Pricing of Med devices

It came up during the discussion with an in class presenter yesterday that reimbursements from insurance companies for similar devices from various companies is same. For example, for a stent manufactured by Medtronic and Boston Scientific is reimbursed the same amount of money. That makes the industry very price competitive. My understanding is that mark up on medical devices is really high - of the order of 200- 300%. While ethically, this might be a topic of discussion and this is definitely not cost based pricing, incremental value offered by life saving medical devices is significantly high, thus the higher price.

In this scenario though, where insurance companies reimburse the equal amount of money, I believe, there is a significant opportunity for a strong headed entrepreneur who can make a cost effective medical device comparable in quality with those offered by Medtronic or Boston Scientific. If this entrepreneur knows the key marketing tactics and target markets of these companies and has the marketing capability to convince physicians and hospitals to buy his products instead of those offered by big companies - he will be able to make it big while saving costs for insurance companies , consumers and hospitals. While coming up with a device that offers all the basic functionality is not a big deal, getting it FDA approved and getting patents is a expensive and time taking process which an entrepreneur may not be able to survice. If the rule making bodies could offer shortcuts for this entrepreneur for filing patents and getting FDA approvals, significant healthcare cost savings could be on the horizon.

On the other hand, the biggies of Med device industry are rightly focussing on international markets. It is a reasonable survival strategy to ask for the right cost for their product within developed country markets as well as developing markets. That is the only way to preserve the market share and revenues. By asking for a reasonable price, these companies will also be able to create a significant barrier of entry for the entrepreneurs who would be competing with a similar product and may begin grabbing the market share where FDA rules and patent applications are less time consuming.

In any case, I can see that globalization is changing the face of business in every domain. It would become increasingly difficult to charge high prices because of monopolistic holdings and create high barriers of entry. Brand names would still be respected because of experience, but an intelligent consumer may be less willing to pay an exorbitant high price, especially if it is difficult on their pockets for the same , given that a similar cheaper product is available. Of course, consumer intelligence and information is very important in this case. Any website or print media or service set up that informs the consumer of all the options available to him will be very helpful and successful, like the cancer helpline which any cancer patient can call in to discuss his condition and find out the best possible options available to him.

As always, physicians will play a big role. they get to choose to direct the patient to cost-effective means. In any case, the patient will look for physicians approval while making a cost effective decision. Physicians can make decisions considering healthcare industry a market like any other domain or support the cost effective decisions.

Moving further on Health care pricing:

I met with someone from health care industry (again) and came to know of some other interesting projects insurance companies come up with. They help corporates set up clinics at their offices , so employees can quickly get some health advice. I am sure that can go at least a few miles , to help reduce health care costs. Simply knowing which is the most cost effective way of getting treatment for a specific condition is a big deal. While employees would appreciate having an MD at her office to give her free advice, it is expensive for companies to set up these clinics( companies pay for the clinics, insurance companies only help them set those up) . What is more cost effective for corporates( set up a clinic at every location - $$$?) or let their smart(?) employees figure out themselves what they do to cure a condition and how do they do it. Of course, companies would have to pay for a longer duration of absence while the figuring out process goes on.

A middle path is tele-medicine. Tele-medicine is coming up as a trusted discipline as we move forward. What's more - 11 states have already approved insurance coverage of healthcare derived from tele-medicine. Not only do we see advertisement on TV which help say, cancer patients figure out where would they would get cost effective treatment, corporates and insurance companies are setting up call centers where employees can call in and get initial advice. Employees would surely appreciate having a call center service, where they can call in as soon as they get a runny nose( which medicine would not put me to sleep and still make me feel better) , or a big mole( is it cancerous).

The call center guys may have access to a database, with symptoms , something like HCPC codes to help them sort through what would be a good recommendation. I can already see pharmaceutical companies ensuring they are on the databases of maximum call centers. Or there could be a single database which all companies refer to , created by a company like Medtronic. ( I talked about how Medtronic is compiling health records at various hospitals to assign an SSN like health ID to each individual) .

More later..

The blog today is more about opportunities in healthcare and future trends and less about pricing. You might perceive this as a small insight into where is money in healthcare investment headed.

I was meeting with an alum over the weekend and discussion came to a point where we were discussing future of healthcare. It looks like in near future, medical device companies will be cinching on their budgets.

However, government is giving incentives to hospitals to manage data through healthcare systems. So earlier they implement it , larger reimbursements hospitals get. So not only do hospitals have an incentive to implement IT management systems , they have an incentive to do so at the earliest possible. Now, there are few software available in the market - Epic, Cerner, Merck being some, there is a large requirement of consultants who can help hospitals implement the software. Now we know , why are the healthcare consulting practices hiring aggressively.

Now there is more to growth in healthcare IT. US Government wants to implement a health id like your SSN which would have all the health information of all indiduals. There has to be a system which would pick data from whatever IT system these hospitals decide to use, clean it up and add to the fields associated with your healthcare ID. IT at companies like Medtronic are undergoing a lot of work to implement the above.

General overview of what I heard from the healthcare guys I met over the weekend. I hope it is of some use to someone.

Hi Again

I apologize I took so long to get back. Last couple of weeks were hectic with coursework and submissions.

So I talked to two of my professors and the feedback that I need to talk about one thing at a time. I will try to do that hereon and limit this post about efforts being made by insurance companies to reduce healthcare costs.

