The consequences of this shift are likely to be felt for years to come. We predict the following changes in the medical device industry over the coming decade.
Device makers will do more for less. Between 20% and 25% of the per unit value of the current medical device industry will be eliminated, and while the industry will still grow (from $300 billion to more than $500 billion globally), this growth will be driven by new types of solutions, volume from an aging global population, and a much larger lower to middle class—in both established and emerging markets—demanding access to cost-efficient healthcare.
Consumers will rule. There will be an increased proportion of personal cash outlays, with consumers demanding transparency in healthcare system outcomes, quality, and component prices, resulting in a consumer-products- retail-like environment.
Channels will shift. Low-cost delivery channels. Care delivery will become segmented and optimized, and will shift increasingly to low-cost channels including the home, retail, and mobile environments.
Convergence, consolidation, and coordination. Large integrated organizations, such as integrated delivery networks and accountable care organizations, will dominate and lead the way in linking disease prevention, progression, and management, as well as patient outcomes, economics, and device performance to new care and reimbursement models. The top 20 medical device companies will consolidate into eight to 10 megamanufacturers to better serve the provider networks and improve selling power.
Global complexity will increase. The Chinese and Indian share of the medical device and diagnostic market will rival that of the United States and EU. Large U.S. and EU device companies will still dominate point-products, but they’ll be met with competition by emerging-market rivals and nontraditional participants focused on filling business-model gaps.
Value will be king. Health economics will dominate decision making, with limited physician influence and often at the expense of incremental technical advances. Transparency and the availability of data regarding healthcare outcomes, quality, and pricing will clearly identify the best and the worst in providers, payers, and device manufacturers.
In a survey done by A.T. Kearney, senior medical device industry executives generally attributed the disruptions driving these changes to the following factors:
- The shift in power to the payers and providers as budgets contract and providers consolidate.
- Increasing regulatory scrutiny as regulators focus on data and clinical evidence and respond to patient knowledge and technical advances.
- Unclear sources of innovation, with VC funding limited—existing products adequately serve patient needs, there are few new therapy areas, and investment costs and timescales continue to rise.
- The rise of new delivery models as patient pathways evolve and as product design, use, and aftercare are statistically linked to end-to-end outcomes, with providers focusing more on prevention than treatment.
- The increasing demand for healthcare in large populations that are currently inadequately served by the system but cannot afford premium pricing.
What It Will Take to Succeed
In this new future, expect the winning companies to seek to realize value from broader sections of the medical device value chain. These companies will add services, stretch into adjacent offerings, and establish partnerships to deliver more comprehensive patient care and productivity solutions to providers. Leaders will redesign their products for cost efficiency—rather than innovate through incremental technology and line extensions—and to deliberately differentiate their products to serve value segments.
Winning companies will invest in advanced data and analytics to demonstrate clinical and cost effectiveness and support premium prices and margins. Expect them to place more focused bets on those sectors, therapies, and geographies where they can become the preferred suppliers and the clinical partners across the value chain. The focus of M&A activity will shift to larger transactions, as the funding gap reduces the number of smaller targets, companies seek scale across their operations, and providers demand more full-service relationships, as well as to provide the depth of funding needed for longer and more costly innovation cycles.
Change is already underway. This future is incompatible with the business models that exist today, and few of today’s companies are prepared to cope with this new reality. Expect winners and notable losers among even the biggest names in the medtech industry.
Tim Durst is a partner with A.T. Kearney. Reach him at [email protected].
Dave Powell is a partner with A.T. Kearney. E-mail him at [email protected].
Bill Tribe is a principal with A.T. Kearney. Contact him at [email protected].
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