Market Model Changes the Medtech, or Medical

Market Model Changes

The medtech, or medical technology, industry is a large and intensely competitive industry that produces highly innovative medical devices for hospitals and other healthcare facilities in the effort to save lives and improve health for patients (Research, 2012). It is spread across different segments including, cardiology, oncology, neuro, orthopedic, and aesthetic devices. It relies largely on aging baby boomers, high unmet medical needs, and increased incidence of lifestyle diseases, including cardiovascular disease, diabetes, hypertension, and obesity.

The industry is being challenged by pricing concerns, hospital admissions and procedural volume, uncertainty concerning healthcare reform, Medicare reimbursement issues as agencies are looking for cost reduction measures, and regulatory overhang. There is a rise in patients deferring treatment in elective procedures. "One factor aligning economic and clinical forces: in the U.S., the number of medical practices owned by hospitals grew from 25% in 2005 to 50% in 2008" (practice, 2011). Where hospitals are gaining more clinics in their portfolios, they have more of the decision making processes on what equipment they purchase and at what value and costs. Clinical differentiation is diminishing where valued innovation is rising, especially in product categories representing the largest profit pools: cardiac rhythm management, cardiovascular, orthopedics, and spine-related devices. Customers are looking more for cost efficient innovations that have lower overall costs.

For the short run, the industry is up for some tough challenges as the orthopedic area is still struggling from patient deferral of elective procedures, the spinal market continues to experience pricing/volume pressures, pricing compressions on hips, knees, and spine products impaired performances at the macro level, and group purchasing organizations put more pressure on pricing structures (Blog, 2012). For the long run, hospital spending is on the rise as hospitals start to replace worn-out equipment. There are catalysts for growth including new product cycles, an aging population, geographic expansion, ongoing transition towards minimally invasive techniques and emerging markets.

There are possible transaction costs. The FDA draft proposals are implementing requirements that include that devices must prove they are substantially equivalent to a predicate device already on the market, device approval will be more complex and complicated, and the rise in regulatory bar approvals may require more money in research and development. Expansion in emerging markets may bring more transaction costs in foreign fees and transactions to meet regulatory requirements. Merger and acquisitions to build strength and diversifications can bring more costs to merge and make appropriate changes in product mix as well as satisfy more regulations. Healthcare reform can lead to a less flexible pricing environment with the proposed 2.3% excise tax on sales of certain products beginning in 2013. Some behaviors that can result from these transaction costs are loss of jobs as organizations are forced to control costs and higher prices to the consumers to compensate for the additional transaction costs that will be required.

The keys to success are to segment in the market, tailor the go-to-market approach, and align the organization. The device selection criteria should include expanding the scope of value analysis committees to provide greater selections among the device choices. Where hospitals are looking more for cost efficiency devices, having a selection of devices to choose from adds value to the consumer. Account sophistication includes partnering with hospital facilities to optimize the total cost aspect and improve patient outcomes at the same time. Some hospitals are looking at the total cost aspect, equipment cost, employee costs, supply costs, etc. Partnering with hospital facilities adds value to both parties as everyone looks for cost cutting measures, protection of the bottom line, and performance improvement all at the same time.