Rumors circulated this week that Cardinal Healthcare is in talks to buy Cordis, a manufacturer of medical devices. If this is true, it’s yet another sign that the cost-out and value-in medical supply ecosystem continues to evolve. I’ve written in the past about this cost-out/value-in ecosystem. It’s comprised of new and existing players who are focused on helping hospitals take costs out of supplies and bring value into supply decisions.
U.S. hospitals and other providers face unprecedented change. Reimbursement cuts, pressure to improve quality and outcomes, consolidation, and new reimbursement models are just some of the forces driving change. Supply costs and extracting more value from the supplier network have become increasingly in focus as an opportunity.
Products in the mature stage of the product lifecycle face increased commoditization. One way buyers reduce supply costs is to smartly manage specifications, and use “good enough” solutions. This, often in combination with removing unnecessary or costly services, helps buyers take costs out. The “rep-less” medical sales model is an example of removing or reducing service costs. This can be done separately or in conjunction with the use of generic or private label supplies.
It’s not surprising that both traditional distributors and GPOs have been growing their private label medical supplies business. Earlier this month, the GPO Premier reported earnings. The products business, which includes direct sourcing of commoditized supplies and specialty pharmacy, grew 41% for the six months ended December 31, 2014. As pressure intensifies to reduce costs, look for generic devices and supplies to take hold and grow. This includes offerings from distributors, GPOs, and new generic manufacturers.
For traditional medical devices and diagnostics suppliers, it’s interesting times. The ecosystem is evolving more rapidly than ever. Channel partners are becoming competitors. GPOs are both friend and foe. New start-ups are disrupting how customers buy, and altering the traditional supplier-physician relationships. A clear understanding of the shifting ecosystem and a strategy to deal with it are more important than ever. Are you ready?