Commercializing Medical Devices

Commercializing
Medical Devices
“In a NEW global economy”
André Harrell

INTRODUCTION
This presentation will discuss the business issues surrounding
technology and capital equipment, and the role of specialized patient
care units and non-acute patient care facilities as part of the healthcare
business environment.
Subjects in this presentation will include:
q Describing the process of how technology & capital equipment is
purchased.
q Explain several types of care that are delivered through specialized
institutional units.
q Explain how institutions use for-profit subsidiaries to strengthen their
business model.
q Describe ways in which some institutions are growing their business and
how you as suppliers can work with them to maximize yours.

BACKGROUND
q The purchase of “Medical Capital Equipment” is a multilayered
process, involving several institution departments, and the
authorization of department executives. In addition, capital
equipment needs to be managed and maintained after
purchasing.
q Institutional units are often specialized, in order to care for
specific medical needs. These specialized units will have unique
equipment, training needs, and pharmaceutical use.
q Most institutions have developed for profit outpatient services
that serve the purpose of attracting patients to the
hospital/clinic managing health care needs more efficiently and
increasing the institution's profit margin.
q Healthcare institutions need to compete for patients within a
given geographical area. Specialized inpatient services, which
can be marketed to patients and physicians can help grow the
business of the institution.

TECHNOLOGY
& CAPITAL
EQUIMENT
q Technology has relieved in part, some of the burden of patient care in
the institution.
q Monitors and pumps that regulate the delivery of medication are
examples of technology that has advanced care and improved
efficiencies.
q Hardware, software, computerized drug delivery and drug inventory
make it possible for larger institutions to operate more efficiently as
such agencies like teaching hospital costs continue to increase.
q Innovative electronic procurement, ordering, billing and meeting
purchasing thresholds have allowed progressive hospitals to remain
profitable.

Purchasing
Capital
Equipment
Key Elements in Purchasing Capital Equipment
q Legal purchase order forms
q Authorization to make the capital purchase
q A clearly defined requisition process
q A list of approved suppliers
q An established procedure for obtaining competitive bids from
suppliers
q A method of tracking and expediting open purchase orders
q Ensuring proper credit is issued for returned goods
q A method of monitoring and documenting supplier performance
q A method of monitoring timeliness and effectiveness of the
performance of the purchasing department

Purchasing
Capital
Equipment
cont.
q Purchasing capital equipment is a top-down process.
q Expensive equipment purchases, such as intravenous
pumps, electronic monitors, and respirators are carefully
considered by multiple departments and stakeholders in
the institution.
q Such capital expenditures frequently require the approval
of the CEO of the institution, finance committee and the
board of directors.
q Competitive bidding is a standard procedure used for the
hospital to get the most favorable price on capital
equipment.
q Requests for bids are sent out to preferred vendors and
evaluations of those bids are made.

Specialized
Institution
Units
q The development of specialized units leads to greater
efficiency and quality of care for several reasons.
q Patients with similar diagnoses typically require similar
equipment, medications, procedures and staff with
experience in a special group of disease states or medical
conditions.
q For example, grouping all patients with cardiac conditions
on a cardiac nursing floor will allow the institution to have
the correct equipment (cardiac monitors, defibrillators) and
specially trained staff placed in the most useful location.
q The nurses who are trained to work on such a unit will
develop a great level of expertise in the use of the required
equipment, and in administering the array of medications
that cardiac patients will need.

Non-Acute
For-Profit
Subsidiaries
Home Health Care Services Ambulatory Surgical Units
Urgent Care Centers Ambulance Services
Home Infusion Services Outpatient Therapy Centers
Diagnostic Imaging Facilities Specialty Clinics
Institutions (e.g., Hospitals) often offer a variety of services:
q Offering a variety of outpatient services to the public provides
advantages including meeting the healthcare needs of the
community and generating additional revenue.
q Many institutions strategically market their services to the
socioeconomic area they serve, such as meeting special
language or cultural needs of patients within a community.
q Finally, many institutions (e.g., hospitals) find that these
complimentary outpatient services offer a higher profit
margin than inpatient hospital care.

