L.E.K.

Consulting
U.S. Healthcare Landscape Review

2017
The materials contained in this document are intended to supplement a discussion with L.E.K. Consulting. These perspectives are confidential and will only be meaningful to those in attendance.
 Monish Rajpal
L.E.K. Consulting m.rajpal@lek.com
(617) 901 1834

Engaged with all Work across all  16+ years experience

of the top 10 medical device (Consulting and Corporate / Industry)
largest medical categories and
device the entire value
companies chain
 Based in New York / Boston

Global network Deep experience

of 10,000+ with Corporate
healthcare M&A Strategy,
 Corporate / Growth strategy,
L.E.K.’s industry experts Acquisition
Service Solutions,
Practice Digital & Innovation,
and thought Screens, and
Pricing, Commercial / GTM,
leaders Diligence
Value prop. assessment,
M&A and diligence
Customized and
experienced
Completed 600+
team of Ph.D.’s,
engagements in
M.D.’s, MBAs  MBA (U Chicago - Booth),
the MedTech
and industry MS (Johns Hopkins Univ.),
industry
experts for each B. Engg. (Univ. of Pune)
engagement

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© 2017 L.E.K. Consulting LLC

1 CONFIDENTIAL | DRAFT
 What is the 2017 L.E.K. Strategic Healthcare Landscape Review?

Facts and information … … leading to actionable insights

 An internet survey of ~150 U.S. hospital  A tool for understanding hospital

decision-makers strategies and priorities in light of
healthcare reform

 A compilation of selected U.S. economic

data  A compendium of macroeconomic trends
providing context for U.S. hospitals and
the healthcare market
 An annual benchmark study, first
conducted in 2009
 A guide for understanding hospital needs
from MedTech suppliers
 An evidence-based scorecard, with facts,
figures and interpretation
 A free resource for healthcare industry
executives, investors, policymakers and
 A complimentary report, exclusively others
offered by L.E.K. Consulting, with details
available upon request

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners.
© 2017 L.E.K. Consulting LLC

2 CONFIDENTIAL | DRAFT
 L.E.K. has identified six key hospital trends that highlight opportunities
for suppliers

Key trends Implications for suppliers

1
Uncertainty around the Potential for some delays among hospital purchasing or
repeal of PPACA pursuit of large initiatives while in "wait and see" mode

2
Continued trend towards Opportunity to help customers navigate expected
accountable care expansion in value-based payment models

3 Continued consolidation Increasing importance to target top systems and tailor

of hospitals / integration commercial models and product / solution offerings
with non-acute

4
Growing openness to new Opportunities to re-define and optimize traditional
$ supply chain approaches contracting, pricing and distribution models

5 Continued effort to Opportunities to help providers standardize clinical

standardize products and approaches and purchasing
protocols
6 Growing interest in Opportunities to engage with senior administrators with
outsourcing and new service offerings and shared-savings programs
expanded partnerships

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© 2017 L.E.K. Consulting LLC

3 CONFIDENTIAL | DRAFT
 These trends are impacting distinct segments of the hospital landscape
differently

Highly integrated hospital

systems with high degree of
“Local Progressives” accountability “Progressive Consolidators”
• Limited consolidation and smaller in system • More centralized supply chain functions across
scale, but have generally accepted greater large systems and taking steps to be more
accountability of care and active integration accountable
with non-acute • Includes large systems that are not limited to a
• Includes large Academic Medical Centers local catchment area
(ACMs)

Accountability
Smaller hospital systems Larger hospital systems /
Consolidation + Supply Chain
with limited consolidation highly consolidated

“Local Stand-alones” Integration “Hospital Aggregators”

• Systems with limited consolidation and • Aggregated hospitals to gain scale / leverage
integration and largely includes stand-alone with payers and suppliers, but still have some
hospitals way to go in integrating with non-acute
• Represents nearly a half of hospitals (by • Includes large for-profit systems, and represents
number) but only 1/4th of total hospital a small portion of hospital spending
spending
Less integrated hospital
systems with low degree
of accountability

Source: L.E.K. research and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document
are properties of their respective owners. © 2017 L.E.K. Consulting LLC
4 CONFIDENTIAL | DRAFT
 Several existing and proposed changes will drive Medicaid and value
1
based payments concerns for MedTechs
DIRECTIONAL

