Boston, MA — March 18, 2014 — According to a recent study from L.E.K. Consulting, U.S. hospital CEOs and senior decision makers indicate that mounting margin pressures are driving structural changes in the industry. Hospital systems are consolidating, integrating, accepting accountability, and centralizing supply chains to improve margins and improve care delivery. MedTech companies and other suppliers to hospitals should take note of these trends to adapt how they do business with hospital systems.

L.E.K. Consulting estimates that average suburban hospital margins are around four percent, but will decline to zero percent, primarily due to unfavorable payer-mix shifts as well as reimbursement declines and penalties. 

Hospitals are prioritizing ways to improve efficiencies on internal processes and on product procurement.  “Survey respondents indicate that the most pressing needs of hospitals are reduced costs and improved hospital efficiency, which score higher than improved patient outcomes,” said Jonas Funk, an author of the study and a managing director in L.E.K. Consulting’s global MedTech practice.  This is also reflected in that hospital respondents expect increased investment in healthcare IT (e.g., to enable greater internal efficiencies), but expect to contain spending on areas such as medical devices and disposables.  Most respondents also expect increasing influence of administrators and greater product standardization within their hospitals, thereby driving increasing rationalization of suppliers.

Beyond internal efficiencies and supply chain measures, hospitals are also continuing to consolidate (e.g., for improved leverage with payers) and integrate with other care settings.  “Most hospital respondents highlight integration in the form of partnerships or acquisition of physician offices, but many are also integrating with specialty outpatient facilities, such as ambulatory surgery centers, or with post-acute facilities, such as long-term care facilities” said Funk.  “This reflects how integration is expanding beyond basic securement of referral traffic into the enablement of a care continuum in which hospitals can better manage outcomes and, ultimately, take on greater accountability – and the financial rewards for those who can do so successfully.”  

In terms of implications for suppliers, hospital respondents are most interested in those companies that have demonstrated solutions which improve the quality of patient care, lower overall hospital costs, and increase the efficiency of clinical staff.  “The big, unsolved issue for MedTechs, though, is to link value with pricing,” said Funk. For example, respondents indicate a willingness to pay premiums for products that reduce hospital-acquired infections, medication errors and re-admissions, but want to see compelling data, and ultimately, risk-sharing arrangements.  “Just as they are being asked to take on greater accountability, hospitals want to see their own suppliers offer outcome-based pricing models.”

Additional findings from the study are available in the white paper L.E.K. Strategic Hospital Priorities Study: Hospitals Look to MedTech for New Services and Solutions.

About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and analytical rigor to help clients solve their most critical business problems. Founded 30 years ago, L.E.K. employs more than 1,000 professionals in 22 offices across Europe, the Americas and Asia-Pacific. L.E.K. advises and supports global companies that are leaders in their industries – including the largest private and public sector organizations, private equity firms and emerging entrepreneurial businesses. L.E.K. helps business leaders consistently make better decisions, deliver improved business performance and create greater shareholder returns. For more information, go to