Medtech Embraces Subscription-Based Models

Medtech adapts Adobe-like business model to help spur growth and meet customer needs.

Heather R. Johnson

March 1, 2018

4 Min Read
Medtech Embraces Subscription-Based Models

Adobe transformed its business model by shifting from selling software to selling subscriptions. Instead of paying $500 for Adobe Acrobat software, for $14.99 a month, users receive all the features of Acrobat plus a mobile app, cloud storage and other features.

Similarly, medical device companies are taking a more holistic view, offering tools that take the products beyond point-of-care. Subscription-based payment models are a way for medtech companies to expand service offerings while helping hospitals meet financial objectives.

"When you change the model from ownership to access, you can offer customers a package that allows them to treat patients in a more efficient and flexible way," said Jay Zhu, medtech strategy and marketing practice lead for ZS Associates. "Although some benefits of a subscription model are similar to a traditional equipment lease model—predictable and easy monthly payments, for example — the subscription model offers additional value and convenience.”

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nfant uses subscription-based pricing for the reporting components of its nfant Feeding Solution. The system includes a sensor that connects to standard bottles and nipples. The sensor wirelessly sends feeding data to a mobile app, which clinicians use to observe feeding parameters. NICU and PICU feeding teams then use nfant analytics to analyze and compare data for all patients.

"We offer sliding scale pricing based on the number of beds a unit has," said nfant CEO Lou Malice. "The number of beds is a good indicator of how many babies will need the tool and, therefore, how large the data set."

Unlike many software-as-a-medical device services, which mine Electronic Medical Records data, nfant creates its own data sets.

"We have algorithms built around artificial intelligence and machine learning to learn how to cluster babies into groups based on their ability to feed," said Malice.

As more hospitals use SaaS for everything from human resources to backup and disaster recovery, Malice believes they are becoming more receptive, generally, to subscription-based payment models.

"Hospitals know how to budget, and vendors can expect a certain level of revenue," he said. "Device companies can build a pricing model that benefits both sides."

Although hospitals may argue a monthly or quarterly subscription costs them more in the long run, with the right model, they receive more value. Depending on the device, a subscription could include maintenance, parts and labor, clinical or operational services, and product upgrades and replacements.

"I've seen clients have success when they say, 'we'll provide the equipment, build or update your clinical protocols, educate and train your staff, track and report outcomes, and we can guarantee a certain amount of cost savings or economic gains'," Zhu said.

In addition to software and high-dollar equipment such as MRI machines, surgical equipment and implants can use a subscription-based model, Zhu said.

"Instead of charging by volume, you can estimate hospital consumption rate and give customers a monthly fixed price, as well as provide clinical support and patient education services," he said.

Subscription-based payment models mean the expense shifts from capital to operational—something that's already happening in healthcare IT. Medtech companies may see a short-term profit drop without those large one-time sales, but over time, businesses should see steadier cash flow.

It takes business analysis, however, to make the subscription-based payment model work.

"Medical device companies need to develop services and offerings to motivate customers to subscribe," said Zhu. "They need to have stronger commercial analytics capabilities to track customer usage, churn and renewals and have processes in place to prevent customers from canceling subscriptions."

In addition to providing more value, Malice reports that hospitals are advocating for a risk-sharing type clause in the subscription agreement.

"Customers are used to 'buyer-beware' — buy my product and hopefully it will do what we say it's going to do," he said. "By tying the subscription to efficacy and outcomes, it becomes more of a partnership rather than an arm's length transaction."

As medtech companies develop sales and marketing strategies to offer subscription-based payment models, hospitals are warming up to the idea.

"This is a slow moving industry," Malice said. "As more younger and aggressive individuals move through organizations on the provider side, we're seeing a shift. They're looking for new ways to do business that are more predictable and easy to understand."

Heather R. Johnson is a freelance writer based in Oakland, California. Follow her @HeatherRae71.

About the Author(s)

Heather R. Johnson

Heather R. Johnson is a consultant and writer for the medical and clinical technology industries. She’s based in the San Francisco Bay Area.

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