Extensive Major Repeals– Replacements Likely Needed Saved & Potential New Major Regulations
Individual Public exchange Guaranteed Medicare premium Medicaid
Medicaid expansion
mandate premium subsidies issue support (vouchers) block grants

Premium and medical

Federal public State public expense tax deductibility
exchanges exchanges

Essential health High-risk

MACRA
benefit regulations pools

Medicare Advantage Expansion of

expansion HSA enrollment
(e.g., number of lives affected)

Medicare drug
Degree of Impact

price negotiation

Fill Part D
ACA taxes
No caps on lifetime / donut hole DSH
(Cadillac, device, etc.)
annual coverage payments
Research organizations
(e.g., CMMI, AHRQ) Agency de-regulation Price
Age rating ratio
(e.g. FDA) transparency

Dependent eligibility for plans Re-importation of

through age 26 medications

State Interstate Increase speed

innovation grants insurance sales of FDA approval

Limited Potential for Repeal Stay the Course?

Low Level of Congressional Republican Support High

Existing Proposed
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 Medicare and commercial payers have made significant and relatively
2
rapid strides to shift risk to providers with a range of value-based models

Mix of Medicare (FFS)* payments Mix of payment models among commercial payers
Percent of total payments Percent of total payments

100 100
Alternative
Payment Models 17% 17% 18% 18%
90 20% 90 18% 18% Capitation
(APMs)**
30%
Traditional
80 FFS or P4P^ 80 6% 7% 8% 8% 9%
50% 3% 10% Global payments
4%
5% 6%
70 Stated CMS goal 70 6% 7% Shared savings
prior to the Trump
administration
60 60

50 50 34%
51% 44% 41% 37% FFS
57%
40 80% 40
70%
30 30
50% 14% Bundled
12% 13% payments
20 20 12%
10% Value based
8% payments
10 10 17% P4P
14% 15% 16%
10% 12%
0 0
2014 2016 2018F 2014 2015F 2016F 2017F 2018F 2019F
Note: * Excludes Medicare Advantage (MA); ** APMs include the following VBC models: bundled payments, shared saving / shared risk, global payments,
capitation; this correspond to the following CMS programs: ACO, MSSP, BPCI, CPCM/MAPCP (primary care), some ESRD programs, and additional
smaller payment programs; ^ Pay for performance
Source: L.E.K. analysis of CMS data, McKesson survey data
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 The top 125 systems are primarily Progressive Consolidators and Local
3
Progressives and are continuing to take share from all others

Top 125 system total spend by segment All acute total spend by segment
(2013-15) (2013-15) ILLUSTRATIVE
Billions of dollars ILLUSTRATIVE CAGR% Billions of dollars
(2013-15) CAGR%
500 1,000 (2013-15)
Total 7.2 Total 5.7
~$445B
~20 Hospital Aggregator 0.0
3.8 ~$825B
~20 Local Traditionalist 8.5 Hospital 0.7
400 ~$385B 800 ~35
~$735B Aggregator
~20
~15 Local ~35
~125 12.3 Local 4.1
Progressive ~295 4.5
Traditionalist
300 ~100 600
~270

200 7.6 400 Local 9.0

~205
Progressive
~170
Progressive
~280 5.7 6.8
~250 Consolidator
100 200
Progressive
~265 ~290 5.3
Consolidator

0 0
2013 15* 2013 15*

Note: * Includes most current data reported for facility/system

Source: AHA; L.E.K. research and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands
mentioned in this document are properties of their respective owners. © 2017 L.E.K. Consulting LLC
7 CONFIDENTIAL | DRAFT
 Hospital consolidation is continuing, but is likely to be somewhat more
3
gradual through 2022 than in recent years

Consolidation – Spectrum of options Most Common Most Common Most Common

in 2014 Today in 2022

Local multi-site Regional systems

systems Hospital systems with a national
Standalone
footprint (national systems)
Hospitals

2016 consolidation trends Current and future consolidation pressures

Increasing expectations from payers for highly,

Reimbursement pressures as payers gain scale
consolidated recent acquisitions

Competition from other hospitals and health systems Increasingly fewer attractive targets for acquisition
as they consolidate including anti-trust constraints in local markets

