Medtronic, the US medical devices company, has won contracts to take over the management of important cardiology services at two leading English National Health Service entities, as it diversifies into healthcare delivery. The announcement highlights an interesting transition that is taking place across a number of industries: traditional manufacturers are moving from making things to providing solutions and services. Well-known is GE’s growing focus on services. Instead of selling a wind turbine, GE will now try to sell a 10 or 20 year contract for the delivery of electricity from the turbine. Finance, installation, monitoring and maintenance services, etc. – it’s all included.
In healthcare, the same migration from product focus to service delivery can be observed across the world. Leading healthcare ‘manufacturers’ have begun the process of re-inventing themselves as service companies. Last week not only saw the announcement of the Medtronic contracts in the UK. German Fresenius, that started life manufacturing dialysis equipment, confirmed the move into services by spending €3bn acquiring over 40 hospitals.
In pharma, ”moving beyond the pill” is receiving a lot of attention at board level. Most large pharma companies have announced ’service’ initiatives. In the UK, Janssen Innovation has begun delivering services relating to earlier discharge of hip replacement patients. GSK is running a number of pilots looking to better serve patients with chronic conditions and MSD has launched a Telehealth service.
The Medtronic move marks an important shift away from the sale of equipment to the delivery of services. Medtronic will supply NHS trusts with end-to-end management of their catheterisation laboratories and be responsible for producing diagnostic images of the heart and arteries. The company will be providing staff in hospitals to run day-to-day management, as well as supplies and training and acquisition of new devices.
Why this move to services?
We think a number of factors are coming together:
- Commissioners/payers are increasingly focussing on clinical outcomes – how, or with what equipment, the outcome is achieved is less relevant;
- As healthcare becomes more personalised, the ability to deliver better outcomes increasingly relies on end-to-end control of the process, as opposed to a magic pill or a miracle medical device;
- End-to-end control of the care delivery process and use of big data has the potential to continuously refine and improve the service ; and
- Price pressure is driving providers to seek other areas to capture value. Embedded service propositions are hard to kick out and may, therefore, over time be more profitable.
We believe the transition to services has just begun and that this approach offers significant opportunities for the healthcare community to deliver better outcomes at lower cost.