International Perspective on Total cost of Ownership

Pascale Brasseur

November 27 2014

Outline •

A few words on Medtronic • Key role of tendering • Examples • Questions

Who We Are

Global Leader in Medical Technology

49,000+

employees, making us the largest global medical technology company

5,600+

scientists and engineers around the world

1,700+

FY14 patents awarded, bringing our total worldwide to more than 27,000

$1B 46% * Free cash flow is operating cash flow minus capital expenditures

In R&D sales from international markets, representing more than 140 countries

Alleviating Chronic Products and Conditions Therapies Neurological Severe spasticity Parkinson’s disease  Essential tremor  Dystonia* Hydrocephalus  Obsessive-compulsive disorder*  Brain tumors and lesions  Chronic pain Subdural hematomas Cranial trauma 

Ear, nose and throat

Structural heart Heart valve disease Congenital heart disease

Coronary Coronary artery disease

Diabetes

Cardiac rhythm Atrial fibrillation  Slow heart rates (bradycardia) Fast heart rates (tachycardia) Heart failure  Asymptomatic heart rates 

Sinus diseases  Thyroid conditions Otologic disorders Sleep-disordered breathing Pediatric conditions Ménière’s disease

Endovascular  Peripheral vascular disease  Aortic aneurysms 

Spinal and orthopedic Cervical degenerative disc disease  Scoliosis  Degenerative disc disease  Spinal fracture  Lumbar spinal stenosis Tibial fractures  Orthopedic trauma

* Humanitarian device in the United States – the effectiveness for this use has not been demonstrated

Urological, urogynecological and gastroenterological Overactive bladder and urinary retention Nausea and vomiting associated with gastroparesis* Fecal incontinence

Medtronic Denmark  

 

Presence in Denmark since 1968 Market leader within cardiology, coronary, endovascular, structural heart, neuromodulation, spine and surgical technologies Since 2013 Regional Office for Northern and Eastern Europe – 130 employees Annual gross revenue 62 mio. US Dollars

Innovation also created locally 

Investments from the new Danish Innovation Fund together with DTU and Rehfeld IT partners on project ”Get the pacemaker to speak with the mobile phone”  Only diabetes research division outside USA in the Scion DTU Science and techonology park in Hørsholm – grown from 3 to 20 employees in a few years and working very closly together with University of Århus, University of Copenhagen, DTU and have business PhD’s.  Rigshospitalet as Center of Research and Innovation for Medtronic = more clinical research and acceptance of data for FDA approval

Addressing Healthcare Needs

Improving Healthcare “Across the world, we are in a continuous quest to improve healthcare. People everywhere want better outcomes, fewer errors, quicker recoveries, and fewer side effects. We’re developing medical technology solutions that not only improve healthcare, but do so while delivering better economic value.” | OMAR ISHRAK, Chief Executive Officer

Chronic Disease Becoming a Global Epidemic

Number 1 Cause of Death

Accounts for Majority of HealthCare Costs

40% 60%

Other Causes

Chronic, Noncommunicable Diseases

Source: U.S. Census Bureau, International Data Base (IDB), June 2011

25% 75%

Other Causes

Chronic, Noncommunicable Diseases

Allokering af sundhedsvæsnets udgifter

(%, 2008)

Spending as a % of total Medical Devices Pharmaceuticals

Operating & Other costs

Source: Espicom; WHO; World Bank, LEK analysis 11

Tendering

Key Role of Tendering “The right procurement methods can add long-term value to hospitals, doctors' offices, nursing homes, and other institutions, while improving patient care and the sustainability of the health care system."

“Public procurement has been shown to trigger more innovation than state subsidies for research and development.”

--The Conference Board of Canada

Principles of Smart Procurement 

Quality, value and cost to serve By using Most Economically-Advantageous Tender (MEAT) criteria, public procurers can encourage technological and procurement innovation and achieve long-term efficiencies



Involve stakeholders, develop partnerships Clinical input remains an important element of effective procurement of medical technologies. Early engagement with industry experts can also be mutually beneficial



Good Procurement Practices – Professionalize MedTech procurement To ensure public procurement is transparent and consistent, a database of standards, good practices should be made available and guidance for procurement professionals and industry developed 14

Global Dialogue on Best Tendering Practices Toronto December 2013 • Denmark (Capital Region) • Spain • Italy • Canada • U.S.

Barcelona June 2014 • Norway • Canada • UK • Spain • Portugal • Italy • Belgium • Hungary • Russia

Future • Moscow 2014 • China 2015 • WHO 2015

• Tendering officials, industry, academic experts • Driving debate and consensus for smart, innovative procurement • How to use tendering to drive innovation, to drive better patient outcomes and “value for money.” • New approaches – tendering for “solutions”

Examples

Implantable Loop Recorder (ILR) Assessing total cost of procedure instead of only cost of device

New and smaller device Almost twice the cost of other ILRs but •

Moves procedure from OR to cath lab/procedure room • Reduces personnel time • Eliminates inpatient stay

17

Implantable Loop Recorder (ILR) Reveal XT Procedure Costs Resources Device PERSONNEL

Reveal LINQ Procedure Costs

Unit Costs 1

Minutes

12.000 kr

Total Costs 12.000 kr

Resources Device PERSONNEL

Hourly wage

Unit Costs Total Costs 1

23.500 kr Hourly wage

23.500 kr

Minutes

Cardiologist

30

750 kr

375 kr

Cardiologist

10

750 kr

125 kr

Nurse

60

300 kr

300 kr

Nurse

30

300 kr

150 kr

Room Used OR (incl anestisiology) Cath Lab

Minutes

Hourly costs 60

15.600 kr

15.600 kr

0

2.000 kr

0 kr

% of patients Unit Costs Inpatient stay Total Costs

Room Used

50%

6.400 kr

OR (incl anestisiology) Cath Lab

Total costs 3.200 kr 31.475 kr

Minutes

Hourly costs 0

15.600 kr

0 kr

30

2.000 kr

1.000 kr

% of patients Unit Costs Total costs Inpatient stay

0%

Total Costs

6.400 kr

0 kr 24.775 kr

18

Insulin pump (CSII) vs insulin pen (MDI) for T1 diabetes Assessing the total cost of disease management instead of only cost of therapy Total annual cost of therapy (including device, insulin, finger sticks, strips etc.):

Insulin pen: Insulin pump:

21.234 DKK 33.276 DKK

19

A sustainable procurement system Over recent years tenders have pushed device prices to the floor  Not much more savings can be gained following that route System leaders must establish the ground rules for how investments and savings are applied across sectors  Should not be limited by the inflexibility of global or silo‐based budgets Tendering to achieve “value for money” requires looking at the health outcomes and efficiencies at the healthcare system level  Suppliers are partners - more dialogue based on strong data

Procurement is a strong tool… … when utilized properly, enhances value and innovation in global health care. Keep in mind  The goal of innovative procurement is to maximize public purchasing power to enable patients to receive the best, most cost-effective, life-saving and innovative treatments across all phases of health care