A ‘race to scale’ in local markets as larger systems Diminishing returns on scale for the systems that
begin to “own” more referral volume have consolidated

Source: L.E.K. research and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document
are properties of their respective owners. © 2017 L.E.K. Consulting LLC
8 CONFIDENTIAL | DRAFT
 Progressive systems appear to be integrating the most, particularly with
3 ASCs and outpatient centers among other alternative sites of care

Percent of systems integrated with each care setting

(2015) By segmentation By top systems
Percent
Top Systems Other
Progressive Local Local Hospital Overall
systems (Top 125- systems
consolidator progressive traditionalist aggregator systems
(Top 125) 200) (200+)
Freestanding
95.3% 81.6% 58.8% 34.2% 96.0% 81.3% 50.8% 71.7%
outpatient center
Urgent care center 92.9% 57.6% 38.8% 28.9% 80.8% 62.7% 36.5% 56.2%

Fully owned ASC 90.6% 67.1% 50.6% 34.2% 92.8% 68.0% 39.8% 62.7%

Physician /
87.1% 60.8% 34.1% 47.4% 83.2% 60.0% 37.6% 57.0%
Alternative sites of care

physician groups

Home health
77.6% 56.3% 28.2% 34.2% 70.4% 56.0% 34.3% 50.4%
services
Partially owned
69.4% 36.7% 8.2% 18.4% 61.6% 32.0% 16.6% 34.4%
ASC
Rural health clinic 64.7% 23.4% 28.2% 39.5% 42.4% 24.0% 33.1% 34.4%

Freestanding /
satellite
60.0% 28.5% 12.9% 21.1% 52.8% 33.3% 13.3% 30.2%
emergency
department
Imaging centers 49.4% 27.8% 9.4% 21.1% 46.4% 25.3% 13.8% 26.8%

Acute long term

38.8% 14.6% 8.2% 52.6% 32.0% 18.7% 16.0% 21.8%
care
Limited service
32.9% 8.9% 7.1% 23.7% 29.6% 10.7% 6.6% 15.0%
hospital
SNFs / assisted
23.5% 5.7% 4.7% 5.3% 15.2% 4.0% 7.2% 9.2%
living services
Overall (2013)^ 54% 39% 24% 30% 51% 40% 25% 36%

Overall (2015)^ 65% 39% 24% 30% 59% 40% 26% 39%

PPT ∆ 11% 0% 0% 0% 8% 0% 1% 3%

Note: Data on long term care not currently available; Overall level of integration determined by relative participation of a system across various types of
alternative sites of care (e.g., assisted living services, home health, satellite emergency departments, etc.); 100% represents participation in all sites;
^Represents overall percent participation in all sites of care
Source: AHA; L.E.K. research and analysis
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 Evolution in the way providers are utilizing their supply chains has
4
involved several different trends
Supply Chain Evolution – Spectrum of options

Supply chain
evolution Limited supply chain Extensive supply
Moderate
coordination chain coordination
coordination

Evolution of
Purchasing Purchasing
purchase
decentralized centralized and
decision
across facilities standardized
making Purchasing centralized for some
products, but decentralized for others

Distribution Fulfillment Broader distributor

control & services from services & more
coordination distributors direct distribution
Expanded supply chain role for primary distributor or
supporting role for self-distribution

GPO usage All sales through Minimal use of

National GPO National GPOs
Moderate use of GPOs, but considering
use of alternative channels for
purchasing
Transactional Few, deep
Relationships relationships relationships
with MedTech with many supply with preferred
suppliers partners partners
Strategic partnerships with MedTechs
within some areas

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of L.E.K. Consulting LLC. All other
products and brands mentioned in this Most Common Most Common Most Common
document are properties of their respective in 2014 Today in 2022
10 CONFIDENTIAL | DRAFT owners. © 2017 L.E.K. Consulting LLC
 Hospitals and hospital systems, particularly progressives, are interested
4
in direct distribution from their largest medical device suppliers

Level of interest in direct distribution from

largest medical device suppliers* (2017)  There is growing interest in direct distribution from MedTechs
(n=193)
Percent of respondents
- Progressive systems show a distinct interest in gaining direct
100
distribution with MedTechs

