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The Conundrum of Outcomes-Based Contracting

Posted by Brian Chapman on May 23, 2016


Patients want great outcomes. Payers want great outcomes. Hospitals want great outcomes. Medtech can help deliver great outcomes. Why is this so hard?

We all believe that the ability to deliver improved outcomes should be rewarded, and that we ought to be able to monetize products and services in this vein. But actual contracts that pay on improved outcomes are so very elusive in our market, and the list of barriers is long:

  • Outcomes are complicated to measure definitively.
  • Implementing often requires a hospital to sole-source or dedicate significant volume to a single supplier.
  • Hospitals must make behavior changes in what they do and how they do it.
  • A contract requires recognition of a cost or a liability, and the accounting is complex.
  • Even after agreeing on intent, the process of writing a legally binding contract can be protracted.
  • There are regulatory constraints regarding what we can offer and how.
  • Historical behaviors challenge the credibility of medtech to engage in these conversations.
  • Many hospitals and systems are stuck in the old world, viewing medtech as a vendor instead of a partner.

But like everything else in healthcare today, times are changing. We are starting to see real examples coming in the pharmaceutical industry. In the last few weeks, there have been risk-sharing partnerships between CIGNA and Rebif, Harvard Pilgrim and Repatha, and AETNA and Entresto.


ARTICLE: Hospitals Have Spoken: How Medtech Can Benefit From the Affordable Care Act’s Focus on Outcomes

BLOG POST: Medtech’s Big Chance

Of course, we have some examples in medtech, as well, and we expect that this will start to accelerate. There are some good reasons for this:

  1. The Centers for Medicaid and Medicare Services is pushing hospitals to provide better care through more and more payments with an outcomes-based component. The financial implications are gaining significance.
  2. Data inoperability is still an issue, but episodes of care are lasting longer and payers are building data sets that reach longitudinally further in the future.
  3. Medtech is investing big in real-world evidence. Everyone has an RWE function now.
  4. New sources of information are coming from wearables and implantables that are wired and smart, capable of providing insights and eventually of preventing primary events.
  5. New business models (IBM/Truven), partnerships (Verily with J&J, Apply with Epic, Samsung with payers, IBM Watson with, well, everyone) are reshaping the landscape.

The convergence of powerful forces is enabling and driving us towards new models that ultimately help solve the conundrum of outcomes-based contracts.


Brian Chapman will be moderating a roundtable on outcomes-based contracts at the upcoming MedForce conference in Minneapolis June 6-8. Register online and receive a ZS client discount of 25% on your conference pass when you enter the code MF16ZSA.

Topics: medtech, Brian Chapman, outcomes, hospitals, outcomes-based contracting, partnership

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Brian Chapman
ZS Associates
Tobi Laczkowski
ZS Associates
Will Randall
ZS Associates
Matt Scheitlin
Associate Principal,
ZS Associates
Andy Kach
Associate Principal,
ZS Associates
Bhargav Mantha
Associate Principal,
ZS Associates


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