Operating Room Outsourcing Services /media/accenture/conversion-as¢  operating room related equipment

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  • Operating Room Outsourcing Services

  • 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.

    Introduction

  • 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 percent3 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

    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

    Source: Accenture Research market estimates based on multiple sources

    Forecast in billion USD

    2012 2018

    Anesthesia and respiratory devices Patient monitoring Surgical equipment

    5%

    24%

    27%

    49%

    27%

    27%

    50%

    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 client- centric 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

  • 5

  • 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-and- spoke 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

    Source: Accenture Analysis

    b) Network effect

    Capacity

    Time

    Current capacity

    Effect with OROS

    Network effect

    Current capacity

    Operating HoursExtended

    Improved workflow

    8 am 6 pm

    Capacity 100%

    80%

    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 addin