Opportunities
for Device
Manufactures
Institutions like hospital health systems have several methods of growing their
business. Inpatient and outpatient services can be marketing tools to generate
additional interest in the specific system and increase inpatient hospital revenue.
Hospitals for example compete with one another using breadth of services and
accessibility to meet the needs of the community and attract physicians and their
patients.
Outpatient Services and clinics are a rapidly growing area that many
hospitals use to attract patients:
Opportunities for Device Manufactures:
q Manufactures should investigate the impact that their product may
have upon the use or need for capital equipment.
q Any product which simplifies, user friendly, efficient and reduces
institutional cost will be attractive to the administration.
q Offering “Best In Class” educational programs and insight into the most
efficient ways to handle the specific medical needs of these units.
q Manufactures can capitalize on the market value of their product if they
understand how that product will make the institution more attractive
to patients and the physicians who refer them.

Inpatient Revenue Streams &
Reimbursement
Arrangements

Medicare &
Hospital
Reimbursement
• With today’s aging population, approximately 50% of a
hospital’s revenue may come directly from Medicare.
• Medicare Part A is "Hospital Insurance." It helps pay for
inpatient hospital care, inpatient care in a skilled nursing
facility, home health care and hospice.
• Medicare Part A is financed primarily through federal payroll
taxes (FICA taxes) paid into Social Security by employers and
employees.
• The current FICA tax is 7.65 percent on both employees and
employers (15.3% total). Of this, 1.45 percent (2.9% total)
goes to the Medicare Part A Trust Fund.

Medicare &
Hospital
Reimbursement
Medicare structure its reimbursement to hospitals by:
q Cost finding which is a process of determining the amount
and cost of services that each cost center in the hospital
(such as pharmacy, laboratory, waste management, laundry,
etc.) provides to, or receives from, other cost centers.
q Costs can be broken down into direct costs (costs of
providing patient care) and indirect costs (administration,
telephones, housekeeping, etc.).
q Reimbursement is no longer based on the cost finding
process, hospitals still use cost finding principles to
supplement their regular accounting procedures.

Medicare
Hospital
Payment
System
q In 1983, Medicare instituted a payment system designed to drive
efficiencies rather than paying for services based upon a collection of
costs.
q Prospective Payment System (PPS): is a system of using pre-
determined prices to reimburse hospitals for services.
q Diagnosis Related Groups (DRG): are the classification system that is
used as the basis to determine what payment will be made under
PPS.
Example Illustration:
127 Heart Failure & Shock 1.0135 6.0 $6,667
209 Major joint reattachment 2.0902 5.0 $8,572
148 Major complicated bowel 3.3417 12.3 $17,893
088 COPD 0.9314 5.1 $$3,873
DRG Description
DRG
Relative
Weight
Average
Length of
Stay
Average
Medicare
Payment

Medicaid &
Hospital
Reimbursement
q Medicaid operates as a vendor payment program, with
payments made directly to providers such as physicians,
hospitals, and pharmacies.
q Each state has relatively broad discretion in determining (within
federally-imposed upper limits and specific restrictions) the
reimbursement methodology and resulting rate for services,
with three exceptions:
1) For institutional services, payment may not exceed amounts.
that would be paid under Medicare payment rates.
2) For disproportionate share hospitals, different limits apply.
3) For hospice care.

Reimbursement
Methodologies
Device Manufactures: Should understand how their product will affect the various
cost centers in the hospital such as purchasing, materials management, CFO,
pharmacy, nursing, laboratory, engineering, PACU etc. Hospital administration will
be interested in products that can demonstrate savings or efficiencies in the overall
cost of providing patient care.
Reimbursement Methodologies
Types of Reimbursement Methods
► DRG
► Straight Charge (% discount)
► Per Diem
► Case Rates

Reimbursement
Methodologies
q Diagnosis Related Groups (DRGs) represents a fixed payment
to the hospital for a single admission for a single patient.
q Straight Charge Structures In this methodology, hospitals
control the mark up on each of the services (through the
charge master) and therefore control their profit margin.
q Per Diem Reimbursement a fixed payment is assigned per day
to cover all services provided during the hospitalization.
q Case Rates are a fixed reimbursement payment methodology
based upon specific procedures or diagnosis and have a strong
similarity to DRG reimbursement.
A device manufacture who can demonstrate that their product will increase
the efficiency of medical care delivery will get the attention of hospital
decision makers. Providing “PROOF” on how your product will affect the cost
and complexity of care, use of resources and length of stay will go a long way
in demonstrating how your product should be preferred over others.