I had an opportunity to meet with someone at Optumhealth who told me that Insurance companies these days are getting increasingly conscious of the fact that they are being blamed for rising healthcare costs and declining health quotient in America. Insurance companies are making innovative efforts to get employees and population engaged in healthier lifestyles. For example: Having communication and branding sessions at corporate offices to tell employees about benefits of engaging in healthy efforts or engage with churches to bring awareness of healthier lifestyle amongst Church goers.

Insurance companies are launching new products where the consumer have better control over their policies ( some one can go for a policy with high deductibles and less premiums based upon his/her prime health & less susceptibility to a chronic condition).

Amongst all the products that I know of, I especially like Medical Saving accounts. If the money paid to keep my health insurance policy doubles up as my savings or pension money if I avoid getting myself into a chronic and expensive condition, consumers have better incentive to maintain a healthy lifestyle and go for a regular checkup to prove the pristine health condition.

As I wrote a paper for my healthcare market place class, I came across an article which talked about Bajaj- Allianz launch of Jiyo Fit health Insurance Card. If you maintain a healthy lifestyle ( verified through periodic health checkups at a certified lab), you get points which accumulate towards your savings and reduced premiums in the long run. I think that is cool.

If there's a $500 Macy's gift card on offer at my employer , for losing a few pounds and a shot at publicity via the office newsletter, I might work on weight management more aggressively.

Do we run the risk of adverse selection here? I think so. Someone might avoid going for a dental checkup despite a mild pain in the jaw to keep the savings towards my pension account. I suggest that requirement to submit periodic health report to maintain insurance benefits or health score will work for most people to keep them from making such a selection.

A class discussion talked about health scores - parallel to credit scores. Health insurance companies anyways maintain detailed reports of your health status. How about having a credit score like DnB rating or FICO score which I can look at and understand where my premium would be headed in future. I think that would give me a good incentive to go for periodic health checkups, keep my health GPA high, avoid fries and cheese loaded nachos at Sergeant Preston's and go to gym as often as possible. Extra money for Christmas get- together is tangible return that I would appreciate.

Expert comments, guidance as well as questions are welcome.

It has been long since I have been comtemplating doing a blog. I've pondered long enogh over a topic, varying from GMAT prep, selection process for MBA and entrepreneurship ideas - which my Dad (my key investor) never finds interesting. So I'll post here, what tosses in my head. At the least, I will have a let out to ideas. I did a stint as research assistant in Marketing department at Carlson School which raked my interest in pricing - healthcare is another area and I've decided to merge the two.

Since I am taking healthcare courses at school - my thoughts are in better shape. So I'll give this a shot.

US Healthcare is best in the world, uses the most money but is not the most efficient. The technology and reosurces available are definitely the best. What makes it so? The first few items that causes this impact are difference in quality of life for people belonging to various social classes or circumstances. Other influencing factors are interest of stakeholders, design of insurance execution and government regulation.

While the health expenditure in US is ~2 trillion which means $7000 per person, we do not lead in either terms of life expectancy or infant mortality rate. The life expectancy continues to be low because of the fact that while we value looking good and feeling good a lot, we don't care much about changing our lifestyles - like not abusing food, alcohol and tobacco.

Other main stake holders are physicians who make the most money in the current healthcare system. Do they have enough motivation to reduce the cost burden on the system? While physician suggests and company pays, neither the care giver or taker have the motivation to look for leaner means to obtain care.

Despite the fact that physicians rake in the most moolah(~22%) from the 2 trillion healthcare spending, the care provided is not always the best. While the physician may tell a cancer patient, she has barely two months to live, another physician migth be able to help her live 8 years of happy life. Yet another friend of mine was cured of a critical condition with homeopathic medicines when allopathy refused him any treatments. Is there a way we can have the care taker be more involved in the process and look up information which can be trusted? Is there a way that we can reduce the importance of physicians and reduce the burden of cost of paying for our visits to the physicians. Is there a way I can ensure that medicine cocktail prescribed is the right quantity and the minimum price that I could have paid. There is information available on the internet but it is not reliable at all times. While homeopathy and ayurveda are an alternate means of medicine and trusted in certain parts of the globe, we don't want people selling snake oil to cure cancer.

On a serious note, other than the government thinking of national Insurance system, if there could be a website regulated by a body like FDA to inform patients of all probable ways of treatment.

Most often the mistakes happen , not for unique cases, but common causes. It might be of benefit to have such cases listed out on out Med website certified by a body. My opinion is this better not be a blog, since the message delivered and thus the purpose of creating such a website will be diluted.

More recently, I have been brainstorming ( could not I have better thoughts?) what makes the gauze here so expensive while similar wounds can be cured in India using a guaze that's wayy cheaper. What makes the surgical scissors so expensive. Would the American consumer like to choose an operation package like you can choose your spa package?

I have also been thinking of ways to balance the demand and supply for nurses. Could we make the nurses and physicians a consulting engagement? Can we offer better salaries and reduce dependence on individuals while managing the overall cost on the system. Can we create new businesses and job opportunities out of such consulting engagements? Can there be rotation programs within hospitals for nurses? Can the nurse training time be cut short specific to their specialization?

May be this is already done somewhere. May be my midway-MBA brain is overdrive.

More to come. I will look forward to your encouragement, ideas and angry rants.