditional services from MedTech companies, 60% of c-suite
respondents answered affirmatively. As Figure 7 shows, interest
varies by the type of service offered, with high interest levels in
clinical IT and analytics and operations management/efficiency
improvement, and lower interest in outsourced clinical/medical
services and marketing/branding services. Importantly, service
expansion does not necessarily require MedTechs to develop or
acquire capabilities in all instances; instead, innovative partner-
ships with service companies can offer a more cost-effective
and lower-risk path. For example, in order to help hospitals with
physician or patient-training programs such as the use of new
products or disease-management programs, MedTech suppliers
could form partnerships with start-up companies like Syandus,
an intelligent simulation learning technology focused on health-
care applications. Particularly with respect to IT integration,
connectivity and “big data,” MedTech suppliers likely would be
better served to find good partners than trying to learn entirely
new competencies.
As large MedTechs such as GE, Medtronic and Stryker continue
to migrate toward a broader portfolio and solutions with more
services, it will become more difficult for smaller MedTechs with
fewer resources and scale to keep up. Similar to the consoli-
dation that we are seeing with the hospital landscape itself,
consolidation among MedTech suppliers will almost certainly
happen. Survivorship in this new era will largely be determined
by innovative services and solutions. The landscape after the
dust of this new competition has settled will likely include a
smaller number of suppliers who have earned deeper trust and
partnerships with senior hospital administrators through the
sale of a broader arsenal of relevant and valued products – and
services.
Source: L.E.K. research and analysis
Example Services to Hospitals within Clinical Care Delivery
Figure 6
Clinical Care Delivery3
Clinical IT and analytics Care coordination services Outsourced clinical servicesClinician and patient
education
• Outcomes monitoring
� Patient data tracking and benchmarking � Monitoring of readmission rates
• Clinical decision support
� Clinical diagnostic tools � Discharge decision support tools
• Health economics and outcome modeling
� Clinical risk assessment tools � Health economics and treatment outcome analysis tools
• Telehealthcare services
� Remote connectivity � Patient portals/interaction tools
• Integrated/high-touch care model development
� Patient touchpoints
• Disease management services (e.g. compliance, discharge follow-up)
• Population health management services
• Data aggregation and analytics
• Outsourced functions/depart- ments,including: � Pharmacy (e.g. drug compounding) � Imaging � Infusion (e.g. home infusion) � Dialysis � Catheterization labs
• Clinician staffing services, including: � Emergency room staff � Anesthesiologists � Radiologists � Nurses/surgical scrub staff � Device technicians
• Sub-specialty care management, including: � Rehab/PT/OT � Pain management � Dialysis � ASCs administration
• Patient education services � Medication education � Online patient education � Usage of home care medical supplies
• Clinicial training and education � Clinical procedure training � Continuing education for physicians and nurses � Clinical coding and reimbursement administration (e.g. new CPT codes) � Intelligent simulation learning technology
EXECUTIVE INSIGHTS
L E K . C O MINSIGHTS @ WORK®Page 6 L.E.K. Consulting / Executive Insights Volume XVI, Issue 11
Note: *How valuable are each of the following services that MedTech companies could provide in addition to their products? Source: L.E.K. study
Prioritized Services Desired by Hospital Administrators Hospital Interest in Specific Potential MedTech Services*
80
40
20
0
Perc
ent
of
Res
po
nd
ents
60
20
40
60
80
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7 – Very valuable 6 5 Mean1 – Not at all valuable4 3 2
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