This slide presentation is for illustration purposes only and to show how AH2 & Beyond can help you devise a plan to drive business growth in the hospital space with your new medical device/technology.
Introducing New Medical Devices in the "Hospital Business Environment"
Technology, Capital Equipment, and
Medical Devices and Competing in the “Hospital Business Environment”
This slide presentation is for
illustration purposes only and to show
how AH2 & Beyond can help you
devise a plan to drive business growth
in the hospital space with your new
This presentation will discuss the business issues surrounding technology
and capital equipment, and the role of specialized patient care units and
non-acute patient care facilities as part of the hospital business
Subjects in this presentation will include:
Describing the process of how technology & capital equipment is
Explain several types of care that are delivered through specialized
Explain how hospitals use for-profit subsidiaries to strengthen their
Describe ways in which hospitals are growing their business and how
you can work with them to maximize yours.
The purchase of “Medical Capital Equipment” is a multilayered
process, involving several departments, and the authorization of
hospital executives. In addition, capital equipment needs to be
managed and maintained after purchasing.
Hospital units are often specialized, in order to care for specific
medical needs. These specialized units will have unique
equipment, training needs, and pharmaceutical use.
Hospitals have developed for profit outpatient services that serve
the purpose of attracting patients to the hospital, managing health
care needs more efficiently, and increasing the hospital’s profit
Hospitals need to compete for patients within a given geographical
area. Specialized inpatient services, which can be marketed to
patients and physicians can help grow the business of the hospital.
Technology & Capital Equipment
Technology has relieved in part, some of the burden of patient care in
Monitors and pumps that regulate the delivery of medication are
examples of technology that has advanced care and improved
Hardware, software, computerized drug delivery and drug inventory
make it possible for larger hospitals to operate more efficiently as
hospital costs continue to increase.
Electronic procurement, ordering, billing and meeting purchasing
thresholds have allowed progressive hospitals to remain profitable.
Purchasing Capital Equipment
Key Elements in Purchasing Capital Equipment (Hospital Perspective)
Legal purchase order forms
Authorization to make the capital purchase
A clearly defined requisition process
A list of approved suppliers
An established procedure for obtaining competitive bids from
A method of tracking and expediting open purchase orders
Ensuring proper credit is issued for returned goods
A method of monitoring and documenting supplier performance
A method of monitoring timeliness and effectiveness of the
performance of the purchasing department
Purchasing Capital Equipment
Purchasing capital equipment is a top-down process.
Expensive equipment purchases, such as intravenous
pumps, electronic monitors, and respirators are carefully
considered by multiple departments and stakeholders in the
Such capital expenditures frequently require the approval of
the CEO of the hospital, finance committee and the board
Competitive bidding is a standard procedure used in order
for the hospital to get the most favorable price on capital
Requests for bids are sent out to preferred vendors and
evaluations of those bids are made
Specialized Hospital Units
The development of specialized units leads to greater
efficiency and quality of care for several reasons.
Patients with similar diagnoses typically require similar
equipment, medications, procedures and staff with experience
in a special group of disease states or medical conditions.
For example, grouping all patients with cardiac conditions on
a cardiac nursing floor will allow the hospital to have the
correct equipment (cardiac monitors, defibrillators) and
specially trained staff placed in the most useful location.
The nurses who are trained to work on such a unit will
develop a great level of expertise in the use of the required
equipment, and in administering the array of medications that
cardiac patients will need.
Non-Acute For Profit Subsidiaries
Hospitals often offer a variety of services:
Home Health Care Services
Urgent Care Centers
Home Infusion Services
Diagnostic Imaging Facilities
Ambulatory Surgical Units
Outpatient Therapy Centers
Offering a variety of outpatient services to the public
provides advantages including meeting the healthcare
needs of the community and generating additional revenue.
Hospitals strategically market their services to the
socioeconomic area they serve, such as meeting special
language or cultural needs of patients within a community.
Finally, many hospitals find that these complimentary
outpatient services offer a higher profit margin than
inpatient hospital care.
Hospital Business Growth
(Opportunities for Device Manufactures)
Hospitals have several methods of growing their business. Inpatient and outpatient services
can be marketing tools to generate additional interest in the hospital and increase inpatient
hospital revenue. Hospitals compete with one another using breadth of services and
accessibility to meet the needs of the community and attract physicians and their patients.
Outpatient Services and clinics are a rapidly growing area that hospitals use to attract
Opportunities for Device Manufactures:
Manufactures should investigate the impact that their product may have
upon the use or need for capital equipment.
Any product which simplifies, user friendly, efficient and reduces hospital
cost will be attractive to the hospital administration.
Offering “Best In Class” educational programs and insight into the most
efficient ways to handle the specific medical needs of these units.
Manufactures can capitalize on the market value of their product if they
have an understanding of how that product will make the hospital more
attractive to patients and the physicians who refer them.
Medicare & Hospital
With today’s aging population, approximately 50% of a hospital’s
revenue may come directly from Medicare.
