Disintermediation and 3rd Party Servicers
I created the pie chart shown above that segments the economic value components of a high-end diagnostic ultrasound system over a seven-year prime time life span. I did the research as part of a paper I wrote in 1998 regarding supply-chain disintermediation and the undefended lines of revenue that existed between the clinical customer and the original equipment manufacturer (OEM). The classic economic definition of disintermediation relates to the elimination of intermediaries; specifically, intermediaries that add little value (i.e., the “middle man”). Last year I took another look at this pie chart and wondered how things might have changed since my last research on this topic. It might come as little surprise to the reader that for a high-end, cart-based ultrasound system, much of the revenue derived from a system sale is still realized after the initial sales traction; which in 2018 still amounts to just south of 30% of the total revenue generated over seven years. I bring this up partly because of the on-going discussions related to 3rd Party service providers in the medical device market and their respective obligations to their customers as well as to regulatory entities (e.g., FDA, et al).
Intermediaries survive (or better yet, thrive) to the extent they add value, not how far they can drop their price, or by how many expenses they can avoid by taking short-cuts. In other words, intermediaries must be additive not subtractive to the supply-chain value proposition in order to have a sustainable business model. 3rd Party servicers are recognized as an important component to the healthcare ecosystem in the United States and often fill service voids in various rural areas of the country. But 3rd Party servicers must also bake into their business model the need to invest in a robust, on-going, and verifiable quality management system (e.g., ISO13485) scaled to the potential risk level to the patient and others that their servicing activities may have. Adding such a certified quality management system demonstrates to the supply-chain the safety and efficacy commitment of the service company. Doing this should not be viewed as an annoying additional expense but as an investment in patient safety. Anything less than that is unacceptable.
G. Wayne Moore
7/20/18