Medical device companies will need to reinvent themselves to stay competitive. Now’s the time to craft a strategy and scale a transformation, say industry experts McKinsey & Co
Digital has already disrupted major sectors of the economy, and a revolution is under way in healthcare. As in other industries, battlegrounds are emerging, and there will be clear winners and losers. Medical device players, facing unique opportunities and headwinds, will need to reinvent themselves as digital health companies to remain relevant and win in this fast-evolving market. Recognising the urgency, almost all of the industry’s CEOs have declared digital health a top priority.
An earlier article, Four keys to successful digital transformations in healthcare, discussed broad trends and emerging battlegrounds – building direct relationships with consumers, finding new sources of value, collaborating for complementary capabilities, and contributing to burgeoning industry standards. Building on that work, this piece outlines how medical device companies can define a winning strategy and design an at-scale digital transformation.
Medical device CEOs and boards recognise the power of digital and advanced analytics, and they’re investing in related capabilities. But for big changes to take hold and deliver lasting impact, they need to be woven into the organisation’s DNA, including its culture and processes (for more questions to think about before a transformation, see box-out at the end ‘Preparing to win’).
Winning digital health companies will change in several ways at once: they’ll provide consistently delightful experiences to all customers, including patients, caregivers, clinicians, and providers. They’ll create a wide array of intelligent, personalised products that deliver demonstrable clinical value, and they’ll use insights on demand to take on appropriate risk with providers, payors, and regulators. They’ll also reimagine processes to dramatically reduce costs and accelerate decision making.
How do they get there? Rather than turn inward, we believe industry leaders should constantly evaluate the actions of stakeholders across the value chain to define the pace and direction of their responses in this frothy market, as shown below.
Providers are scaling rapidly and making care delivery more sophisticated
Roughly 150 systems in the United States have established significant leverage and reach. They are vertically integrating to create clinical service lines that drive outcomes, manage risk, and create profit. Scale also allows providers to drive evidence-based medicine and create novel risk-sharing arrangements with manufacturers to control costs and improve outcomes.
Providers are also making the transition from offering B2B services to clinicians to B2C services for patients. As more clinicians are employed by hospitals, their ability to exercise their preferences is decreasing. In parallel, providers are moving beyond housing in-patient care to higher sources of value such as alternate-care settings and services, and monetising assets, including data and patient access. All these changes have significant implications for medical device companies’ innovation, offerings, services, and commercial models.
Payors are innovating while managing the bottom line
Those that have historically been viewed as B2B financial-underwriting entities are rapidly reinventing themselves as B2C organisations where members are a major source of revenue and digital is a critical capability.
For example, in the United States, led by the Centers for Medicare & Medicaid Services (CMS), payors are reducing costs through value-based programs. By 2020, CMS expects about 75 per cent of contracts to be pay-for-performance. These changes are creating opportunities for innovative partnerships, raising the bar to demonstrate the value of products and services in real-world settings.
Policy makers are harnessing big data to assess safety and efficacy
In the United States, the Food and Drug Administration (FDA) is establishing a National Evaluation System for Health Technology (NEST) to ‘quickly identify problematic devices, accurately and transparently characterise and disseminate information about device performance in clinical practice, and efficiently generate data to support premarket clearance or approval of new devices and new uses of currently marketed devices. Essentially, NEST should be of, by, and for the medical device ecosystem and configured to provide maximal value to stakeholders, including the critical data needed by the FDA to make decisions that currently must be made with less comprehensive information.’
This system brings together data from diverse sources and initiatives (for instance, PCORnet, Sentinel, registries, health plans, and delivery systems) to create a central mechanism to answer priority questions.
Each R&D organisation will need to build new capabilities to succeed in this changing regulatory environment.
New entrants are flocking to healthcare
Large technology players and venture-capital-backed start-ups are bringing disruptive Silicon Valley mind-sets, speed, architecture, and investments at scale. Rather than posing an outright threat, tech companies offer healthcare incumbents many opportunities, as these companies are aware of their gaps in understanding of clinical and regulatory practices and are open to partnering with established healthcare companies (see box-out below ‘Examples of innovation’).
