A report released by A.T. Kearney says that disruptive changes taking place in healthcare will change the competitive landscape of the medical device industry, and that device manufacturers will need to look at new segments and end-to-end solutions that are focused on differentiated sources of value, customer productivity, and total patient disease management.
The findings of the study, Medical Devices: Equipped for the Future? were based on interviews with 30 medical device industry executives from 20 of the world’s leading medical device manufacturers. The report’s authors asked the executives about industry dynamics and what they see as disruptive forces, particularly in the “physician-preferred” segment, or products where the clinician has a large influence on purchasing decisions. It identifies five major medical device industry disruptors:
Power shift to payers and providers: Evidence-based decisions and the funding channels are increasingly challenging the traditional business model of clinician choice. Payers and providers are evaluating medical devices based on safety and procedural efficacy as well as cost and value. The report also noted that more patients are being covered by accountable care organizations (ACOs) that focus on better coordinated, lower cost care. In addition, hospital consolidation continues, with 20 percent of hospitals involved in M&A activity over the last five years. This led to the creation of large providers and umbrella networks that coordinate care pathways monitor costs. While physician preferences still matter, their freedom to choose can no longer be taken for granted. Costs and preferred supplier lists are playing a larger role in purchasing decisions, as pressure from price reductions have increased over the last few years.
New healthcare delivery models: Analytical tools are making it easier to evaluate large volumes of data, and patient pathways are being modified to obtain better outcomes for less money. For example, increasingly the emphasis is to shift care out of hospitals and into the community. Many medical procedures and follow-up examinations that were once routinely performed in specialized facilities are now done in an ambulatory center, in a primary-care physician’s office, or in the patient’s home. Nurse practitioners, pharmacists, therapists and social workers are all playing a greater role in patient care that is supported by technology such as enhanced data and remote access and monitoring tools, which are leading providers as well as device manufacturers to devise new care delivery models. There will be a need to direct products to new physical locations for use by different groups of providers, as well as a need for more complete, bundled, end-to-end solutions and services that go beyond the medical device itself.
Heightened regulatory scrutiny: Regulators have been tightening up existing regulations and adding new ones. FDA audits have increased by 40 percent in the past 12 months and the number of warning letters has risen by 24 percent over the past two years, with a rise in compliance costs.
Need to focus on underserved populations: The report notes that the Affordable Care Act is focused on providing healthcare access to socio-demographic groups that have been traditionally underserved. Medical device companies seeking growth will need to target less affluent segments that can offer significant profit potential with the right solutions. Accessing growth segments, even in traditional markets, will require new business models, lower price points, and more value-based product offerings than those of today.
Unclear sources of innovation: Because of regulatory and reimbursement issues, medical device companies are focusing their R&D efforts on improving already approved devices rather than developing truly innovative new products. New products that affect the way standardized procedures are conducted are often reluctantly included on the list of reimbursable products. Additionally, startups and small companies are finding it difficult to find capital to fund the increasing cost to bring new innovations to market, according to the report.
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