Medtech industry: In this ACO world, take pricing cues from biopharma, posthaste

By now, you’ve heard the medical device industry landscape is shifting. The term “innovation” needs new life breathed into it in the life sciences, major companies are turning over their business models to take a larger bite of the care continuum, value takes precedence over volume in an ACO-ACA world, around which M&A is whirling. […]

By now, you’ve heard the medical device industry landscape is shifting. The term “innovation” needs new life breathed into it in the life sciences, major companies are turning over their business models to take a larger bite of the care continuum, value takes precedence over volume in an ACO-ACA world, around which M&A is whirling.

Deloitte’s report, “The three rules in medical technology,” advises medical device companies to shift gears a bit and follow four pillars (yes, four), a new set of rules that basically underscores these premises. The first three pillars — redefine innovation, rethink commercial models and articulate value for the new healthcare economy — are the major warning signs of 2013. Many of these shifts will be gradual or take lots of time, especially for global companies. (“In that way, the younger innovative companies have an advantage because they don’t have as much locked in in terms of the way they do business,” Glenn Snyder, principal medical technology practice leader at Monitor Deloitte, said.)

But what’s the one thing medical device companies should do now to ensure future success (and survival)? Look toward biopharma for examples of advanced pricing capabilities, Snyder said.

“That’s critical for today. Short-term: I need that pricing capability now,” he said.

While medtech may be held back by long contracting cycles for pricing, in a healthcare landscape ever more ACO-driven, innovative pricing strategies will need to come into play. The experts weren’t even able to locate a public example of advanced medtech pricing, so they point to biopharma, where there’s already been a lot of experimenting and flexibility in pricing structures.

“We can look to biopharma as a proxy and an indicator of what medtech can do,” Snyder said.

EMD Serono, for example, created a pricing structure where it shared risk with the hospital for its MS drug Rebif. According to the report:

The first agreement offered additional rebates to Cigna when patients on Rebif had more hospitalizations and emergency room visits than expected. In exchange, Rebif received favorable formulary placement. As it developed more advanced pricing and data analytics capabilities, EMD Serono was able to offer an even more innovative version of this contract to Prime Therapeutics. Rebates were tied to the overall cost of care relative to MS patients using other drugs. The agreement created aligned incentives for all stakeholders — patient, payer and manufacturer — by potentially increasing Rebif’s prescribing volume, generating cost savings and improving outcomes.

Actonel, an osteoporosis drug put out by Procter & Gamble and Sanofi-Aventis, put its money where its mouth was, ponying up an outcome-based reimbursement plan for compliant patients if the drug proved ineffective. Ultimately, this got the drug into the hands of more patients it could help, because it erased Health Alliance’s efficacy worries, according to Deloitte’s brief “Value-based pricing for pharmaceuticals.”

Snyder stressed there’s a big range in the types of partnerships and pricing deals to be struck, including caps on amounts spent, which is often used in oncology, to something more outcome-oriented.

Bottom line: One of the big secrets to successful advanced pricing negotiations is knowing how to harness data to, in Snyder’s words, “prove out value.” Don’t send a rep to the bargaining table without it.

The other: That buzzword “value” is now linked to pricing. If you believe in your product, find an amenable situation for the company to reassure consumers, which include the patient now.

But being inventive and working pricing so the deal itself becomes a value-driver will prove key.

Follow MedCity News on Facebook and Twitter for more updates.