Medicare Part A is "Hospital Insurance." It helps pay for inpatient
hospital care, inpatient care in a skilled nursing facility, home health care
Medicare Part A is financed primarily through federal payroll taxes
(FICA taxes) paid into Social Security by employers and employees.
The current FICA tax is 7.65 percent on both employees and employers
(15.3% total). Of this, 1.45 percent (2.9% total) goes to the Medicare
Part A Trust Fund.
Medicare & Hospital
Medicare structure its reimbursement to hospitals by:
Cost finding which is a process of determining the amount
and cost of services that each cost center in the hospital (such
as pharmacy, laboratory, waste management, laundry, etc.)
provides to, or receives from, other cost centers.
Costs can be broken down into direct costs (costs of providing
patient care) and indirect costs (administration, telephones,
Reimbursement is no longer based on the cost finding
process, hospitals still use cost finding principles to
supplement their regular accounting procedures.
Medicare Hospital Payment System
In 1983, Medicare instituted a payment system designed to drive
efficiencies rather than paying for services based upon a collection of
Prospective Payment System (PPS): is a system of using predetermined prices to reimburse hospitals for services.
Diagnosis Related Groups (DRG): are the classification system that is
used as the basis to determine what payment will be made under PPS.
Heart Failure & Shock
Major joint reattachment 2.0902
Major complicated bowel 3.3417
Medicaid & Hospital
Medicaid operates as a vendor payment program, with payments
made directly to providers such as physicians, hospitals, and
Each state has relatively broad discretion in determining (within
federally-imposed upper limits and specific restrictions) the
reimbursement methodology and resulting rate for services, with
1. For institutional services, payment may not exceed amounts that
would be paid under Medicare payment rates.
2. For disproportionate share hospitals, different limits apply, and
3. For hospice care.
Device Manufactures: Should understand how their product will affect the various
cost centers in the hospital such as purchasing, materials management, CFO,
pharmacy, nursing, laboratory, engineering, PACU etc. Hospital administration will
be interested in products that can demonstrate savings or efficiencies in the overall
cost of providing patient care.
Types of Reimbursement Methods
► Straight Charge (% discount)
► Per Diem
► Case Rates
Diagnosis Related Groups (DRGs) represents a fixed payment
to the hospital for a single admission for a single patient.
Straight Charge Structures In this methodology, hospitals
control the mark up on each of the services (through the charge
master) and therefore control their profit margin.
Per Diem Reimbursement a fixed payment is assigned per day
to cover all services provided during the hospitalization.
Case Rates are a fixed reimbursement payment methodology
based upon specific procedures or diagnosis and have a strong
similarity to DRG reimbursement.
A device manufacture who can demonstrate that their product will increase the
efficiency of medical care delivery will get the attention of hospital decision makers.
Providing “PROOF” on how your product will affect the cost and complexity of
care, use of resources and length of stay will go a long way in demonstrating how
your product should be preferred over others.
Utilization Control and Cost-Containment
In order to survive as an organization, hospitals must operate
efficiently, balancing their revenue and costs well enough to pay
their employees, maintain their facilities, and prepare for
investing in the future. The practices of Precertification,
Preadmission Testing, Retrospective Review, Disease
Management, Managing Length of Stay and Cost Shifting, as well
as decisions regarding the use of outpatient facilities, and
alternatives to acute care, all influence the financial well-being of
the hospital while meeting the medical needs of the patient.
Cost Containment Mechanisms
Precertification is the process of seeking approval from the third party payer
for benefits and payment before any services or admission to a hospital
Preadmission Testing Centers are being recognized for their efficiency and
cost effectiveness, and are being established by many medical centers.
Length Of Stay is the number of days a patient stays at a facility. An average
LOS can be calculated for the entire facility and can be a general indicator of
utilization for the facility.
Cost Shifting refers to the need for a provider such as a physician or hospital
to bill some patients or payers at higher rates to make up for reimbursement
from patients or payers that don’t pay, or pay at greatly reduced rates.
Key Takeaways for
Understanding patient mobility through the processing steps will
identify product placement and where to provide value based on
length of stay and appropriate care guidelines.
Products that can help a patient transition from hospital care to
home care can be important to the hospital’s cost containment
Manufactures should understand how such a product may be
useful in promoting alternative site care.
Length of stay is an important variable in cost containment
strategies. Manufactures should understand how their product can
improve the efficiency of patient care and how it can help shorten
the overall length of stay.
It is important for Device Manufactures to recognize that changes made
to the established system of care, including delivery systems, medical
devices, and medications, can impact the record keeping, monitoring
requirements, and other tasks of personnel in affected hospital
departments under the watchful eye of JCAHO standards.
JCAHO quality improvement initiatives encourage measurement to
establish a quality baseline, assessment of current practices, and
evaluation of opportunities for improvement.
JCAHO has developed an indicator measurement system, focusing
on the outcomes of clinical care, rather than standards of the
process of care.
JCAHO is so well respected for quality standards, that many states
accept JCAHO accreditation in lieu of performing state surveys.
JCAHO Established Standards
JCAHO has established standards related to pain management. These
Recognize the right of patients to appropriate assessment and
management of pain.
