Operating Room Outsourcing Services
Introduction Today s global operating room equipment (ORE) and anesthesia device (AD) markets are undergoing crucial structural changes. Manufacturers are confronting an increasing market maturity and declines in product-centric sales. They are facing challenges managing the transition to client-centric business models. Even though those changes might appear to be a big threat for today s market leaders, numerous examples of other industries have shown that great opportunities can arise from such dynamics. For several years technological innovation has been the key factor for success in the medical device industry. However, in times where Asian contenders are catching up and existing manufacturers face a growing mismatch between risk and reward of product innovations, technological leadership might no longer be a sufficient source of competitive advantage. Recognizing this, manufacturers constantly look for new business services that drive innovation beyond the product and offer the unique opportunity to differentiate from competitors. This report explores a new business model, the Operating Room Outsourcing Services (OROS), developed to help manufacturers of operating room equipment and anesthesia devices address market challenges. The core of this new concept is outsourcing services in operating rooms from hospitals and surgical centers to manufacturers. This means manufacturers will supply equipment and function in the future as the operator of an entire surgical suite.
Thesis 1 Accenture Research shows that the medical equipment technology market will continue to grow, but will shift to emerging markets and new forms of business. The Medical Device Market For many years the global overall medical device market has had sustainable growth. But times are changing. While the market was still growing in double figures at the beginning of the century (CAGR of 15.1% in 2003, respectively 15.3% in 2004) 1, growth rates have declined to only fractions of what they were before (CAGR of 5.5% in 2013) 2. Developed countries such as Germany, Japan, and the United States have historically driven growth. But developing countries, especially China and India, will be the main contributors in future years. Although the market is maturing in developed countries, they will remain of great importance to manufacturers. The U.S. medical device market, for example, has a present volume of $127.1 billion and is projected to grow at a CAGR of 6 percent 3 until 2018. As such, it will remain by far the world s largest market. By contrast, Germany is the largest market for medical devices in Europe representing a volume of $25.6 billion. The market is expected to expand at an annual rate of 5 percent reaching $32.3 billion by 2018. 4 Meanwhile, the Chinese market -- the leading force among emerging markets -- is currently valued at $17.1 billion. But it is expected to grow to $40.4 billion by the end of 2018 with an annual growth rate of 19 percent. Factoring in this growth, China will outstrip the German market and leave Japan behind, rising to become the largest Asian market. In Focus: The Global Operating Room Equipment Market In the operating room equipment industries, which includes anesthesia and respiratory devices, patient monitoring systems and surgical equipment, the global market volume totaled $24.3 billion in 2012 and will expand to $32.1 billion by the end of 2018. The markets as a whole will growth annually at nearly 5 percent. 5 Accenture expects market growth in operating room related equipment to follow the development of the overall medical equipment market. Future growth will shift to emerging countries such as China and India while mature markets such as the US, Japan and Germany will still play an important role. Figure 1: Operating room related equipment market overview Forecast in billion USD 5% 49% 50% 27% 27% 24% 27% 2012 2018 Anesthesia and respiratory devices Patient monitoring Surgical equipment Source: Accenture Research market estimates based on multiple sources 1/2 Accenture (2011): High Performance Study Reinventing Medical Technology for a Dramatically Different Future, page 4 3 Copyright Business Monitor International Ltd. Source: United States Medical Devices Report, November 2013. 4 Copyright Business Monitor International Ltd. Source: Germany Medical Devices Report, December 2013. 5 Accenture Research market estimates based on multiple sources 3
Thesis 2 As product-centric sales decline, manufacturers need to manage the transition from product-centric sales to client-centric sales to keep revenue streams high. Why innovation beyond the product is necessary In the past, product innovation and technological leadership drove the operating equipment market. But as markets mature, the rules of the game have changed. Economically efficient diagnostic devices for a broad range of the population, coupled with add-on services associated with products, are becoming increasingly important. With a decline of product-centric sales, market players have to reconsider their strategies and move away from a product-centric perspective, that was focused on developing the best product within the industry, to a client-centric perspective, that focuses on offering the best services for their customers. Well-known companies, even within the medical industry, have shown how this can be done. Quest Diagnostics, a leading provider of diagnostic information services, shifted its business from diagnostic products to diagnostic information services with a portfolio of more than 3,000 different tests. The company now employs the largest medical staff in the U.S. with more than 800 M.D. s and Ph.D. s in 2,100 patient centers. The company bills its customers on a fee-for-service base. While competitors failed to scale comparable business models, Quest gained worldwide geographical reach and successfully transitioned to a clientcentric product offering. Analogies to the operating room equipment industry Manufacturers of medical devices have to be aware that the needs of their customers are changing. As hospitals seek ways to reduce complexity within their business processes, outsourcing of dedicated sub-areas such as radiology, intensive care or operating room management comes into focus. In this regard, manufacturers of medical devices can leverage a strong base of resources and capabilities to offer innovative business services tailored to customer needs. By offering more services they can generate new sales. The following paragraphs will describe a concept that will help manufacturers strengthen their competitive position for the future by addressing these opportunities. 4
