Big Changes for Hospitals and Medical Device Marketers

Big Changes for Hospitals and Medical Device Marketers

A Roundtable Explores Some Stark New Realities of the ACA Era

A roundtable discussion organized by the University of Pennsylvania's Wharton Health Care Management Alumni Association explores dramatic changes in the traditional relationships among doctors, hospitals and medical device marketers. Watch an 11-minute video excerpt.

Some stark new realities posed by the Affordable Care Act for medical device marketers and hospital administrations were the topic of an unusually candid roundtable discussion organized here by the University of Pennsylvania's Wharton Health Care Management Alumni Association (WHCMAA).

Featuring the CEO of one of the country's largest medical technology companies, the CEO of New Jersey's second busiest hospital, and a Penn professor of health care management, the evening session took place in the Franklin Lakes, NJ, headquarters of "BD" or Becton Dickinson, one of the country's oldest and largest medical device and life-science product companies.

edm headerVincent Forlenza
Vincent Forlenza, Chairman and CEO, Becton Dickinson, Inc., and a 1980 alumnus of Penn's Wharton School.
Audrey Meyers
Audrey Meyers, President and CEO of The Valley Hospital in Ridgewood, N.J. and 1980 alumna of Penn's Wharton School.
Robert Town
Robert Town, PhD, Wharton School Associate Professor of Health Care Management and Senior Fellow at Penn's Leonard Davis Institute of Health Economics.
Jeff Voigt
Jeff Voigt, roundtable moderator, President of the Wharton Health Care Management Alumni Association, and medical device marketing consultant.

Panelist Audrey Meyers, President and CEO of Valley Hospital in Ridgewood, N.J. kicked off the session by saying the net impact of the ACA's insurance exchange plans for hospitals will be "a negative." Her hospital has prepared by "looking at the way we deliver care, aligning directly with our physicians and really getting control over costs."

Disruptive trends
Vincent Forlenza, panelist and CEO of BD, an $8-billion-a-year firm, pointed out that the trends now disrupting so much of the health care industry actually emerged a few years before the passage of the ACA, which has since intensified them.

"The first major shock was the financial crisis," said Forlenza, whose international company earns 40% of its revenue from the sales to U.S. health care providers. "That crisis accelerated things that were happening across health care in the U.S. and around the globe."

"Five years ago," he said, "U.S. hospitals' spending was growing about 7% annually but then it dropped very quickly to 3%. So you had a major change in the device markets because those hospitals started spending less."

New health economics emphasis
"The other thing that changed dramatically," Forlenza continued, "is that if we go in to talk to the (hospital) CFO, they are much more demanding now in terms of the way they are looking at (a new product's) clinical benefit and also looking very hard at any claims around the economic benefits. So, we've been investing very heavily in health economics research because we know that we have to show up with a value proposition; we have to show up with numbers that really make sense."

Meyers spoke from the other side of the desk on that issue. "One of the major changes," she said, "is that years ago, vendors would get into the hospital and find their way directly to the operating rooms and the surgeons and convince them that this product was the latest and greatest and they had to have it," she said. "Now, products don't come into the hospital unless they're reviewed and vetted by a standards committee of physicians."

'Physician alignment' issue
Another topic of the session was how hospitals like Meyers' were managing physician "alignment" -- or, getting the doctors whose practices they've purchased to become highly motivated cogs inside the hospitals' daily operations.

"That's been a very tumultuous relationship," said panelist Robert Town, a health economist and Associate Professor of Health Care Management  at Penn's Wharton School.

"There's a long history of hospital systems buying physician practices and either one or the other party becoming pretty unhappy with that relationship," Town said, referring to what happened during the failed managed care era of the 1990s.

Population health management
"This time around, the ultimate goal is population health management," Town said. "Payments are going to be more bundled and encompass more services and that means health care systems are going to have to figure out ways to manage population health. Physicians do not know how to do that. Systems are learning how to do that but they're just starting; they never had to do it before and it always takes a while to learn."

"The fundamental challenge for whether these integrations are going to work," Town continued, "will be based on whether health systems can actually align incentives in a way to manage population health and that works for everybody. It's not obvious to me that will actually happen."

Meyers disagreed. "It's different now. Physicians in our community are looking at the economics of private practice and the economics just aren't there," she said.

Engagement around leadership
Valley Hospital is actively engaging doctors in leadership positions on the board or in a leadership council of physicians. "We are trying to make our organization feel different to doctors by saying that we are going to be a 'physician-led' organization that's professionally managed," she said.

"There are physicians coming out of training who are not looking to set up a private practice," Meyers continued. "They want to be aligned directly with a large organization. They feel comfortable in that environment. We actually have aligned with those individuals and have created a vision of what health care can be and how working together will ultimately serve both parties. I'd like to hear from Bob (Town) about what's going to make it fail, so we can maybe take a different path."

"The risks," Town replied, "are in getting the incentives aligned; how do you get them aligned so that physicians can practice the medicine they want and get paid the salaries they want and hospitals make money to cover their investments. I think that's a very tough combination. After the integration, it's natural to look to cut costs and one natural place to look is physician salaries. Once that happens I think the harmony may be become a little bit discordant."

End-of-life practices and costs
A question from the audience asked why the health care system is not making greater efforts to address the health care system's end-of-life practices and costs.

Meyers, former chair of the New Jersey Hospital Association, noted that "When you look at our data in New Jersey, we are not great performers at end-of-life. We are among the bottom performers in the country in terms of costs and how many consultations a patient has." She acknowledged the end-of-life issue was a political tripwire but that "collectively as a society, we really have to tackle the problem."

Forlenza called the end-of-life issue "enormous" and said that if "you don't tackle it, you don't solve the problem" of runaway health costs.

"On average," he said, "the last year of life consumes 75% of the health care in a person's life. I think doctors as a group have to take on this issue and get out in front of it. You can't do that from a political standpoint because it's just so difficult to have the conversation. So, the people who are giving the care have to start that conversation around the question, 'What does really good end-of-life care look like and, as a society, what do we want it to be like?'"

~ ~ ~

Hoag Levins is Editor of Digital Publications at the University of Pennsylvania's Leonard Davis Institute of Health Economics (LDI).