Case Type: new product.
Consulting Firm: Deloitee Consulting second round job interview.
Industry Coverage: Healthcare: Hospital & Medical.
Case Interview Question #00150: Your client is Boston Scientific Corporation (NYSE: BSX) (abbreviated BSC), a worldwide leading developer, manufacturer and marketer of medical devices whose products are used in a range of interventional medical specialties. Recently, a surgeon who consults to Boston Scientific has developed a minimally invasive approach to hip replacement surgery — involving two 1.5-2 inch incisions to replace the hip joint instead of the standard 6-10 inch single incision.
The main advantage of the new approach is that the muscles and tendons surrounding the hip joint are avoided or separated and never fully cut through as they are in the traditional approach. Therefore, patients are in less pain from the incision and their recovery time is shorter. Rather than the standard 3-5 days in the hospital, 80% of patients go home the same day as the surgery. The major drawback of the surgery is that it requires longer time in the operating room — 3 hours versus 2 hours in the traditional approach — and so far has only been performed on younger, healthier patients with commercial insurance (versus Medicare). Also, the new procedure cannot be performed on obese patients.
The device used in the new approach is exactly the same as the device used in the traditional single-incision approach; however, the instruments are slightly different (smaller) and need to be specially manufactured by Boston Scientific.
Boston Scientific has hired your consulting team to advise them on commercializing the new hip replacement approach. Specifically, they want to know two questions:
1. Is there an economic benefit to this new approach to hip replacement surgery?
2. If so, how can your client reap financial success from it? If not, what can they do to make it economically successful?
Possible Answers:
Assumptions
There are several factors to consider when commercializing health technologies. Particularly since this is a medical “device” it requires regulatory approval.
a. Let us assume the device has been approved for public use.
b. No. of post operation check ups are the same compared to older type of device
Market size analysis
a. how many patients undergo hip replacement surgery every year?
b. What percentage of patients fall into the restricted category for this type of surgery (obese patients)
c. What competing products are available in the market?
d. What is our current market share
Cost analysis
For the company the following cost analysis has to be carried out
a. R&D expenses
b. Regulatory approval and clinical trial expenses
c. Cost to manufacture the medical device
d. The margin on the device per sale
e. Is new capex required to manufacture this device?
Feasibility analysis
The surgery reduces the incision diameter but increases hospital time BUT also reduces the amount of time the patient spends at the hospital. Since most patients that undergo this surgery are covered by insurance the following options become important
a. Is the insurance company ready to reimburse for the extra amount of time spent in the operating room – doctor compensation + hospital services compensation
b. If insurance company does not compensate, what is the cost increase for the patient
c. Does reduction in no. of days spent at hospital reduce revenue for the hospital – if yes by how much (do financial analysis around this) – close to 75% reduction in revenue due to patient leaving in 1 day vs avg. 4 days – hence hospitals will not be willing to conduct such a surgery.
d. However will increase in volumes be able to recoup expenses – hosp will require an increase of at least 2 more patients per patient undergoing new surgery procedure.
Pricing
a. Do we do cost based pricing or price based costing? – do pricing for insurance company reimbursing vs not reimbursing
b. how does this product affect current product – do a market size analysis for the older product and determine new revenues
Recommendations:
a. Do a trial run in high volume hip replacement hospitals to see if the revenue model works out for everyone in the value chain
b. Price device at a premium compared to older device
c. Sell surgery as means of increasing hospital capacity in post op wards hence compensating for loss in revenue
Doctors have recently found a new way of doing hip replacement surgery. It’s a new technique that operates on the anterior approach instead of the traditional posterior approach which operates from the back of the patient that takes longer recovery time. learned that the success of hip replacement of implants depends largely on 2 things – the age of the patient and the types of implants used. It seems that the cementless types of implants were better than other types and patients who were given these had better success rates.