Clay Christensen defined disruption as an innovation that makes things simpler and more affordable (1). Typically, disruption is thought of as a technology or product. An example such as cardiology stents disrupting open-heart surgery comes to mind. However, business models can also be a disruptor. MinuteClinic is an example of a new business model, which has created value for patients by making care more affordable and simpler.
The hospital supply chain has historically suffered from opaque pricing and relatively little comparative data on the performance of technologies and supplies. Many argue that these factors have contributed to the increased costs of delivering healthcare. In a sense, the entire medical supply purchasing area could benefit from disruption. There’s a big opportunity to make purchasing simpler and more affordable.
Considering that acute care hospital supply chains purchase over $55 Billion annually in medical-surgical supplies, there’s a significant opportunity for disruption (2). With changes to the payment system, physician employment trends, aligned incentive on reducing costs and improving quality, and the evolution of the Internet, the seeds of disruption are now in place.
Of course, clever entrepreneurs and other players have figured this out. Over the past year or two, there have been a number of new entities launched aimed at disrupting medical supply purchasing. I wrote about some of these a few weeks ago. A couple of readers pointed out additional examples of new business models and entities trying to disrupt medical supplies purchasing by making things more affordable and simpler. Here’s a list of the disruptors:
- Novation recently announced that it has started a new entity, called Aptitude. This is an online exchange aimed at helping hospitals and medical suppliers directly negotiate prices and buy and sell products. This new entity is billed as an online marketplace, where hospitals and medical suppliers will now be able to directly negotiate prices, buy and sell products, and track purchasing commitments online. This exchange is billed as a resource to save time and money. In market testing, the system has been shown to shorten the contracting cycle from an average of 10 months to 33 days (3).
- Another example is Procured Health, which recently announced that it raised seed funding (4). This is a healthcare start-up that aims to help hospitals better discover, evaluate, and adopt quality medical devices. This company sees the opportunity in helping hospitals drive down spending on medical supplies.
- A recent clever start-up is MedPassage. MedPassage has a game-changing procurement platform that allows medical centers to access quality medical technologies for substantial cost savings (5). It aims to disrupt those procedures where the surgical technique and technology have matured to the point where technical sales support is no longer needed or can be performed by hospital personnel.
- Another type of business model is SharedClarity. This is a joint venture between Dallas-based Baylor Health Care System, San Francisco-based Dignity Health, and Illinois-based Advocate Health Care, along with UnitedHealthcare. The goal of SharedClarity is to improve patient outcomes by identifying the best-performing devices in a number of categories, including stents, defibrillators, pacemakers, knee and hip implants, and heart valves. SharedClarity will use the results of the studies to select the best devices for patients and negotiate affordable purchasing agreements with manufacturers (6).
- Curvolabs is another example. They are a start-up dedicated to “bending the cost curve” (7). It appears to be another company looking to disrupt the traditional supplier-purchaser model where suppliers spend substantial costs on sales and marketing and purchasers struggle with opaque information.
- Yet another example is CorCardia. They are a global medical supply chain firm that develops leading-edge inventory management solutions for medical device companies and hospitals. Their focus is cardiovascular practices. CorCardia’s mission is to reshape the cath lab supply chain to give customers essential therapeutic tools at a significant cost savings, strategic insight to inventory and utilization trends, and state of the art group purchasing opportunities (8).
All of these new start-ups are aimed at solving the same problem – take costs-out and bring value-into the purchasing process for hospitals. Each has a different business model and way of solving the problem. Which of these entities will ultimately win is anyone’s guess. With a huge amount of medical supply spending and lots of opportunity for disruption, there’s probably room for a number of proven solutions. For medical suppliers who are unprepared, this growing disruption is sure to create trouble.
Notes and References:
(1) The Innovators Prescription. C. Christensen, et. al. McGraw Hill
(2) Hospitals Embrace E-Procurement for Supply Chain Management – Enterprise Integration Is the Next Challenge. http://www.himssanalytics.org/. Accessed April 25, 2013.
(3) An ebay for medical devices? Brian Johnson. MassDevice.com. Accessed April 25, 2013.
(4) Empson, R., “Procured Health Nabs $1.1M From Bessemer, Athena Health Founder To Help Reduce Health Costs.” Techcrunch.com. Aug 8, 2012
(5) See MedPassage.com
(6) Three Large Health Systems and UnitedHealthcare Launch SharedClarity, a New Venture to Study Long-Term Effectiveness of Medical Devices. April 9, 2013. Accessed April 27, 2013.
(7) See Curvolabs.com
(8) See Corcardia.com