80 - More than 40% of non-progressive systems have an interest

in working directly with MedTechs
4.9 4.8

4.1
60 - Providers expect that direct distribution from MedTechs can
4.0 help them manage their inventory better

40

20 “… I think manufacturers should increase direct sales to large

systems. Volume drives partnerships between providers and
manufacturers…”
Former CEO, Progressive Consolidator
0
Local Progressive Local Hospital
progressive consolidator stand-alone aggregator

7 - Very interested 3 “… purchasing direct from the manufacturer will be increasingly

6 2 common…”
Former Hospital CEO, Progressive Consolidator
5 1 - Not interested
4 Mean

Note: *To what extent are you interested in direct distribution of products from your largest medical device suppliers (i.e., not through distributors)? Please rate on a
scale of 1 to 7 in which ‘1’ means “not interested” and ‘7’ means “very interested”
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Source: L.E.K. survey and analysis
products and brands mentioned in this document are properties of their respective
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 Providers are also increasingly utilizing regional GPOs as well as IDN
4
purchasing groups in lieu of National GPOs

Most Common Most Common Most Common

In 2014 Today in 2022

Moderate use of GPOs, but considering use of

alternative channels for purchasing
National GPO Regional GPO
contracts contracts

2016 GPO trends Current and future GPO pressures

GPOs are being forced to respond to the changing

expectations of their member hospitals and are
Many administrators in large IDNs see diminishing acknowledging the need to deliver more value. Many
value from large GPOs, largely using them as are providing value-added services and increasing
benchmarking tools to facilitate pricing negotiations their portfolio of private-label products

The largest GPOs (e.g., Vizient, Premier) will

continue branching out into other activities, such as
clinical utilization programs, safety initiatives,
consulting services and regional service centers
IDNs are forming their own GPO organizations to
facilitate pricing negotiations Systems are interested in directly contracting with
MedTechs for high volume procedures and
departments

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© 2017 L.E.K. Consulting LLC

12 CONFIDENTIAL | DRAFT
 There is increasing receptivity among hospitals to contract directly with
4
MedTechs, particularly among progressive health systems

Receptiveness to bypassing GPOs in select product categories* (2017)

(n=158)
Percent of respondents scoring 6 or 7 on a scale of 1 to 7 (1 – Not at all receptive, 7 – Very receptive)

60 58
Progressive
50 48 hospital systems
43 appear more
40 37 receptive to
33 bypassing GPOs

30
23 21 21
20
20 18

10 Non-Progressive
Progressive
0
High risk Medical capital Diagnostic Medical and Low risk
therapeutic equipment (e.g., consumables surgical therapeutic
devices (e.g., therapeutic, disposables medical
invasive and/or diagnostic, etc.) devices (e.g.,
implantable non-invasive)
devices)

% mean
change 7.3% 4.8% 5.3% 9.6% 8.7%
from 2016

Note: *For any individual product category through which you currently use GPOs, how receptive would your organization be to bypassing GPOs in favor of working directly
with a manufacturer to secure competitive pricing? Please rate on a scale of 1 to 7 in which ‘1’ means “not at all receptive to bypassing GPO” and ‘7’ means “very receptive to
bypassing GPO”
Source: L.E.K. survey and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in
this document are properties of their respective owners. © 2017 L.E.K. Consulting LLC
13 CONFIDENTIAL | DRAFT
 The health system C-suite sees opportunities to standardize their
5
purchasing in several ways, including by driving clinical accountability

Planned standardization activities over the  A majority of c-suite respondents (~65%) are seeking
next 5 years* (2017) more accountability in supply chain and care delivery
(n=125)
Percent of C-suite respondents
- Cost savings is the primary reason for providers’
100 pursuing medical device standardization

- Standardization of products should reduce variability in

80 procedures and control variability in outcomes

- Product standardization can also result in improved

efficiency and consistency while training staff
60

“… It used to be that I may have one kind of a product, and another

40
hospital would have a different type. We’ve now standardized to
one brand for each product for everything across the board.
We made a statement as a supply chain that we would cut $18M
within 3 years. We don’t want doctors coming to us and asking for
20 new products all the time …”
Materials Manager, Local Progressive

