Market dynamics are changing the medical device market in unprecedented ways. Accustomed to rapid innovation in their lives as consumers, patients are expecting medical products to deliver better outcomes and bring more data points together.
On the other hand, the pressure to reduce healthcare expenditure, decreasing rep access to physicians, intensified competition, and consolidation of hospitals and healthcare systems are forcing manufacturers to rethink their existing business models and create a value proposition for customers through innovative products and solutions.
This article will look at some of the key commercial changes and trends that are driving transformation in the medical device industry. First, it is critical to understand some of the sales mechanics that are driving this industry.
HIGHLY SKILLED SALES REPS
Medical device reps are generally more educated, higher-skilled, and better-compensated than most pharma reps because of the nature of their sales (bulk/wholesales in most cases) and revenue potential. Average salaries are more in line with the highest salaries for specialized pharma reps. As there is a significant investment and cost associated, medical device companies constantly need to optimize their sales teams and focus on increased sales.
STRONG REP – PHYSICIAN RELATIONSHIPS
For surgical product launches, reps are often present in the operating room, guiding the physician on how to best use the device. In some cases, if the physician is new to using the medical device and its toolkit, the patient is better off letting the rep handle the application of the device. In some cases, the medical device company suffers from the device sales rep having too strong a relationship to the device user (usually, a surgeon).
Occasionally, the relationship between rep and physician becomes stronger than that between the manufacturer and physician. Meaning, if the rep decides to move to another manufacturer, chances are that the rep can take his business with him.
IMPORTANCE OF MANUFACTURER – PHYSICIAN/PROVIDER RELATIONSHIPS
Device manufacturers have been working to enhance their corporate branding and identity (with physicians and the public), independent of their reps. Depending on the device, manufacturers try to establish exclusive territories for hospitals, which allows a hospital to advertise itself as the only place in the area to get this service.
WHAT TO LOOK FORWARD TO IN 2019:
Now is the time for a change, but also the time for an opportunity – thanks to the ever-expanding market geography, changing roles of patients and decision-makers, technological advancements, and increased data availability. The aging population in developed countries, coupled with declining birth rates and higher life expectancy, and the rise of chronic diseases around the globe are major demand drivers for medical devices.
Companies are focusing on innovation and investing in the development of user-centric products in a highly competitive market. It is estimated that medical device companies budget almost 7% of their total earning on R&D1.
The following are some commercialization trends that are transforming how medical device companies will conduct business in 2019:
- Rapid adoption of digital technology and partnerships
Regulatory pressures have given way to restricted access to healthcare providers (HCPs)/surgeons for the sales reps. Digital technology is helping to bridge this gap. Sales reps are increasingly using digital channels to reach low-potential accounts, supported by online tutorials and interactive videos. High-potential accounts are catered to, with a combination of personal promotions and digital channels. The combined use of digital and personal channels increases access and helps companies create personalized communication plans based on the preferences of the purchasing authorities. The impact due to digital adoption is significant, and according to BCG research, companies can increase revenues by 2 - 3% annually2. At Axtria, we have also observed an increased adoption/demand for multi-channel call plans with promising results across several pharma clients.
- Changing role of customers and decision-makers
Traditionally, physicians/surgeons were the primary customers of medical device companies who spent their time selecting the appropriate equipment for patients. Increased centralization of the hospital purchasing process and hospital consolidation has moved the decision-making power into the hands of the hospital authorities. Purchasing decisions are shifting from individual decision-makers like HCPs to integrated delivery networks (IDNs), hospitals, etc. On the other hand, there is an increased interference from regulators, hospital administrators or procurement, and non-healthcare professionals that specialize in sourcing and negotiations into the purchasing decision. This makes it imperative for the medical device industry to account for several pricing pressures. For example, with the government and insurance providers wanting to control costs, hospitals and IDNs are getting lower reimbursements with tighter budgets. These issues are affecting and changing the way medical devices are valued and priced.
Third-party coverage and reimbursements will also play a role here as the medical device manufacturers ultimately receive payments from insurers.
- Specialized and efficient customer-facing models
Industry growth and margin pressures are forcing medical device companies to rethink their current commercial operations models to achieve sales growth. Industry experts are declaring that medical device companies that embrace innovative commercial models can achieve sales growth that is 3X3 the industry average.
The future will see more medical device companies moving away from the traditional rep-driven sales models and towards adopting agile go-to-customer models that specialize and deploy the resources based on the nature of requirements or jobs. These new go-to-customer models decrease emphasis on the traditional field reps and include increased focus on the below roles:
- Key Account Managers: Seasoned managers who can innovate and get more value at large accounts.
- IT Sales Reps: To cross-sell connected devices and help HCPs/hospitals leverage data analytics.
- Fields Sales: To improve field communication using Next Best Action to help sales reps reach the accounts at the right time and increase efficiency.
- Less Experienced Sales Reps: To expand field coverage and serve smaller accounts.
Also, the commercial teams will continue to become more specialized, segregating them based on contract, service, sales, educational, product support, product reimbursement/access, customer onboarding, and distribution. While this will make the commercial planning process more complex, it will place more focus on delivering better customer service and experience.
Alternately, commercial teams are being designed based on care settings to better align with total patient care (i.e., teams divided into acute, emergency, surgery suites, ambulatory, outpatient, office-based departments, long term care, nursing homes and clinics).
- Focus on talent acquisition and retention
The medical device industry is highly dependent on a high-skilled workforce. The growing industry size and newer investments in the commercial organizations are pushing the demand for talents, but a limited supply of high-skilled sales reps is forcing the companies to offer higher base salaries and improved incentive structure. Furthermore, as the millennials become a significant portion of the workforce, they are increasingly seeking enhanced benefits. The other challenge that companies must deal with is an increase in attrition among high performers.
The inevitable radical change in the medical device industry is redefining the traditional way of doing business. Change is unavoidable for companies going forward and only those that embrace and align their business strategy according to these trends will sustain and can remain profitable.
1. Infiniti Research’s Top Medical Devices Industry Trends, published online on 1 March 2018. Available at https://www.businesswire.com/news/home/20180301005793/en/Top-Medical-Devices-Industry-Trends-%E2%80%93-Infiniti
2. Götz Gerecke, Andrea Miotto and Mills Schenck’s Moving Beyond the “Milkman” Model in Medtech, published online 28 February 2017. Available at https://www.bcg.com/en-in/publications/2017/medical-devices-technology-marketing-sales-moving-beyond-milkman-model-medtech.aspx
3. The MedTech Conference’s Medical Device Study Findings: Top Medical Technology Trends to Accelerate Revenue Growth in 2019, published online on 25 August 2018. Available at http://blog.themedtechconference.com/top-medtech-trends