By Adam Lowry, Advisory Senior Manager, Deloitte and Touche LLP


In the sixth prediction of our report The Future Unmasked, we predict that long-term value-based care (VBC) arrangements for medtech companies will differentiate products that offer protection from price erosion, create long-lasting relationships with customers, and increase market share and revenue by being a preferred product in 2025.1 A major aspect in achieving this future is to promote new payment models that use innovative contracting and value-based arrangements. This week’s blog, by Adam Lowry, an advisory senior manager specialising in value based care and population health strategy for providers and health plans, appeared first as a US Center for Health Solutions, Health Forward Blog and explores how value-based contracting could benefit stakeholders across the medtech ecosystem.

Medtech manufacturers have been talking about the transition to value-based care for much of the past decade, and it remains a widely discussed topic among executives. Despite these conversations, the stacks of white papers, and countless conference sessions, VBC contracts in medtech remain largely stuck in the mud, even as they gain traction in the broader health sector.

The accelerating adoption of VBC in health care appears to be driven by several trends including unsustainable cost growth, fee-for-service (FFS) revenue declines during the COVID-19 pandemic, and an increased focus on health equity. Many health care delivery systems have doubled down on VBC (and on population-health strategies) and are forming strategic relationships with their payer partners.

While the pandemic altered the way many device manufacturers go to market, adoption of VBC contracts remains sluggish.2 For some hospitals and health systems, testing and treating COVID-19 patients left little time for negotiating, contracting, and reporting quality measures, which are essential for manufacturer VBC contracts. There appears to be a consensus in the medtech sector that you don’t want to run faster than your customers. If hospital and health systems aren’t demanding these arrangements, medtech companies aren’t likely to push for them.

However, many health care providers are facing what could be an unsustainable financial position, and they see VBC contracts with health plans as a potential lever to change the status quo. Close to 60 per cent of health plan and health system financial executives say moving to new payment models over the next three years is a top priority, according to a recent survey conducted by the Deloitte Center for Health Solutions. Several factors are pushing health plans and health systems toward VBC. They include:

  • declining FFS rates and a changing payer mix is creating margin pressure for hospital-centric systems
  • long-term financial success is dependent on an ability to grow market share and create stickiness with patients
  • payers and regulators are exerting pressure on cost through VBC contracts and utilisation management
  • new care-delivery models that focus on wellness require new payment models to fund required investments in capabilities
  • care has become unaffordable and inaccessible in some communities, which can exacerbate health-equity challenges
  • competitors can create price-erosion pressure by offering lower prices for similar products.

As more health plans and providers enter into VBC contracts, they have more of an incentive to expand those arrangements to device manufacturers to further control costs.

VBC contracts won’t work for every device

VBC shifts the conversation from a device to an outcome. VBC contracts make the most sense for medical devices that have a direct impact on patient outcomes and where the value might not be easy to quantify. If the value of a medical device is obvious for a medtech product, that value is typically built into the price. However, if the value of a device isn’t clear, the health system might want a discount to help counter the risk if the device doesn’t produce the expected outcomes. However, getting access to performance data for a device can be a significant hurdle for manufactures if the information is generated by health care providers. Manufacturers might need to conduct clinical studies to generate their own data.

Another challenge that has hindered adoption of VBC contracts in medtech might be linked to regulations. AdvaMed has been working with federal agencies to rethink some of these rules, particularly safe-harbour regulations and the anti-kickback statute. The statute makes it illegal to receive anything of value to induce or reward the referral of federal health care contracts. The statute was created in an FFS environment but could pose challenges for medtech companies that try to enter into alternative payment arrangements.

VBC can be a win-win-win-win

Under an FFS payment model, discounts for medical devices are typically tied to volume. In a VBC contract, prices are typically tied to performance and/or patient outcomes. These contracts are based on the sharing of risk, but that doesn’t mean one group has to lose for another to win. If done correctly, VBC contracts can benefit the manufacturer, the payer, the health system, and the patient. Consider this: A medtech company develops a product that reduces infection risk among patients who have a device implanted. Despite the benefit, the new product likely won’t be covered by the health plan, which means the health system has little incentive to buy it. However, if the manufacturer can demonstrate a reduction in infections, it might offer a performance guarantee through a VBC contract. On the flip-side, the manufacturer could agree to cover medical costs tied to unexpected infections.

It has been about a year since Deloitte teamed up with AdvaMed and several medtech companies to create a value-based care working group that we hope might be able to move the conversation into action. The AdvaMed Commercial Forum launched in early 2021 with the goal of increasing medtech participation in outcomes-based payment arrangements.

Adam Lowry

Adam Lowry - Advisory Senior Manager, Deloitte and Touche LLP

Adam has been at Deloitte for over 10 years and has worked across the health care industry, leading a diverse portfolio of engagements for over 75 different clients. He primarily works in the value based care space, supporting clients develop and execute on strategies to address payment model reform and care model transformation. This work has allowed him to gain experience across strategy, operations, technology, clinical and regulatory domains, from both a payer and provider perspective.

Email | LinkedIn


2 Like it or not, value-based contracting is coming for drugs and medical devices, MedCity News, April 22, 2021


Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.