0
Standardize Centralize Expand clinical Rationalize
products / purchasing accountability suppliers
services decisions

7 - Strongly agree 6 5 4 3 2 1 - Strongly disagree

Note: Please rate the extent to which you agree or disagree with the following statements regarding your [hospital / hospital system]’s planned activities over the next 5 years.
Please rate on a scale of 1 to 7 in which ‘1’ means “strongly disagree” and ‘7’ means “strongly agree”.
Source: L.E.K. survey and analysis
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All other products and brands mentioned in this document are
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 Additional standardization is likely to occur across hospital departments
5

Level of hospital standardization by department* (2017)

Percent of respondents who indicated two highest ratings for standardization^ C-suite (n=125)
Purchasing (n=75)

70
65
65 62
61 60 61
60 59 59

55 54 54
52
50 48

45 43 43 43 43
42
40
35
30
25
20
15
10
5
0
Cardiology Oncology Orthopedics Radiology ICU ORs Patient wards Pharmacy
Note: *Q46: To what extent has your [hospital / hospital system] standardized purchasing of medical supplies and devices across the following departments / service lines at
the individual facility level? Please rate on a scale of 1 to 7 in which ‘1’ means “not at all standardized” and ‘7’ means “highly standardized.” **Respondents who answered “Do
not know” were excluded from the analysis ^Responded with a rating of 6 or 7
Source: L.E.K. interviews, survey, and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products
and brands mentioned in this document are properties of their respective owners. © 2017
15 CONFIDENTIAL | DRAFT L.E.K. Consulting LLC
 Larger and more progressive systems engage in outcomes-based pricing
5
to a greater degree than smaller non-progressive systems

Level of current outcomes-based pricing models with MedTech suppliers (2017)*

(n=190)**
Average score

5.2 5.1 5.2 5.2 5.3

5.0
5 4.9 4.9
4.6 4.7

4.2 4.2 4.3 4.2 4.3

4.0 4.1 4.1 4.1
3.9
4

1
Cardiology Orthopedics Radiology Oncology Pharmacy

Local stand-alone Local progressive

Hospital aggregator Progressive consolidator

Note: *To what extent are you currently in outcome / value-based pricing models (e.g., risk sharing, gain sharing, etc.) with MedTech suppliers for the following service lines?
Please rate pricing models on a scale of 1 to 7 in which ‘1’ means “not at all outcome-based” and ‘7’ means “entirely outcome-based.” **Respondents who answered “Do not
know” were excluded from the analysis
Source: L.E.K. interviews, survey, and analysis
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products and brands mentioned in this document are properties of their
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 Survey respondents believe there is opportunity for MedTechs to play a
6
broader partnership role across several major departments in hospitals
Level of interest in seeing MedTech companies playing a
broader partnership role within hospital departments (2017)*
(n=200)**
Percent of respondents

100

80
7 - Very interested

4.7 6
4.7 4.7
4.6 4.6 4.5 5
60 4.3 4.3 4
3
2
1 - Not at all interested
40
Mean

20

0
ORs Radiology Pharmacy Cardiology Oncology Orthopedics ICU Patient
wards
Note: *To what extent would you like to see MedTech companies playing a broader partnership role and offering services in the following hospital departments and service
lines? Please rate on a scale of 1 to 7 in which ‘1’ means “not at all interested” and ‘7’ means “very interested.” **Respondents who answered “Do not know” were excluded
from the analysis
Source: L.E.K. interviews, survey, and analysis

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document are properties of their respective owners. © 2017 L.E.K. Consulting LLC
17 CONFIDENTIAL | DRAFT
 These factors have left MedTech suppliers asking several questions
that have far-reaching implications

How is the provider What are our customer needs What is the best commercial
landscape evolving? and how do they vary? model for customers?

How can we quantify the What services / solutions can What are the M&A
value we bring to customers? address customer needs? opportunities in 2017?