Utilization Control and Cost-
Containment Mechanisms

The
“Hospital Story”
In order to survive as an organization, hospitals must
operate efficiently, balancing their revenue and costs
well enough to pay their employees, maintain their
facilities, and prepare for investing in the future. The
practices of Precertification, Preadmission Testing,
Retrospective Review, Disease Management,
Managing Length of Stay and Cost Shifting, as well as
decisions regarding the use of outpatient facilities,
and alternatives to acute care, all influence the
financial well-being of the hospital while meeting the
medical needs of the patient.

Cost Containment
Mechanisms
Precertification is the process of seeking approval from the 3rd
party payer for benefits and payment before any services or
admission to a hospital occur.
Preadmission Testing Centers are being recognized for their
efficiency and cost effectiveness and are being established by
many medical centers.
Length Of Stay is the number of days a patient stays at a
facility. An average LOS can be calculated for the entire facility
and can be a general indicator of utilization for the facility.
Cost Shifting refers to the need for a provider such as a
physician or hospital to bill some patients or payers at higher
rates to make up for reimbursement from patients or payers
that don’t pay or pay at greatly reduced rates.

Key Takeaways for
Device Manufactures
q Understanding patient mobility through the processing
steps will identify product placement and where to provide
value based on length of stay and appropriate care
guidelines.
q Products that can help a patient transition from hospital
care to home care can be important to the hospital’s cost
containment strategy.
q Manufactures should understand how such a product may
be useful in promoting alternative site care.
q Length of stay is an important variable in cost containment
strategies. Manufactures should understand how their
product can improve the efficiency of patient care and
how it can help shorten the overall length of stay.

Regulatory Environment and
Quality Assurance

Regulatory Environment
It is important for Device Manufactures to recognize that changes made to
the established system of care, including delivery systems, medical devices,
and medications, can impact the record keeping, monitoring requirements,
and other tasks of personnel in affected hospital departments under the
watchful eye of JCAHO standards.
q JCAHO quality improvement initiatives encourage
measurement to establish a quality baseline, assessment of
current practices, and evaluation of opportunities for
improvement.
q JCAHO has developed an indicator measurement system,
focusing on the outcomes of clinical care, rather than
standards of the process of care.
q JCAHO is so well respected for quality standards, that many
states accept JCAHO accreditation in lieu of performing state
surveys.

JCAHO Standards
EXAMPLE:
JCAHO has established standards related to pain management.
These standards:
q Recognize the right of patients to appropriate assessment and
management of pain.
q Record the results of the assessment in a way that facilitates
regular reassessment and follow-up.
q Establish policies and procedures that support the appropriate
prescribing or ordering of pain medications.
q Ensure that pain does not interfere with a patient’s participation
in rehabilitation.
q Educate patients and their families about the importance of
effective pain management.

Quality Assurance
q Risk Management refers to the hospital’s systems put in place in
order to minimize the risk of injury to individual patients.
q In most cases causes of medical device issues have been
demonstrated to be 85% systems failure, and 15% individual
failure.
q Thorough Risk Management Plans help to identify and
investigate adverse incidences and near misses.
q Risk Management is an important function of the hospital
administration, and may involve a risk management coordinator,
and a risk management team.
q The Risk Management Team is responsible for investigating
incidents, determining adverse events, evaluating exposure,
managing claims, supervising litigation, and structuring indemnity
payments.

Example (Risk Management)
Failure Modes and Effects Analysis (FMEA) is a systematic method of
proactively improving a process to prevent failures from occurring. FMEA
is frequently used in the hospital to manage high risk procedures such as
administering dangerous IV medications. JCAHO has requirements for
hospitals to perform FMEA on at least some procedures on a regular
basis. IV patient-controlled analgesia has been a common target for
FMEA.
An FMEA identifies the opportunities for failure, or "failure modes," in
each step of the process. A complicated process such as IV-PCA has many
processes such as compounding drug cartridges, programming the
pumps, and cleaning the equipment. Each process step or “failure mode”
can be assigned a numeric score that quantifies (1) how likely the failure
will occur, (2) how likely the failure can be identified, and (3) how serious
a problem the failure is likely to cause.
A complicated process such as IV-PCA will have much more risk involved
in it than other types of pain management, such as oral or IM analgesics.
Device Manufactures should keep in mind that the hospital is always trying to
manage patient care, cost and risk when making decisions about purchasing
medical technologies in the hospital.

