Value based propositions starts with value focused contracts

Image Source: Company Websites

Image Source: Company Websites

Healthcare market is expected to grow not just in terms of numbers but also in terms of value propositions. This was thought, on foundation of which many reforms were structured and passed. However industry move on the same front became evident only recently, when there was an uptick in deals amid Medtech behemoths and Hospital centres, all revolving around value based contracts.

Value based healthcare contracting strategies saw an increased materialization in last few months. One common feature that was noticed in these partnerships was a relation that extended far beyond device sales, and stretched into an un-explored territory of streamlining running cost via various service packages.

One of the companies that were part of value based contract strategies was GE, which recently inked deal with Philadelphia’s Temple University Health System. Deal was in alignment with Jeff Immelt’s future plans for GE, and included upgrade of TUHS radiology centre, along with software support that health-centre could leverage to cut operational costs.

Deal surfaced up just after row of similar deals getting frozen between GE’s peers namely Siemens and Philips. While Philips landed a half billion dollar contract with WMC Health, Siemens locked hands with Canada based William Osler Health System.

The partnerships and contracts mark the beginning of an era where Hospital-Medtech relationship were not just to accomplish momentarily transactional tasks but spreads over continuous strategic task of reducing the operational spend. This fact is well prooven by the acknowledgment which outlined that GE-TUHS relation relied on the target of generating savings as high as USD 39 million over the contract tenure. These facts clearly outline that centre of these activities was to accomplish savings, which is a prime goal of hospital centres that are struggling to beat the bludgeoning cost pressures from various sides.

Key to execute this strategy lay in the development of technologies and platforms that reduce the operational cost at different layer. A simple example could be making the devices connected which helps in data sharing across physicians , patients and other associated personals , this reduces the cost of paper work, time requirement to execute patient treatment and other aspects, which on totality reduces the overall service cost to considerate amount.

Contracts amid various players in healthcare ecosystem will no longer be focused on tactical front , they are likely to expand and venture into strategic areas , where crux of the activity will lay in beating the cost pressures.

While the trend has just picked up, more similar deals will surface up in nearing future.

Keeping an eye for best strategy will drive the overall growth of healthcare sector.

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Mega mergers / Mega acquisitions speculation doesn’t seem to catch a break

M&A

Mega mergers seem to have caught up a great amount of traction in medtech arena.

Why so?

For obvious reason they help focus the operations and devise strategy specific to individual domains or sectors. Royal Philips , Dutch giant, is one such company which is on quest for mega mergers and is also open to closing small deals, provided it complements their current business focus. Company has hired BOFA to accomplish the task of scouting players that could ideally fit in their future growth plans.

Details about the Philips future plans and acquisition hunger were quoted in Bloomberg story, and have no confirmation from any sources as of now.

The news recently caught up attention as medtech journals acknowledged and published the story, going by the assumption that a company that shelled out USD 1.2 billion for Volcano could have some more appetite for acquisitions left.

M&A strategy of company basically complements its vision of standalone Healthcare business growth, growth which is greatly complemented by US market, a geography that drives more than 45% of global medtech sales. It also stands in alignment with their future move of hosting light biz IPO that would leave its divisions operate in silos. The structure hence left, would eventually require backing from acquisitions, and what could be ideal sector other than healthcare for such a venture.

According to certain sources potential fit for the mergers are Elekta, Varian Medical, two of the companies who share the business overlap & synergy with Philips current focus.

Medtech behemoths are all boarding on acquisition wagon sooner or later. This spree is rampant lately, mainly because of the convergence opportunities that consumer care products and healthcare platforms offer.

To back the above statement we have some lines from Philips CEO which stands testimonial to the fact that there is greater need for medtech OEMs to undergo following steps:

-separation

-focus

-acquire

– merge

– & restructure

“We are convinced that separation is the right next step on the journey to set up Philips well for the future.” He added, “We see professional health care and consumer markets converging into a single health continuum, enabled by connected health technology. With our combined Health Care and Consumer Lifestyle portfolios we will be able to capture opportunities from healthy living and prevention, to diagnosis, treatment, recovery and home care by addressing integrally the needs of consumers, patients and health care professionals.”

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