Today's Health-Care Industry Focuses on Cost Containment

An MD&DI January 1997 Feature Article

VERBATIM

An interview with Clateo Castellini
Chairman, President, and CEO, BectonDickinson and Co.

There is no doubt that today's market for health-care products and services ischanging. At a time when progress continues to be made along the informationsuperhighway, patients, their families, and their employers are looking for waysto contain medical costs while still reaping the benefits of new medicaltechnologies. It is the market in which manufacturers of medical devicescurrently find themselves, and it is certainly different from the medicalmarketplace of 100 years ago, as Clateo Castellini, chairman, president, and CEOof BectonDickinson and Co. (Franklin Lakes, NJ), can attest. As head of a century-oldcompany that earns nearly $3 billion in annual revenues from domestic andoverseas sales, Castellini has a global perspective on the device industry. Inthis interview with MD&DI, he discusses the trends and challenges that willface medical product manufacturers in the years ahead.

What are the major changes occurring in today's health-care marketplace, and howare they affecting device companies?

Health-care costs have grown out of proportion in the United States, andsociety is beginning to make major adjustments to contain these costs. As aresult, several trends are emerging. Hospital and purchasing groups are formingto take advantage of economies of scale, which concentrate hospital purchasingpower as never before. Three organizations--the Columbia Health Care System, theVoluntary Hospital Association of America, and Premier--now have purchasingpower over 70% of the hospital beds in the United States. This sort ofconsolidated purchasing also takes place outside of the United States. In manycountries, purchasing power lies with the government, which provides health-carecoverage.

As a result, device companies must respond to their customers' efforts tocontain costs. For example, Becton Dickinson has reorganized its sellingactivities so that hospital organizations contract with the entire company.Customers now deal with only one entity as opposed to the separate BectonDickinson business units that contacted them previously. We used to operate withseven or eight such independent business units, each with its own costs andshipments.

Now, the customer sees one company, one order, one shipment, and one invoicefor Becton Dickinson products. Where traditionally our company representativessold to doctors, nurses, and laboratory personnel in the hospital, they nowwrite a contract with top hospital management for the whole product line. Actingas one company allows us to reduce costs. It's a big change in our way of doingbusiness compared to 10 years ago.

Advances in information technology have also helped device companies in termsof product delivery and cost containment. Information technology allows acompany to consolidate its orders and automate much of the distribution process.For instance, customers are now able to replenish their supplies of a company'sproducts automatically when those supplies fall below a specified level.

What types of medical products and procedures do you expect to emerge as aresult of current cost-containment efforts?

As health-care laboratories become fewer in number and larger in size, biggerlaboratory diagnostic machines with higher throughput and lower unit cost willcontinue to be sought. Automation becomes crucial to accomplish this, andautomated diagnostic instruments will fill this need.

At the same time, health-care cost containment has triggered the need forsmall, low-cost, quick-response diagnostic machines to be used at a patient'sbedside in a clinic, doctor's office, emergency room, or home. Examples of thesesorts of products are small automated blood analysis systems and smallhematology instruments used in clinics and doctors' offices.

Another promising product is the prefilled syringe. In U.S. hospitals, hospitalpharmacists generally fill syringes with medications every morning. In Europe,nurses usually fill syringes at a patient's bedside. With ready-to-use syringes,however, accurate dosages can be administered easily, saving hospitals both timeand money. Syringes may be basic, low-cost products, but they are used by everyspecialty on every hospital floor, and they're sold by the billions around theworld.

New technology will of course aid in making medical procedures possible in thenext 15 years that are less costly, less problematic, and less time-consuming,and that allow patients to return home faster. For instance, we can expect tosee more techniques like laparoscopic surgery, which minimizes trauma, speedsthe operation, is simpler, and costs less.

Disease management will also play an important role in the future. This conceptaddresses cost containment and emphasizes new technology. Today's newhealth-care organizations like to see someone who can manage a disease--someonewho can diagnose it, offer a drug therapy for it, and provide a device todeliver the drug. Companies that can provide these elements will be in a goodposition.

Becton Dickinson has for years been helping patients manage diabetes bysupplying insulin syringes and tests for blood-sugar levels. We are movingdeeper into diabetes management by supporting the International DiabetesCenter's Staged Diabetes Management program, which is a scientifically based,clinically piloted model for reducing variability and improving diabetes patientcare through better control of glucose levels. This sort of disease managementprogram is likely to become more common in coming years, when device companieswill work more closely with pharmaceutical companies to diagnose and treatcertain diseases.

In theory, many drugs would work very well if they had an easy-to-use test. Forexample, the correct dosage forMerck's drugfor osteoporosis depends on calcium concentration in the patient's bones. Todate, patients need to have their calcium monitored on a large hospital machine.But what if we could develop an easy-to-administer test at home or in thedoctor's office that would give precise readings of calcium levels? In such acase, the diagnostic test and the drug's success would go hand in hand. Weexpect to see more tests like this one that would be used in concert with drugtherapy and that would be easy to administer at home or in the doctor's office.

There will also be more partnerships and alliances between diagnostic, device,and drug companies to solve disease problems together. Here we will deploy ourspecial skills to solve a problem and, when limited to these projects, we willnot be regarded as a competitor of the pharmaceutical company. The increasinglymore costly, more difficult task of finding new drugs encourages this ad hocapproach.

How is the global market for health-care products and services changing?

Health-care spending in countries with underdeveloped health-care systems fallsmany times below that in the United States, Europe, or Japan, but the ratio isrising as these countries increasingly democratize and allow publicparticipation. As emerging countries begin to upgrade their health-care systems,they begin to adopt our products.

While health care hasn't yet reached large groups among the populations oflesser-developed countries, economic and political improvements in such regionsare bound to push health-care spending to higher levels. When people startparticipating more, the first thing they want is better health care. Sucheconomic improvements around the world will create strong demand in underfundedhealth-care systems and will help the device industry grow.

What sort of management techniques will companies need to implement to besuccessful in this global environment?

I believe in the implementation of a participatory management approach thatturns away from hierarchical, command-control style management. To gain thepower of an organization that is committed, involved, and participatory, youneed to dismantle the hierarchical structure in which the privilege of makingdecisions resides at the top and others are merely followers. We're currentlydoing this at Becton Dickinson. We are turning the organization almost upsidedown and replacing top-down management with more self-managed teams in whichpeople know what they have to do and then go do it. We also need to make peopleindependent in their jobs, so they can try things that are more innovative andimaginative and can make mistakes without the fear of always having to be right.

Part of spreading this new management approach is to work with middlemanagement to make them comfortable with something they might feel threatensthem. Much of corporate America is coming around to this management style.

Copyright © 1997 Medical Device & Diagnostic Industry