Medtronic's new business model: You only pay if it works

Medtronic CEO Omar Ishrak, PhD, is taking the medical device company in a slightly different direction: accepting more risk in how it gets paid for its products, according to The Wall Street Journal.

Medtronic, which specializes in products such as implantable cardiac devices and insulin pumps, has been signing more and more supply contracts in which prices change based on how well its products work in patients.These outcomes-based contracts are in-line with the shift toward value-based healthcare reimbursement models, Mr. Ishrak told WSJ.

Since early last year, Medtronic has signed almost 1,000 contracts that require it to reimburse hospitals if its product Tyrx, an antibacterial sleeve, doesn't protect against infections in patients receiving cardiac-device implants. It also has a deal with the insurance giant Aetna to alleviate some of the reimbursements the insurer pays for Medtronic's insulin pumps if patients' diabetes improve when they switch to a different  brand.

"Medtronic is focused on technologies to improve outcomes. We use biomedical engineering to alleviate pain, restore health and extend life. Historically we've done that by creating credible evidence that our technologies do change outcomes. But at the end of the day, we and the industry get paid on the technology itself and a promise that those outcomes will actually be changed," Mr. Iskrak told WSJ.

He added: "We are moving, just like the rest of healthcare, to a value-based model, where we get paid in some fashion for actually achieving the outcome. It's a step we have to take to make sure that the value we create with our technologies is truly realized. And when it gets realized, we will get paid fairly for it."

Click here to read Mr. Ishrak's full interview with WSJ.

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