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Thesis 3 Accenture believes that operating rooms of the future will evolve into outsourcing models characterized by actively managed capacity utilization and maximum operational efficiency Outsourcing model for in-patients and out-patients Two key issues involved with selling operating equipment are: first, device manufacturers revenues are limited to the one-time sales price and some smaller follow-on services such as maintenance; and second, customers such as hospitals risk inefficiency and underutilization and therefore lower or non-existent profits. To overcome both problems, Accenture believes that outsourcing models in which manufacturers no longer sell their devices but start to act as operators of surgical suites, will change the way future surgeries are managed. Taking the required equipment and involved groups of people into account, outsourcing can occur in multiple ways: 1) Outsourcing of equipment and rooms 2) Managed outsourcing (equipment, rooms and surgical assistants) 3) Fully managed outsourcing (equipment, rooms, surgical assistants and physicians - anesthesiologist & surgeon) Outsourcing certain activities at a single site may already look promising. But the full power of OROS will only be unleashed by establishing a country-wide, hub-andspoke network of operating rooms that allows manufacturers to centralize competencies, knowledge and high-end devices in hubs while serving broad base of patients with cost-efficient devices in spoke locations. Figure 2: Capacity gains a) by extending opening hours and improved workflow b) by the network effect (collaboration of locally connected hospitals) a) Improved workflow and extended operating hours effect b) Network effect Extended Improved workflow Current capacity Operating Hours Capacity 100% 80% Capacity Network effect Effect with OROS Current capacity 8 am 6 pm Time Source: Accenture Analysis 6
Cornerstones of Operating Room Outsourcing Services To guarantee the success of OROS, three important components have to be taken in consideration. 1) Assessment and optimization of existing resources First, the existing resources, the capacity of the existing resources and especially the fit of the established equipment with the special medical field of each participating hospital or surgical practice has to be evaluated. If the assessment shows that discrepancies exist, changes have to be made such as replacing equipment and adding staff 2) Establishment of efficient patient routing and OR set-up Second, efficiency along the process chain of surgery has to be enhanced. With underutilization being a common problem in many operating theaters (some operating theater show avg. utilization rates of a mere 65-75 percent and mean idle time of around 25-35 percent 6 ), OROS tries to tackle these figures by designing stringent workflows that lower set-up and preparation time significantly. An additional external patient routing will ensure satisfied customers and contribute to the brand image and effectiveness of OROS. 3) Efficient capacity use management Third, capacity use of all involved surgical theaters has to be increased by extending working hours, improving workflow, and balancing usage peaks over multiple network locations. Within the OROS network, a flexible routing of patients, as well as the exchange of physicians, is conceivable leveraging modern information technology. Outlook: Medical Analytics and Telesurgery Current technology developments will also contribute to a more efficient way of how future surgeries are done. Currently only minimal information about surgeries is documented or stored. But imagine which possibilities would arise if only a fraction of data of the 12,683,000 surgeries recorded by the OECD 7 in 2012 would be stored in a central data base and evaluated by big data engines. Surgeons would gain access to information about similar cases processed by colleagues around the world. This would not only decrease preparation time and the risk for complications but lead to a higher quality of treatment. Another promising development that has raised high expectations is telesurgery. We speak of telesurgery, also referred to as remote surgery, when a physician remotely controls a robot that performs the movements the surgeons wants him to do. This technology offers the opportunity for doctors to perform a surgery even though he and the patient are physically at different locations. While robots and surgeons already work side by side, the insufficient speed of existing data connections still prevents us from using telesurgery over longer distances in a worldwide context. However if scientists manage to handle the time lags that occur during data transmission, the vision of a remote control of surgical robots even over distances of thousands of miles can become reality. 6 Farooq Ahmad Jan et. al., Time Utilization of Operating Rooms at a large Hospital, 2003. Copyright 2005 Indmedica (http://www.indmedica.com/journals.php?journalid=6&issueid=23&articleid=209&action=article) 7 OECD Source: OECD.StatExtracts, Health Care Utilization, Surgical procedures. 7
