How medical-device CEOs can navigate digital disruption in healthcare
Medical-device
companies will need to reinvent themselves to stay competitive. Now’s the time
to craft a strategy and scale a transformation.
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.
Recognizing 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 recognize
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 organization’s DNA, including its culture and
processes (for more questions to think about before a transformation, see
sidebar “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, personalized 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.
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 monetizing 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 organizations 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 percent 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 characterize 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.”1
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 organization 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 sidebar “Examples of innovation”).
Imperatives
for medical-device players
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, 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 analyzed 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 organized in four broad themes.
Get closer to customers
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 optimize their cost-to-serve and go-to-market
models.
Example use cases:
·
Consumer engagement. Create a 360-degree view of patients connecting healthcare,
environmental, and behavioral information to better understand what drives
outcomes and to deliver timely, personalized microinterventions. We’ve seen
players grow revenue by up to 10 percent using digital ecosystems that engage
patients deeply.
·
Commercial-spend
optimization.Optimize microtargeting to reach the right
physicians and providers based on volumes, outcomes, risk profiles, purchasing
behavior, and disease-incidence rates. In addition to lowering cost to serve by
15 to 20 percent, this approach identifies new customers to drive growth.
Build intelligent products and optimize the innovation engine
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:
·
Intelligent products and
solutions. Wrap digital solutions around
products to deliver better outcomes. These can span predictive diagnostics and
early detection in imaging, fully digital operating rooms, and remote patient
care in therapeutic areas such as cardiovascular, diabetes, and mental health.
·
Digital clinical trials. Optimize site performance by accelerating trial
timelines and reducing costs, including better site selection, country
footprints, and protocol optimization.
Assume more risk as appropriate
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 resynchronization 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:
·
Value-based care. Collect and analyze data to track total cost of
care, patient outcomes, and patient satisfaction to develop creative
manufacturer/provider contracting models. For example, a typical implant
represents 15 percent of the total cost of the joint-replacement episode.
Manufacturers are working with providers to optimize the remaining 85 percent
(for example, inventory, operating-room utilization, and supplies).
·
Real-world evidence
(RWE). Create a platform to collect,
integrate, analyze, and report real-world data to prove treatment efficacy,
safety, and value. Taking ownership of RWE can help create new markets, such as
for 3-D mammography.
Reimagine processes
Reimagine and automate end-to-end
processes to drive efficiency and unlock new insights. Federal healthcare
agencies recognize this opportunity as well and have made important strides in
their journey.
Example use cases:
·
Digital supply chain. Optimize supply-chain costs and improve customer
service using data-driven insights into inventory levels and sales forecasts. A
smart digital-inventory-management process helped a leading device player raise
inventory efficiency by 15 percent.
·
General and
administrative (G&A) automation. Digitize
core G&A processes to create greater levels of efficiency and
effectiveness. Leaders have captured 20 to 50 percent improvements in cost and
efficiency.
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 percent. However, getting the full value
of the opportunity will require embedding digital and advanced analytics in all
aspects of operations, at scale.
How to
design and execute a digital transformation 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.
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 organization 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 recognizing 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
modernizing the IT foundation (for example, moving 85 percent workloads to the
cloud or creating an enterprise-wide data foundation) and to stand up core
enablers to manage the transformation (for example, reorganizing 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
organizations. Six core concepts underpin successful at-scale digital
transformations:
·
Agile @ scale. Dedicated business and technology teams come
together to solve a specific problem in a matter of weeks.
·
Concept sprints for a
minimum viable product. Cross-functional
innovation workshops focus on seizing a specific business opportunity; in them,
teams use design-thinking methodologies to quickly align on tangible solutions.
·
Data backbone. A scalable data backbone should establish a single
authoritative source of critical information across the enterprise (for
example, customer, product, pricing) and provide decision makers with business
insights on demand.
·
Control tower. Out-of-the-box automated infrastructure oversees
the overall program and tracks the progress of more than 50 teams in real time.
·
Value assurance. Teams are highly transparent and open to value
audits; impact and return on investment are tracked on an ongoing basis, from
inception to development and end-user adoption.
·
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.
Digital disruption is upon us in
healthcare, and medical-device industry leaders are rapidly moving from pilots
and experimentation to building real capabilities at scale. We believe our
four-part architecture can help you ride this wave, improve patient outcomes,
and create value for all stakeholders.
By Siddhartha Chadha, Sastry Chilukuri, and Steve Van Kuiken October 2017
https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/how-medical-device-ceos-can-navigate-digital-disruption-in-healthcare?cid=other-eml-alt-mip-mck-oth-1711
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