Johnson & Johnson Medical Device Companies Chief Strategic Customer Officer Tim Schmid discusses key trends in the healthcare industry and how Johnson & Johnson is evolving.
Q: What trends in the healthcare industry are affecting medical device companies today, specifically Johnson & Johnson?
Tim Schmid: The biggest trend impacting our business and how we work with customers is hospital consolidation. A significant majority of our business is now captured by the top health systems. In the majority of our interactions, we are a top three supplier to these big hospital systems.
The second major trend is the movement and creation of stronger relationships between surgeons, who have historically been very independent, and hospitals; they now have some sort of economic relationship with their hospitals or health systems.
In the past, our medical devices business has shown up to these health systems as many individual operating companies. We had 18 independent operating companies that focused on an independent disease state or technology as recently as five years ago. But as surgeons' relationships moved closer to the hospitals and health systems, we rethought our market strategy.
We brought together these operating companies into a more streamlined set of businesses under the umbrella of the Johnson & Johnson Medical Devices Companies and recently reinvented how we show up to these large health systems with a new commercial model.
Q: What is the advantage of bringing all the companies under one umbrella?
TS: Out of all the research we've done, we learned customers greatly value the quality and innovation we bring, not only in terms of products and services but also education. However, with the C-suite, they also want a single point of contact to make decisions on behalf of Johnson & Johnson. Now we have one group with a dedicated point of contact for all hospital systems in the country we work with.
Q: How do you see hospitals changing? What are you doing to respond to their needs?
TS: Hospitals are trying to reduce the number of vendors they work with to drive efficiency and effectiveness. We are seeing a rapid trend across all customers to reduce vendors and establish long-term partnerships with vendors who can sell across lines at a better price point. By coming forward with a more streamlined model, we can now contract across service lines.
We're also moving toward risk-based and innovative contracting methods vs. a one-size-fits-all approach.
Finally, we have invested in a new a strategic customer organization focused on bringing value-based solutions aligned with the Triple Aim. We want to help hospitals increase their competitiveness by attracting patients and building loyalty for the hospital.
Q: What can a medical device company do to help hospitals become more competitive?
TS: Every hospital is under tremendous pressure to reduce their cost structure on the back of eroding operating margins. If you look at the average hospital system among the 100 largest hospital systems in the country, they're trying to reduce their cost structure without in most cases touching people costs, so supply costs is what they go after. Additionally, we have to ensure we have competitive prices.
The progressive hospitals recognize supply costs are key, but the big cost reduction opportunities come from how they standardize care. We have a dedicated supply chain organization to leverage Johnson & Johnson capabilities to provide value for these customers.
We can now help hospitals manage their complex inventory systems to build a lean and highly functional supply chain as well as make sure they have a competitive price.
Q: How is J&J preparing for the future? What should we expect to see from the company as the healthcare system continues to evolve?
TS: It's absolutely important we as an industry recognize the pressure providers are under to provide better care and outcomes, and all at a lower cost. We want to engage surgeons and administrators in addressing this together; it’s a delicate but necessary balance.
It's also important to achieve physician alignment; hospitals and health systems can't provide more standardized, unified care without physician alignment. We’re working with third-party vendor Value Stream Partners to support episode performance improvement. There is also a subset of the market moving toward bundled payments, particularly in the joint reconstruction space. We are partnering with those hospitals to help them better manage the shift to value-based care.
We are also evolving our contracting model to share some of that risk with our customers. Under our new CareAdvantage capabilities, we are now offering a shared performance contract to help reduce the average episodic knee and implant patient cost through the application of our Digital Care Navigation and PATIENT ATHLETE® capabilities. Additionally, we've also offered hospitals a 90-day revision program for knee, hip or shoulder implants so that if the patient returns to the hospital within the first 90 days following surgery, we will provide the revision components for the procedure at no additional cost to the hospital.