From JPM, As Healthcare Systems Block and Tackle, Medtech Priorities Should Shift

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An onslaught of regulatory and reimbursement changes, along with financial and labor pressures, are shifting US healthcare system priorities as they navigate into the second year of the COVID-19 pandemic, according to panelists at a series of McDermott Will & Emery-EY healthcare symposiums during JPM week.

Medical device companies have their own pressures but they face a defining moment, in whether they continue with business as usual or they seize the opportunity, stepping up to position themselves as offering products and services that enable COVID-stressed hospitals and providers to cope in the short term and thrive in the future. These trends present opportunities to realign relationships, even as fundamentals remain strong, based on an aging population, rapid pace of innovation, pent-up demand for return to normalcy as the severity of the pandemic ebbs. (See our recent videos “COVID-19 and HealthTech Innovation: An Interview with Scott Gottlieb,” MedTech Strategist, January 28, 2021.)

According to panelists, who included McDermott lawyers, EY consultants and healthcare system CEOs, hospital system priorities include:

  • Reorganization: Recessions tend to lead to healthcare provider consolidation. In the fourth quarter of 2020, there were 25 hospital transactions, of which a significant number were single facilities; only two involved bankruptcies, said Mallory Caldwell, a strategy and transactions principal at EY and leader of its US healthcare practice. He projected that the number of bankruptcies and restructurings, including but not limited to M&A, will grow as systems work through government support payments and attempt to return to business as usual. Private equity investment in healthcare systems and providers continues to increase, further stimulating this trend.
  • Digitization: Health systems will need to take ownership in driving the effectiveness of enabling digital technologies and invest heavily in them through M&A, alliances, partnerships, and joint ventures. (See “Surgical Robotics Uptake: Cutting Through the Covid-19 Noise,” MedTech Strategist, December 16, 2020.)
  • Exhaustion: Panelists emphasized labor resiliency repeatedly. Three CEOs—Melinda Estes, MD, of Saint Luke’s Healthcare System, Jaewon Ryu, MD, president and CEO of Geisinger Health System, and Lloyd Dean, CEO of Common Spirit—cited cost, staff shortages, and burnout as top labor concerns. Estes, a neurologist, notably, is also the outgoing board chair of the American Hospital Association (AHA) and recently chaired an AHA task force on the COVID path to recovery for healthcare systems. 
  • Health equity: The AHA has cited health equity as a priority and is working with the Robert Wood Johnson Foundation to develop a roadmap on best practices, said Estes. That said, there are many ways of parsing health equity, starting with building capabilities within healthcare systems for integrating into local communities and pivoting according to circumstances to build trust. While institutions have tinkered at the edges of institutional racism, the “heat lamp will get really hot on this issue,” said Dean, who runs the largest non-profit system in the US. “The weakest link of our community has structural effects on the whole, so that we do have to address chronic conditions and ensure that the physician, nurse, and caretaking structures are embedded in the communities they serve.”
  • Real Estate Footprint: As care delivery models evolve, healthcare systems are more accepting of remote office workers, and the reimbursement landscape shifts in favor of outpatient procedures, hospitals need to re-think their real estate footprint and consider how less office space and more, smaller clinics will change their procurement and technology needs.
  • Reimbursement: Alternative payment models have helped systems like Geisinger to improve financial stability and predictability, enabling them to weather the ebbs and flows of COVID better than fee-for-service models, said Ryu. Geisinger has been a pioneer in population health and pioneered new approaches to risk stratification and value-based payment schemes directed at wellness programs and preventive care. An example is its “Geisinger-at-Home” program for the sickest 3% of its patients, which led to a 40% drop in the patients’ ED utilization and a 25% drop in their hospitalization rate. This was implemented pre-COVID and became very useful during the pandemic when the system needed to preserve its inpatient capacity, Ryu said. Still, it is worth noting that these programs are limited in the upside they provide on a margin basis.

Medical device companies are in various stages of transitioning their traditional businesses to embrace technology and connectivity solutions, all of which can address issues like workforce shortages and population health. Less certain is whether their business models are set up to address cultural issues like health equity and workforce exhaustion issues. “We’re in the early innings of this but it will have huge downstream effects on the workforce and how healthcare systems configure themselves in years to come, says Matthew Weiss, MD, an ICU physician who is a principal at EY-Parthenon. (See “Medtech’s Resiliency in the Face of COVID-19,” MedTech Strategist, January 26, 2021 and “Will COVID-19 Permanently Alter the Surgical Products Market: A Conversation with Tom O’Brien of Ethicon Endomechanical,” MedTech Strategist, September 9, 2020.)

Another question arising from the COVID-19 fallout for the device industry is whether delayed procedures will lead to poorer patient outcomes and the impact that will have on how healthcare systems think about their portfolio of services going forward. While a drop in elective procedures would indicate sicker patients down the road, in some cases, such as in orthopedic surgery, conservative care may have been better. Instead of surgery, if patients opted for physical therapy, or rode out the pain, or managed their problem with medication, their outcomes maybe the same or better, Weiss said.

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