Key actions for MedTechs in 2017:

Investing in transformational M&A

Developing new solution offerings (often via M&A for non-traditional capabilities)

Targeting provider segments better and tailoring offerings accordingly

Updating commercial models to better align with evolving customer decision making

Engaging in alternative supply chain approaches (e.g., distribution, contracting)

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners.
© 2017 L.E.K. Consulting LLC

18 CONFIDENTIAL | DRAFT
 Large MedTech deals over the last two years provide analogs to consider for
potential transformative opportunities

Top MedTech M&A deals, 2015-2017 Not exhaustive

By deal value (billions USD)

Medtronic (Covidien) 49.9

Broadly speaking for
Abbott (St Jude Medical) 30.7 transformational deals, the
Becton Dickinson (Bard) 24.0 strategic rationale can fall
Zimmer Biomet (Biomet) 14.0 into three categories:
Danaher (Pall) 13.8
1. Broaden portfolio
Becton Dickinson (CareFusion) 12.2 within current call-
Abbott (Alere) 8.4 points
Dentsply (Sirona Dental) 5.5
2. Deepen capabilities to
Thermo Fischer Scientific (FEI) 4.2
enable more
Danaher (Cepheid) 4.0 comprehensive
LivaNova (Sorin) 3.4 solutions
St Jude Medical (Thoratec) 3.4
3. Expand scope into new
Wright Medical (Tornier) 3.3
segments and call-
Stryker (Sage Products) 2.8 points
EQT Partners (Siemens Audiology) 2.7
Hill-Rom (Welch Allyn) 2.1
Cardinal Health (J&J Cordis) 1.9
Greatbatch (Lake Region Medical) 1.7
Thermo Fischer Scientific (Affymetrix) 1.3
Stryker (Physio-Control) 1.3
Medtronic (Heartware) 1.1
Zimmer Biomet (LDR Holding) 1.0

0 5 10 15 20 25 30 35 40 45 50 55 60
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 Deals that deepen capabilities and enable more comprehensive solutions
appear to drive the highest stock price appreciation

2-yr 
Strategic rationale category Illustrative example Description
Stock price

1  Expanded CV portfolio (e.g., into cardiac and CRM +11%

Abbott  St. Jude
devices) (12 mo.)
Broaden portfolio within
current call-points
 Expanded scale and portfolio within orthopedic
Zimmer  Biomet +0.4%
implants

2  Deeping of BD medication management solution,

BD  CareFusion +25%
from dispensing through administration
Deepen capabilities to
enable more
comprehensive solutions  Multiple vertical acquisitions to build
 comprehensive capabilities for OR solution +40%
offering

 Diversified Medtronic’s acute, implant heavy

Medtronic  Covidien portfolio into consumables and minimally invasive +6%
surgery
3 Expand scope into new
segments and call-points
 Leveraged Welch Allyn’s position in point-of-care
Hill-Rom  Welch Allyn diagnostics as new platform to strengthen Hill- +45%
Rom’s presence in hospitals and OR

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© 2017 L.E.K. Consulting LLC

20 CONFIDENTIAL | DRAFT
 These factors have left MedTech suppliers asking several questions
that have far-reaching implications

How is the provider What are our customer needs What is the best commercial
landscape evolving? and how do they vary? model for customers?

How can we quantify the What services / solutions can What are the M&A
value we bring to customers? address customer needs? opportunities in 2017?

Key actions for MedTechs in 2017:

Investing in transformational M&A

Developing new solution offerings (often via M&A for non-traditional capabilities)

Targeting provider segments better and tailoring offerings accordingly

Updating commercial models to better align with evolving customer decision making

Engaging in alternative supply chain approaches (e.g., distribution, contracting)

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners.
© 2017 L.E.K. Consulting LLC

21 CONFIDENTIAL | DRAFT
 Leading medtechs are acquiring capabilities to strengthen their broader
solutions
MedTech leader Major and Strategic Acquisitions Implications
 Increased scale and presence in hospitals
 Ability to offer broader solutions (e.g.
laboratory automation)

 Ability to offer broader solutions (e.g.

renal, pharmacy)

 Increased scale and presence in hospitals

 Ability to offer broader solutions (e.g.
pharmacy, lab, infection prevention)
 Increased scale and presence in hospitals
 Ability to offer broader solutions (e.g.
home monitoring, tissue monitoring)

 Expanded offering of physician

preference items
 Care coordination in non-acute settings
 Increased scale and presence in hospitals
 Ability to offer broader solutions (e.g.
population health data and analysis)
 Ability to offer broader infrastructure
solutions across care continuum

