New Healthcare Environment Demands An Evolving Approach To R&D

By Susie Faries, SciMed Partners, Inc.

Last summer, I attended a medical device conference in San Diego and was stopped by a trade publication’s editor to discuss my take on how medtech companies have changed their approach to R&D over the last several years, given the “new outcome-based healthcare environment.” Since I have experience on both the supplier side of medicine (medical devices) and the provider side (hospitals, health systems, physician clinics, emergency services), his questions pointed out the gap between those performing research, developing, and commercializing devices, and those engaged in the actual practice of healthcare.

The reality is that providers have always been concerned about outcomes — physicians and other clinicians have always cared whether a procedure, device, or therapeutic did what it supposed to do, and whether the patient progressed. The change is this: The Patient Protection and Affordable Care Act (ACA) of 2010 is forcing those on the supplier side to understand more about the provider side. Yet, a gap continues to exist, with little understanding of the main drivers of the U.S. healthcare economy — now accounting for approximately 17.9 percent of GDP and $3.3 trillion in expenditures (National Healthcare Expenditure Data, CMS).

Since the ACA rolled out, I’ve spent many hours educating regulatory, clinical, quality, sales, and even engineering departments and engineering/design companies how the legislation affects medical device design, development, and commercialization. Publicity and controversy around the ACA focused on its provisions to increase insurance access and coverage among the uninsured, but there is little understanding of the legislation’s direct effects on the factors that affect R&D. The ACA’s focus is much broader than providing insurance; it forces both providers and suppliers to focus on how healthcare is financed and delivered. In focusing on the financial aspects and delivery, the legislation’s impact becomes a matter of economics, as well as outcomes.

I see three to four startups per week, mixed with mid-to-large-size corporations. For the most part, I have not seen a dramatic shift in the approach to R&D — except among companies who have devices in mobile and digital health. Most of the startups, and some of the larger companies, have limited knowledge of the real implications of the ACA, viewing the legislation in terms of “insurance,” versus acknowledging its clinical and health economics implications, which are even more sweeping than the insurance component. Second, I still see a lot of engineering-driven innovation and R&D — meaning that the focus is on “the big idea,” versus starting with what healthcare is really “solving for.” Few medtech companies understand “The Triple Aim” — the three primary areas for which healthcare is solving and the pathway for health system performance.

I recently took the young (but seasoned) CEO of a start-up catheter company to meet with an associate in supplier innovation and customer experience at a major health system. Despite his extensive device experience, the CEO had very little previous exposure to the sweeping changes in the healthcare environment — especially how health systems are making buying decisions, and how device R&D and health systems can collaborate to address issues and develop solutions. My health system associate went on to explain how “The Triple Aim” is affecting pricing, distribution, and even value propositions. A two-hour lunch meeting resulted in a change of business strategy and a new revenue model for the young CEO.

The Triple Aim was an outgrowth of work completed in the late 1980s by former CMS Administrator Dr. Don Berwick, and his associates, as part of National Demonstration Project on Quality Improvement in Health Care. That project focused on redesigning healthcare into a system without errors, waste, delay, and unsustainable costs. The Triple Aim became a core piece of Berwick’s organization, the Institute for Healthcare Improvement, founded in the 1990s.

According to IHI and its thought leadership, reforming healthcare financing and delivery depends on three key factors: improving the experience of care, improving the health of populations, and reducing the per capita cost of care. These three specific areas basically outline ways to optimize the pathway to efficient health system performance that manages and controls costs while improving outcomes.

The ACA’s objectives address the same measures, which in turn affect device development and commercialization. When entrepreneurs or even established device companies think about device development, they should first ask themselves:

• What problem is healthcare solving for?
• How does the innovation solve the problem?
• What economic efficiencies does the device or technology offer?
• How does our device or technology improve outcomes?
• Does the innovation meet the objectives of the Triple Aim?

Improving the experience of care does not mean “customer satisfaction” or “patient satisfaction” – it means providing care that is safe, effective, patient-centered, efficient, and equitable. While device developers understand the need for safety and efficacy, we often don’t consider the components related to patient-centered, efficient, and equitable as part of our development objectives. Providers are looking for solutions solving issues along the entire continuum. Understanding the meaning of “improving the experience of care” also helps developers create value propositions and points of differentiation for their innovations.

Providers also are challenged to solve issues related to “population health.” In effect, this is solving health issues and partnering to solve the health problems across a community. Health systems now understand that they cannot act alone or deliver high-quality care at a lower price point — they must partner across communities to solve not only health issues, but also food insecurity, housing insecurity, and job insecurity issues directly impacting the health of entire populations. Developers should keep in mind what solutions they can provide to support these efforts.

Finally, providers are attempting to bring down the cost of per capita care. While increases in the cost of care have slowed since the ACA, the cost of care per capita exceeded $10,000 per person for the first time in 2016. (Health Expenditures, CDC). Device developers need to be aware of the health economics of their device or technology: Does it solve a problem and reduce costs to the system? Or, is it “nice, but not necessary?” Granted, some solutions provide extraordinary clinical results and add costs, but developers should be aware of the economic benefits as part of their development strategy.

How can R&D add value in the new environment? Focus more on the components of the Triple Aim with a mindfulness toward building economic efficiencies into the innovation value chain. To add continuing value, R&D will need a “Renaissance” of sorts — a dramatic realization that R&D can’t be executed in the same manner as it has been. This will include closing the gap between medtech and the provider side of healthcare. The days of “produce it and they will come” are over. Some health systems have created their own venture funds and are investing to solve problems critical to their survival; other systems are sharing strategic initiatives with medtech to co-develop solutions.

In addition, R&D must shift to a market-driven mindset that includes comprehensive market knowledge up-front and from the customer’s perspective. The R&D Renaissance should leverage thought-leadership on both the supplier side and the provider side, focusing on innovation, collaboration, and joint problem-solving toward improved healthcare outcomes.

About The Author

Susie Faries is CEO of SciMed Partners, Inc., a Silicon Valley-based consulting firm in healthcare, medical devices, healthcare tech, mobile/digital health, and diagnostics. She was a co-founder and CEO of InnovaMedix, Inc., a wireless medical device start-up in emergency medicine, trauma, and sports/fitness.  Faries has experience on both the provider-side (hospitals, health systems, emergency services, ambulatory surgery) as well as the supplier side in devices and healthcare tech. She is the former VP of Marketing for American Response. Faries holds an MBA in Market Strategy from Regis University, Denver, and a BA from Roanoke College, Salem, VA. She recently completed a certificate from Wharton in Business Analytics. Contact her at sfaries@scimedpartners.com