These changes across the value chain are collectively creating a ‘burning platform’ that is compelling medical device players to scale up their digital and advanced-analytics capabilities. Our cross-industry benchmarking tool, Digital Quotient, shown below, demonstrates that digital capabilities are critical for performance, but medical device and pharmaceutical companies’ capabilities are far behind those in other sectors.
To understand how to improve this dramatically, we analysed the full spectrum of opportunities across the profit-and-loss statement of a typical medical device company and identified more than 200 use cases. These can be organised in four broad themes.
As patients become more central to success, leading companies will need to understand, engage, and influence individuals better, just as the leaders do in consumer tech, retail, and consumer packaged goods.
Hospitals, who are customers for medical device manufacturers, are also evolving. Winners will need to fine-tune their commercial engines to optimise their cost-to-serve and go-to-market models.
Example use cases:
Winners will rethink all aspects of their models – offerings, go-to-market approach, and R&D operations – to capture new sources of value, drive efficiency, and compete in the changing market.
Example use cases:
Winners will define novel risk-sharing relationships with providers. Some manufacturers have already begun to embrace new models of contracting (for example, early evidence in the bundled hip-and-knee markets), risk sharing (such as St. Jude Medical’s rebates for cardiac resynchronisation therapies in case of required revision), and solutions (for example, Stryker’s subscription-based analytics packages) for providers. These require robust approaches to measure, track, and underwrite outcomes in the real world.
Example use cases:
Reimagine and automate end-to-end processes to drive efficiency and unlock new insights. Federal healthcare agencies recognise this opportunity as well and have made important strides in their journey.
Example use cases:
Each of these changes has the potential to create significant value, and together, we estimate these advances can help leaders improve earnings by 15 to 30 per cent. However, getting the full value of the opportunity will require embedding digital and advanced analytics in all aspects of operations, at scale.
The companies that succeed will move away from a bottom-up ‘let a thousand flowers bloom’ approach and design a top-down at-scale transformation. The four keys for the transformation are shown below.
All large healthcare companies are trying to transform themselves around these four keys. One such company is Johnson & Johnson, and its journey is described in an interview with its chief information officer, Stuart McGuigan. He talks about how the company decided to double down on the use of technology and build a flexible but secure digital IT organisation supported by the cloud to enhance development of smarter healthcare products and to improve customer and patient experiences with the company.
Several factors enable at-scale transformations such as the effort at Johnson & Johnson. These include clearly recognising digital and analytics as a strategic priority and aligning the top team on themes for focus – for instance, intelligent products, customer engagement, and analytics on demand. It’s also important to invest in modernising the IT foundation (for example, moving 85 per cent workloads to the cloud or creating an enterprise-wide data foundation) and to stand up core enablers to manage the transformation (for example, reorganising and hiring external talent, and developing an ability to launch and successfully manage every project as agile). Another key element is using the foundation to build value-creating innovations, such as through virtual enterprise resource planning, optical character recognition for technical blueprints, and tools to guide patients through the care journey and improve outcomes. We’re beginning to see the impact of these transformations and expect leaders to outpace their peers by wider margins in the next few years.
In addition to technical change, these transformations bring together the business and cultural aspects of managing large organisations. Six core concepts underpin successful at-scale digital health transformations:
Culture change. A focus on winning the hearts and minds of all employees ensures they embrace the new way of working and adopt digital and advanced analytics in their everyday professional lives – just as they do in their personal lives.
Recommendations on how we should use AI, genomics and medtech in the NHS – click here for 98 pages to guide us to the future. ‘The greatest challenge is the culture shift in learning and innovation, with a willingness to embrace technology for system-wide improvement. An ambitious drive “towards the NHS becoming the world’s largest learning organisation”’.
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