 Expansion into the orthopedics business

 Increased scale and broader solutions for
hospitals (e.g. visualization)
 Increased scale and presence in hospitals
 Ability to offer broader solutions (e.g. cath
lab, remote monitoring, non-procedure)
 Ability to offer broader solutions (e.g.
predictive analytics, hospital consulting)

 Ability to offer broader solutions (e.g. lab

diagnostics, molecular diagnostics)
 Ability to offer broader solutions (e.g. OR,
data analysis software)

 Increased ortho portfolio and scale

 Ability to offer broader solutions (e.g.
telehealth, diagnostics)

Source: S&P Capital IQ, Company websites, L.E.K. interviews and analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and
brands mentioned in this document are properties of their respective owners. © 2017 L.E.K.
22 CONFIDENTIAL | DRAFT Consulting LLC
 A broad range of solution areas are available for consideration

Full or partial ownership

Operational focused Clinical, care-

delivery focused
Outsourced management
services

Consulting
services
Procedure-related
services
Product services

23 CONFIDENTIAL | DRAFT L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are
properties of their respective owners. © 2017 L.E.K. Consulting LLC
 Various examples exist within these categories, though examples of full or
partial ownership of clinical settings are more rare

Examples of services provided by MedTechs

Level of engagement

Outsourced
Procedure-related Consulting Full or partial
Product services management
services services ownership
services
 Provision of product –  Services to improve the  Project-based  Outsourced operational  Either a JV focused on
related service, clinical and patient use of consulting management of a department / specialty or
support, and managed products (e.g., procedure- engagements (e.g., department (e.g., cath function (e.g., imaging /
Description

services (e.g., supply related analytics, best-practice, lean labs, clinical labs) mammography, dialysis),
chain mgmt.) education, training consulting, financial / or Full ownership, control
 Provision of clinical
 Traditional commercial modules, clinical operational resources (e.g., and accountability of
approach for most enhancement tools) optimization) outsourced, clinics
MedTechs  An increased focus for  Similar to many perfusionists, laborists,  Although some dialysis
many MedTechs, department-specific anesthesiologists) manufacturers (e.g.,
particularly those with a consulting firms (e.g., and/or care Fresenius, NxStage) and
procedural focus OR, pharmacy) coordination services select diabetes players
(e.g., discharge (e.g., Medtronic) own
planning) clinics, this full or partial
ownership model is a
Examples

service that is least

frequently seen among
MedTechs

Source: Company websites, L.E.K. analysis L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands
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 Key lessons learned should be considered as medtechs pursue broader
services and solutions

Key Success Factors for Expanded Services / Solutions

Sufficient breadth Clear delineation Change Tangible value and

License to play in
and impact of between existing management option for gain
targeted area
solution and new services capabilities sharing

 Some solutions may be  Service and solution  Customers will  Senior hospital execs  Medtechs need to be
good ideas, but may expansion become confused by may like an idea, but able to clearly articulate
not necessarily be best opportunities need to what is already given adoption also requires the value of new
offered by a specific have adequate scale (e.g., product training) significant change services / solutions
medtech and breadth to excite vs. what is incremental management
senior hospital assistance to ensure a
 Capabilities to provide
executives, often a solution “sticks” and
 Having customers’  Clear delineation of diagnostics and tools to
perquisite for success delivers promised
“permission” and a what services are estimate expected
results
“license to play” in a charged vs. “free” is impact are critical
targeted area can  Linking solutions to critical
impact which broader hospital  Offering to drive
 Successful solutions
companies will succeed priorities (e.g., patient change management is
 Sales reps and should eventually be
vs. fail in offering the satisfaction, lower a critical success
marketing need to be monetized via gain-
same type of solution HAIs, lower factor, including the
using consistent sharing models; these
readmission) helps ability to define
messaging and resonate with customers
drive senior baseline metrics and
 License to play is at terminology as well even if they are unable
stakeholder interest measure / track
least partially impacted as consistency in to accept them currently
performance going
by the breadth and pricing
forward
relevancy of a
medtech’s product
portfolio; key gaps  Many medtechs lack
could impair ability to this capability currently
provide a meaningful and need to acquire /
solution partner to obtain these
skills

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this
25 CONFIDENTIAL | DRAFT document are properties of their respective owners. © 2017 L.E.K. Consulting LLC