Record the results of the assessment in a way that facilitates regular
reassessment and follow-up.
Establish policies and procedures that support the appropriate
prescribing or ordering of pain medications.
Ensure that pain does not interfere with a patient’s participation in
Educate patients and their families about the importance of effective
Quality Assurance (Risk Management)
Risk Management refers to the hospital’s systems put in place in
order to minimize the risk of injury to individual patients.
In most cases causes of medical device issues have been
demonstrated to be 85% systems failure, and 15% individual failure.
Thorough Risk Management Plans help to identify and investigate
adverse incidences and near misses.
Risk Management is an important function of the hospital
administration, and may involve a risk management coordinator,
and a risk management team.
The Risk Management Team is responsible for investigating
incidents, determining adverse events, evaluating exposure,
managing claims, supervising litigation, and structuring indemnity
Example (Risk Management)
Failure Modes and Effects Analysis (FMEA) is a systematic method of proactively
improving a process to prevent failures from occurring. FMEA is frequently used in
the hospital to manage high risk procedures such as administering dangerous IV
medications. JCAHO has requirements for hospitals to perform FMEA on at least
some procedures on a regular basis. IV patient controlled analgesia has been a
common target for FMEA.
An FMEA identifies the opportunities for failure, or "failure modes," in each step of
the process. A complicated process such as IV-PCA has many processes such as
compounding drug cartridges, programming the pumps, and cleaning the
equipment. Each process step or “failure mode” can be assigned a numeric score
that quantifies (1) how likely the failure will occur, (2) how likely the failure can be
identified, and (3) how serious a problem the failure is likely to cause.
A complicated process such as IV-PCA will have much more risk involved in it than
other types of pain management, such as oral or IM analgesics.
Device Manufactures should keep in mind that the hospital is always trying to manage
patient care, cost and risk when making decisions about purchasing medical
technologies in the hospital.
Key Takeaways for
Device Manufactures should be aware of the impact that their new
device can have upon compliance with accreditation standards and
be able to discuss the advantages that a product has in this regard.
Device Manufactures need to know how their product affects risk
management issues for the hospital and for individual patients.
Device Manufactures need to know how their product will help a
hospital to comply with CMS standards for efficiency.
Device Manufactures should understand the impact their product
will have upon the finances of DSH.
It’s critical that you generate some type of “Inertia” that delivers
your products core messaging to drive whole hospital acceptance
following hospital committee approval.
From our previous discussion ensure that you are able to
effectively tailor your product’s value and verbalize core
messaging that will get wide user acceptance in the hospital.
Expect and react appropriately to key questions/objections you
may receive regarding your product and develop a
communication plan to address responses swiftly.
IMPORTANTLY, identify, develop, and implement KOL’s
(Key Opinion Leaders) in targeted hospitals to help promote
product throughout hospital. Allies are critical.
Typical Review Process
Note: this process could vary hospital to hospital
Product Status Review
Device Approval Process
Executive Committee Review
Hospital Forms Committee Review
Hospital Training process
Product Utilization Review
Standard Order Forms
Nursing Flow Sheet
Nursing Training (In-Service)
Director of Nursing
Hospital Medical Education Dept
Accelerating User Access:
Education, Demand & Protocols
Standard Order Forms
Nursing Flow Sheets
Sell the Value Proposition
Members of the
Sell the differences of the
Sell every Health Care Provider
involved with the utilization of product
Members of Anesthesia
Accelerating User Access:
Education / In-Servicing
Medical Education Department
200 Trained KOL Speakers
(Surgeons, Anesthesiologists, Nurses and Pharmacists)
200 programs budgeted through fiscal year
800 programs budgeted through fiscal year
Sales Representative In-Servicing
Key Health Care Providers
Anesthesiologists, Surgeons, Nurses, Pharmacists,
Anesthesia Committee, Other
“Nurse Response Team”
“Inspiring Innovation Program”
Accelerating User Access:
Selling the device’s “Value Proposition”
Selling the difference in “Delivery Method”
Strategic targeting of “King-Pin” customers
Selling every Health Care Provider involved as the end user of the
Accelerating Use Access: Hospital
Policy / Protocol
Device Manufactures will work with Health Care Providers
according to hospital policy and protocol.
Appropriate “Patient Selection” is critical
Heath Care Provider Training and Support
Inappropriate use can lead to unsuccessful product experience
and dampen product uptake
Numerous healthcare providers have a stake in appropriate use of
Educational resources and materials reflect HCP needs
Device Manufacture should be committed to a comprehensive Risk
Before launching a new device/technology in the hospital setting, thorough
profiling and planning is critical.
Identifying and developing KOL’s/Key Customer Targets will be important in
“Generating Demand” throughout the entire hospital.
Understanding and adhering to the hospital’s policy/protocol will help the new
device transition process and help the “Education Process”.
Having a proven “Value Proposition” placed on the new device will
demonstrate the “Economic Value” of the product to the hospital.
Developing a “Pull-Through” strategy once the product is approved, proper
utilization through a thorough “Risk Management” process and education to
appropriate hospital personnel will ensure a favorable initial experience.
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