Thesis 4 Operating rooms managed by manufacturers will generate numerous benefits for all involved stakeholders Even though OROS mainly addresses manufacturers of operating room equipment, the concept will generate valuable benefits for the other involved stakeholder groups. Furthermore, effective use of OROS will have a positive impact on the average length of stay (ALOS) in hospitals and thus increase profitability on received reimbursement rates. Benefits for manufacturers The major benefit for OEMs will be an enhancement of profit margins and revenue streams. In the past, a manufacturer s revenue came from the one-time sales price and some additional follow-up services such as maintenance. In contrast to that, OROS fee-for-service concept will ensure continuing revenue streams that will in the long-term exceed the one-time sales price. Additionally, manufacturers have the opportunity to secure a first-moveradvantage in a seminal field of business that will ensure participation in emerging markets growth and retention of market shares in mature markets. Benefits for patients Due to the widespread network of OROS, patients will much more often find themselves in the hand of a surgeon whose field of specialty perfectly fits the requirements of the treatment they need. Furthermore, integrating innovative technologies such as big data analysis or telemedicine will lead to a higher outcome quality and lower the number of errors that occur during surgeries because of better preparation. Benefits for hospitals and surgical practices By outsourcing operating room services to an independent service provider, hospitals and surgical center no longer have to carry the burden of cost intensive devices and utilization issues. In addition, the fee-for-service paying models allow them to gain more financial flexibility as well as the possibility to level unexpected fluctuation in demand due to a lower amount of fixed costs. In this context, fee-for-service means that a hospital is only charged when it makes use of OROS services and thus has incurs no fixed costs. 8
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Thesis 5 To successfully broaden a manufacturer s value chain, it is recommended to get experienced partners on board Key Factors needed for a successful implementation of OROS Accenture believes there are four components that will be key in making this concept becoming a reality: 1) Technological competency such as the know-how about technical characteristics of all types of devices used in the context of surgery. These competencies are usually held by medical equipment manufacturers. 2) Medical competency such as surgical skills of a physician as well as nursing and assisting competencies. These competencies are usually held by surgeons and nurses employed in hospitals or surgical centers. 3) Development and implementation competency such as the know-how about software development of an end-to-end workflow optimization solution or big data analytic tools; in addition, knowledge about using a new business model with numerous participating parties. These competencies are usually held by consulting and business service providers. Why OEMs need partnerships to be successful Manufacturers of operating room equipment sometimes struggle with implementing fundamental different business models due to inadequate experience in software development and integration, as well as business process outsourcing capabilities. But as time to market is crucial for the success of the concept, a time- and cost-consuming buildup of competencies is not an option. As a result, manufacturers should join forces with experienced business partners to make the business idea as big as possible in as short a time as possible. An early market entry will be vital for establishing a sustainable foundation for the business and building up entry barriers such as exclusive long-term supply contracts with hospitals. Conclusion and visionary outlook In times of globalization and increasing industry dynamics, the success of medical device manufacturers will depend on a reliable forecast of future trends as well as a deep understanding of customer needs. In this environment, a shift from product centricity to client centricity and the development of innovative business approaches has become of paramount importance. The Operating Room Outsourcing Service concept offers manufacturers of operating room equipment the opportunity to react to market demands by providing innovative outsourcing services. The concept, bolstered by trailblazing technological developments such as telesurgery and medical analytics, will enable the concept to become a game changer within the surgical arena to the benefit of all involved stakeholder groups. The time for action is now. A network of powerful partnerships between equipment manufacturers, surgical institutions and outsourcing service providers will lay the foundation for a client-centric business model that has the potential to bring about more profitable, more efficient and more sustainable changes in surgical procedures. Figure 3: Success factors for implementing new business services 4) Scaling competency such as the know-how about a country or even world-wide rollout of new business models. Scaling competencies requires profound knowledge about recruitment and integrating a large number of employees. These competencies are usually held by outsourcing service providers. 4 Factors for Success Technical Know-How Delivered by the OEM Scaling Know-How Delivered by a Managed Service Provider Medical Know-How Delivered by Physicians Software Know-How Delivered by a Managed Service Provider Source: Accenture Analysis 10
Contacts Armin Meißner Managing Director Medical Equipment Technology +49 89 93081 68392 Dr. Markus Hartmann Innovation Lead Medical Equipment Technology +49 175 57 67722 Burkard Schemmel Program Manager Medical Equipment Technology +49 30 89047 68705 Nikolai Schröder Supporting Analyst Medical Equipment Technology +49 151 19523 402
About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com. Copyright 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.