Keys for Device Manufactures
q Device Manufactures should be aware of the impact that
their new device can have upon compliance with
accreditation standards and be able to discuss the
advantages that a product has in this regard.
q Device Manufactures need to know how their product affects
risk management issues for the hospital and for individual
patients.
q Device Manufactures need to know how their product will
help a hospital to comply with CMS standards for efficiency.
q Device Manufactures should understand the impact their
product will have upon the finances of DSH.

Generating Product Demand
Commercial Infrastructure

Generating
Demand
4 Objectives:
1. It’s critical that you generate some type of “Inertia” that
delivers your products core messaging to drive whole hospital
acceptance following hospital committee approval.
2. From our previous discussion ensure that you can effectively
tailor your product’s value and verbalize core messaging that
will get wide user acceptance in the hospital.
3. Expect and react appropriately to key questions/objections you
may receive regarding your product and develop a
communication plan to address responses swiftly.
4. IMPORTANTLY, identify, develop, and implement KOL’s (Key
Opinion Leaders) in targeted hospitals to help promote product
throughout hospital. Allies are critical.

Typical Review Process
Note: this process could vary hospital to hospital
Product Status Review
Device Approval Process
Hospital Forms Committee Review
Executive Committee Review Hospital Training process
Product Utilization Review Educational Program
Nursing Training (In-Service)
Director of Nursing
Hospital Medical Education Dept
Hospital Protocols
Standard Order Forms
Hospital Policy/Procedures
Nursing Flow Sheet

Accelerating
User Access:
Education,
Demand &
Protocols
Product Pull-Through
Education/In-servicing
q Nursing
q Pharmacy
q Anesthesia
q Surgery
q Members of the
q Anesthesia
Committee
Hospital Policy/Protocol
q Standard Order Forms
q Algorithms
q Nursing Flow Sheets
q Hospital Purchasing
q Narcotics Pharmacist
q Members of Anesthesia
q Committee
Generating Demand
q Sell the Value Proposition
q Sell the differences of the
q delivery method
q Sell every Health Care
Provider
q Involved with the utilization
of product

Accelerating
User Access:
Education/In
-Servicing
EXAMPLE:
• Medical Education Department
• 200 Trained KOL Speakers
(Surgeons, Anesthesiologists, Nurses and Pharmacists)
• 200 programs budgeted through fiscal year
• 800 programs budgeted through fiscal year
• Account Representative In-Servicing
• Key Health Care Providers
• Anesthesiologists, Surgeons, Nurses, Pharmacists,
Anesthesia Committee, Other
• Nurse In-servicing
• “Nurse Response Team”
• Resident/Fellow In-servicing
• “Inspiring Innovation Program”

Accelerating
User Access:
Generating
Demand
q Selling the device’s “Value Proposition”
q Selling the difference in “Delivery Method”
q Strategic targeting of “King-Pin” customers
q Selling every Health Care Provider involved as the end user of the
chosen product

Accelerating
User Access:
Policy/Protocol
• Device Manufactures will work with Health Care Providers
according to hospital policy and protocol.
• Heath Care Provider Training and Support
• Appropriate “Patient Selection” is critical
• Inappropriate use can lead to unsuccessful product experience
and dampen product uptake
• Numerous healthcare providers have a stake in appropriate use of
device
• Educational resources and materials reflect HCP needs
• Device Manufacture should be committed to a comprehensive Risk
Management Plan

Summary
q Before launching a new device/technology in the
institutional setting, thorough profiling and planning is
critical.
q Identifying and developing KOL’s/Key Customer Targets
will be important in “generating demand” throughout
the entire institution.
q Understanding and adhering to the institution’s
policy/protocol will help the new device transition
process and help the “education process”.
q Having a proven “value proposition” placed on the new
device will demonstrate the “economic value” of the
product to the institution.
q Developing a “pull-through” strategy once the product is
approved, proper utilization through a thorough “risk
management” and education process will ensure a
favorable initial experience.

THANK YOU!
André Harrell (AH2 Management)

Commercializing Medical Devices

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