If you could generate $1.5 billion in shareholder value over a three-year period by revamping your commercial model, would you do it? Medical device companies have achieved similar results by acting upon the key forces transforming the industry, resulting in market share gains, increased sales growth, and reduced commercial model operating costs.
Traditionally, medical device companeies have focused on building innovative products and strengthening relationships with healthcare providers (HCPs). Although, over the last few years, the medical device landscape has observed a paradigm shift. These recent developments are bound to impact the industry’s traditional fundamentals, with changing perceptions, relationships, and revenue models. Even though there is significant demand, suitable demographics, and perceived value are still creating interest and investment, the evolving commercial models are exerting a heavy burden on the medical device stakeholders.
Industry experts admit that the medical device industry has had minimal progress in transforming commercial models and improving skills and talent. Companies are resisting a commercial overhaul at their own expense. It is critical to identify the golden nuggets of emerging opportunities. In order to do so, a thorough understanding of the powerful shifts in the market is imperative. Outlined below are some of the key forces and how they are influencing each element of the medical device ecosystem. These forces are well positioned to govern the direction in which the industry is headed.
The rising healthcare costs due to expensive treatments and innovative devices are unsustainable. To address these, healthcare reforms are being placed in the form of price pressures and taxation. For example, the US Patient Protection and Affordable Care Act (PPACA) now levies 2.3% excise tax on most medical devices. Also, the Centers for Medicare and Medicaid Services (CMS) has provided an additional funding for transitional care efforts through its programs, with the Community-based Care Transitions Program (CCTP) channeling $500 million2 to qualified hospitals. Other reforms include narrowing provider margins and government-sponsored medical research programs. These forces have created an environment where medical device companies are reevaluating their commercial models to ensure they are relevant and responsive. Changes to the commercial and sales models should include new, advanced skills and talent to support and improve customer relationships.
With medical device prices continuously rising, practitioners have started demanding real world evidence that demonstrates that the devices are improving patient lives and reducing the overall cost of care. Value-based healthcare is becoming predominant across the board, as its outcomes have the potential to reduce the overall treatment costs and improve patient lives. As the decision-makers become more focused on value, companies will need compelling evidence-based results to make their case. For example, Innovative Trauma Care (ITC) invented a low-cost and easy to use clamp to manage bleeding from trauma wounds, proving immense value to the buyers and sellers alike3. This industry force has medical device manufacturers shifting their focus to advancing their technology to better engage and collaborate with patients and healthcare providers. The goal of this patient-physician collaboration is to positively impact clinical results and care value.
Gaining access to industry decision-makers is crucial for medical device companies. The shift toward centralized purchasing of medical devices has been a game changer. This shift is making it difficult to influence individual buyers like physicians because these decisions are being evaluated by central bodies like GPOs (Group Purchasing Organizations) and IDNs (Integrated Delivery Networks). Economics govern a greater proportion of the device-selection decision. As a result, companies have started to transform their sales teams with the necessary skills and capabilities to communicate the economic and clinical value. Furthermore, medical device companies must develop new sales strategies focused on each type of customer they are selling to.
Commercial change has also included a wave of mergers and acquisitions4 from both the manufacturer and customer sides. The trend to outsource specific care areas (e.g., clinics, ERs, ambulatory services, etc.) has further complicated the understanding of customer structures.
In many product categories, genuine clinical differentiation is diminishing. Along with this, it is becoming challenging to continue with patient value-based innovations. Medical device customers no longer value incremental improvements and seek groundbreaking lines of treatment. This is especially true in the largest profit-making categories: cardiovascular and orthopaedics. Also, in some categories, many low-cost competitors have emerged and taken market share from established players. According to a recent study, 28 percent of total global medical device revenue comes from emerging countries like Brazil, India, China, etc., which is expected to grow to 34 percent by 20205.
There is no escaping the fact that the medical device industry is undergoing a huge paradigm shift, exerting a significant impact on all its stakeholders. The traditional business models are not sustainable anymore and the increasing public pressure on prices and patient outcomes calls for a systematic industry transformation, specifically of the commercial practices. An educated assessment of the changing market conditions and an appropriate upgrade of the commercial models can prove to be a first-mover advantage for those willing to take it.
1. 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
2. Colleen K. McIlvennan, Zubin J. Eapen and Larry A. Allen’s Hospital Readmissions Reduction Program, published online 19 May 2015. Available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4439931/
3. Chris Newmarker’s 3 steps to create value with your medical device, published online 1 May 2017. Available at https://www.medicaldesignandoutsourcing.com/3-steps-create-value-medical-device/3/
4. Priyanka Dayal McCluskey’s State, federal regulators sign off on Beth Israel-Lahey merger, Boston Globe, published online 29 November 2018. Available at https://www.bostonglobe.com/business/2018/11/29/state-federal-regulators-sign-off-beth-israel-lahey-merger/8orX00xkMSRORq0rXlj4sM/story.html
5. Best Practices, LLC and PRNewswire’s New Study Examines How Medical Device Industry can Boost Commercial Success in Emerging Markets, published online 7 September 2018. Available at https://www.prnewswire.com/news-releases/new-study-examines-how-medical-device-industry-can-boost-commercial-success-in-emerging-markets-300708997.html