Medical Device Contract Management: A Leaky Valve in Company ProfitsMedical Device Contract Management: A Leaky Valve in Company Profits

A new survey suggests poor contract management causes losses in medical device company revenues.

Lisette Hilton, Reporter and President

October 5, 2024

4 Min Read

At a Glance

  • A recent survey reveals that 100% of medtech executives believe poor contract management significantly impacts revenue.
  • Effective contract management is crucial for boosting profit margins in the stagnating medtech industry.
  • The adoption of innovative technology platforms is essential for streamlining contract processes.

AcuityMD, a technology provider in the medtech industry, recently announced the results of its survey of more than 150 medical device executives. Every single person surveyed said poor contract management results in losses in revenue.

Addressing this leaky valve in medical device profits could improve lackluster profit margins in the industry. Profit margins have not improved since 2018 for global medical device firms and are lower than in 2021, according to an article by McKinsey and Company “What to expect from medtech in 2024.”

Contracts drive medical device revenue

Among the survey’s other findings: Eight of 10 respondents indicated contracts are a “significant” revenue driver. About 68% of those surveyed reported that at least 70% of company revenue comes through contracts, and contract-driven revenue is a growing trend.

“… the importance of contracts was anticipated to be even greater among the biggest companies. According to the survey, 73% of those with more than $1 billion in annual revenue estimate that 90% or more of their revenues will come through contracts within three years,” according to an AcuityMD press release.

Decision makers are not who you might think

Survey respondents’ reasons for poor contract management include the increasing complexity of contracting with integrated delivery networks (IDNs), group purchasing organizations (GPOs), and regional purchasing coalitions (RPCs). They also pointed to increasing health system consolidation and a lack of resources to manage contracts.

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Increasing contract-generated revenue requires an industry-wide mindset shift to replace antiquated, inefficient processes with innovative technology. This is especially true among medical device firms, which sell products directly to physicians, such as orthopedic devices, according to AcuityMD Vice President of Strategic Growth Tom Middleton.

“The rep’s ability to have a conversation with the physician, sell them on the product, and convert that to a closed deal is shrinking,” Middleton told MD+DI. “Sometimes the physicians’ hands are tied, even though they like the product and want to use the product, they aren’t able to because they aren’t on contract.”

U.S. healthcare system consolidation makes it challenging for medical device sales reps to understand who they need to be negotiating with any given week, Alex McLachlan, Intellijoint Surgical’s director of commercial, said in AcuityMD’s press release.

“Today, about 80% of our orthopedic surgeons are employed by a hospital,” McLachlan said. “The byproduct of that is decisions are happening at a corporate or administrative level, so you might win over a surgeon, but the final decision maker is someone else.”

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Changing communication strategies

Part of the challenge to find the right person to contact could be with using older communication strategies. When asked how they communicate contracts to their teams in the field, 99% of survey respondents said they use email as a means of communicating the contract to the team. About 90% of those surveyed said they use meetings, and 73% rely on individual contact calls or texts to communicate contracts.

As they start to develop how to draft and respond to the contracts, the typical corporate response is to send more emails, get on more calls, Middleton noted.

“It really is a broken system,” Middleton said. “You can imagine the amount of time that’s wasted if 99% of respondents use email and spreadsheets and calls and texts to try to figure out how to draft compliance for a contract.”

Making information available on a single platform

A lot of medical device organizations don’t realize their current processes are inefficient, Middleton said.

“They think the answer is hiring more people to manage the contracts, which really doesn’t solve the root problem,” he said. “By hiring more people you’re adding more cost to an old, antiquated model.”

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The solution lies in technology platforms that streamline the information, getting it to reps as soon as that contract is signed. AcuityMD has developed such a platform, a contract management solution called AcuityMD Contracts, which the company claims eliminates contract management bottlenecks so that commercial teams can maximize revenue by finding untapped opportunities, accelerate sales cycles, and increase contract penetration.

By using the platform, reps quickly know who to call for convertible wins because those contacts are already on contract, Middleton said.

Before AcuityMD Contracts, Intellijoint Surgical’s sales reps would have to contact administrators to check if facilities were on contract. It took too long and was not scalable. The use of the platform stimulates demand they didn’t know existed. Today, Intellijoint Surgical is closing on-contract opportunities 66% faster than off-contract opportunities, McLachlan said.

About the Author

Lisette Hilton

Reporter and President, Words Come Alive

Lisette Hilton loves covering medicine, health, wellness and fitness, and has been a reporter following her passion for more than 25 years.

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