Crossroad for Cath Labs: Outsourcing Is Moving In

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The role of some cardiac device makers is evolving in the cath lab as they expand from selling products to providing services and solutions. It’s a trend that is likely to continue globally.

Nudged by necessity

About four years ago, Kevin F. Fox, MD, faced a predicament. His hospital system needed new equipment for catheterization labs but lacked the capital to buy it. As chief of cardiology at Imperial College Healthcare NHS Trust in London (U.K.), he and administrators weighed their options. They could lease equipment from a vendor, but over time that likely would be even more costly than buying. Going to the other extreme, they could negotiate with a third party to provide a cath lab and then send their patients there.

The U.K. health system was also warming up to the idea of public–private partnerships, a shift that allowed Imperial College to take a novel approach that didn’t require capital and wouldn’t add costs long term or force them to shuttle patients elsewhere. They could bring in a company that would carry the upfront cost of the equipment and provide both advisory services and nonclinical staff to help make the cath labs more efficient. In return, Imperial College would repay the company on a per-case basis over a seven-year contract.

The company? Medtronic, a nearly 70-year-old manufacturer of cardiac devices and other technologies.

With some trepidation, Imperial College signed on the dotted line in 2013 to work with a fledgling arm of Medtronic called Integrated Health Solutions. As of the third quarter of the 2017 fiscal year, the Medtronic group had 124 contracts valued at $2.6 billion over six years with health systems in Europe, Canada, Latin America, the Mideast, Africa and—a first—the U.S., with an agreement unveiled in late 2016 with University Hospitals in Cleveland.

“For me, the concerns about what might go wrong, losing control, etc., just didn’t happen,” Fox says. “On Wednesday morning I was working with a fully staffed, fully stocked cath lab getting through work and not having to worry about things like, have I got the right kit.”

 

Jonas Funk, L.E.K. Consulting

 - Jonas Funk, L.E.K. Consulting

From products to problem solving

The transition from a traditional medical device maker into a diversified business that markets services, solutions and added value to health systems isn’t unique to Medtronic. Boston Scientific rolled out Advantics in 2015, a group that sometimes partners with other companies to help hospitals address strategic needs. Imaging, information technology and other industries also have made arrangements with hospitals that go beyond simply supplying a product.

It is a growing trend, according to industry analysts. In a survey of more than 150 hospital administrators in the U.S., respondents placed increasing value on a range of services from medical technology companies between 2014 and 2016 (see figure on page 9). Providing financial and capital services and outsourced nonclinical functions showed the biggest spikes. The study was conducted by L.E.K. Consulting, an international firm with offices in Boston and Chicago.

The increased emphasis on value and accountability in the U.S., Europe and elsewhere is forcing health systems to look outside their own institutions for solutions, says Jonas Funk, managing director and partner at L.E.K.’s Chicago office and co-author of the “2016 Strategic Hospital Priorities Study.” 

 “Given the tightening of the screws and the challenges the hospitals are facing, they are becoming more receptive to how to benefit from the expertise and standardization potential that external partners can help give to them,” says Funk, who has been studying the medical tech sector for about 20 years. “We are seeing not only an increase to receptivity to deeper partnership, which I think is consistent with what Medtronic is doing with University Hospitals, but we are also seeing increases in outsourcing.” 

The global cardiac device companies say that they are well positioned to identify and share best practices in the cath lab because their staff have observed practices around the world. Industry proctors, for instance, give physicians guidance on techniques and devices during product rollouts. Their role is essential until physicians have gained sufficient expertise, observes Srihari S. Naidu, MD, the lead author of the Society for Cardiovascular Angiography and Interventions’ 2016 expert consensus statement on best practices in the cath lab (Catheter Cardiovac Interv 2016;88[3]:407-23).