How do you turn an established medtech business into a digital health pioneer? Mitch Beaumont, Prashanth Prasad, Ulrica Sehlstedt and Mandeep Dhillon, from management consultancy Arthur D. Little explain.
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Recent advances in technology, along with changes in healthcare reimbursement models and care delivery pathways, have created opportunities for digital products and services to play an important role in healthcare. The benefits of digital, such as lowering costs, increasing patient engagement, and improving outcomes, have been discussed extensively[1]. Many new entrants and start-ups are taking advantage of the opportunity and challenging established healthcare companies, hoping to get a share of an industry that makes up about 10 percent of the global economy[2]. These organisations employ newer, more agile working models that are better aligned with being digital. A further advantage is emerging: regulators that have not been friendly to software products in the past have started to embrace new iterative development approaches to accommodate the growth of digital health[3].In contrast, established medical technology companies face a different picture. Their operational and cultural DNA has been steeped in rigid company processes that were created to minimise the risk of non-compliance with regulatory requirements such as FDA guidance. For many of them, results have been elusive as going digital has strained their current ways of doing business. In fact, being successful with digital products and services requires established companies to rethink their business models and the underlying operational models. This can be seen with some recent examples of established medical technology companies that have found levels of success.
Rethinking models – Roche Diagnostics
Roche Diagnostics saw insufficient outcomes from diabetes treatments and decided a more holistic approach was needed to manage diabetes. To that end, it adopted an ecosystem approach to connect and offer integrated digital solutions to all stakeholders involved in the diabetes management cycle, in order to optimise care processes and improve prevention.Before the ecosystem was created, Roche’s main value proposition was offering its diabetes management systems, such as glucose meters and insulin pumps. With the ecosystem, Roche could expand its value proposition for patients and enable “more time in range”, leading to fewer hospitalisations. Roche became a partner to patients, helping them manage their conditions, rather than just being a manufacturer of products. Operationally, Roche separated Roche Diabetes Care into a subsidiary with its own operating model to facilitate the creation of a world-leading big-data ecosystem for diabetes management. A new, global hub with the required digital and IT capabilities was created in Barcelona, and co-promotion and distribution partnerships were set up with a number of complementary companies, including Medtronic, mySugr and Senseonics.With this successful digital transformation, Roche went from only treating sick people in acute care settings to enabling treatment in chronic care and remote settings. In addition, it increased patient engagement to proactively assist in prevention by improving patient lifestyles.
A framework to guide the digital transformation
Based on our experience, and from assessing examples such as Roche, we have identified two sets of primary levers that executives can use to impact the changes to their companies’ business and operational models that are necessary to support a digital business. The specific levers used, and the degree to which they are “pulled”, will be unique to each company’s environment and its ultimate goals for digital. Most medical technology companies, including the examples cited above, will focus more on two or three of these levers, with more minor changes in the others happening.Business model levers• Value proposition. Digital products and services can enhance or shift a medical technology company’s value proposition in the market. For example, it can extend its products to provide remote-monitoring capabilities that improve care and reduce costs. Or it can offer tools such as applications and reminders to increase patient engagement and improve adherence. Typically, a digital business will want to build upon the company’s existing core value proposition, rather than creating a completely new one.• Value extraction. Most medical technology companies have focused on selling devices, or generating revenue per unit. However, monetisation of value can take on alternative forms with digital, such as service-oriented models, e.g., selling hours of operation for a home health device versus the device itself, and data-centric models, e.g., selling the data generated by the devices. These new models may require working with government payers and insurance companies to gain support for reimbursement.• Markets served. Digital can enable a company to shift or expand the markets it serves to open up new business opportunities. For example, digitally enabled products and services can be marketed to caregivers of the elderly or children who are willing to pay for access to data on activity or medication adherence to give them peace of mind. Alternatively, companies may be able to create new business relationships with other value-chain players, such as home health companies, by providing information that improves the effectiveness and efficiency of in-home care delivery.Operating model levers• Process/methods. Going digital requires new ways of working. Software development cycle times are faster, and will be more effectively enabled by agile methods, which are fundamentally different from existing linear or phase-gate approaches employed by most medical technology companies. Robust technology and portfolio management methods are needed to keep up with the faster pace of technology change and ensure R&D resources are invested in the right areas.• Delivery network. Becoming digital can create opportunities for medical technology companies to engage with a broader ecosystem to develop offers and reach the market. The complexity and system-like nature of many digital-centric solutions creates attractive opportunities to engage development and/or delivery partners.• Capabilities/footprint. Adding digital elements to a portfolio will require new capabilities in areas such as application development, data management and security. In addition, medical technology companies will require capabilities in areas such as consumer insight and behavioral economics to ensure their digital-health solutions meet patient/user needs and expectations. The organisational footprint should also be an important consideration to help gain technical talent or local market knowledge and access.
How to get started
There is a clear set of initial steps an established, analogue-native medical technology organisation should take to get started on a digital transformation. Even if an organisation has jumped into creating digital elements or dabbled in deploying a digital service, it will pay dividends to go through the steps to ensure there is a strategic alignment between what the market needs and what the company does.• Get a firm understanding of stakeholder needs, especially latent needs, of patients, users, and other relevant players independent of the application of digital.• Develop ideas into solution concepts, often with multiple ideas brought together into one.• Evaluate the implications to the business model and underlying operating models for each prioritised solution concept.• Only once the implications for the business model and operating model are understood can an organisation set its strategy and plan for going digital.ConclusionThere is significant value to be captured with digital products and services in the healthcare industry. Many new entrants are well positioned to compete because their models are oriented towards software development – more so than existing, analog-native medical technology companies, which are organised to comply with regulations. For these companies, going digital will require significant business- and operational-model changes.
[1] Succeeding with Digital Health – Winning offerings and digital transformation, Arthur D. Little, March 2016
[2] In the United States, the world’s largest economy, health expenditure is over 17% of GDP. Source: World Bank Data (data.worldbank.org)
[3] As an example, see the US FDA’s Digital Health Software Precertification (PreCert) Program at www.fda.gov
