Pricing and Product Efficiency Challenges in the Med Tech Industry

October 25, 2016 Charles Sweeney

Medical device price regulation is being threatened in India’s and Australia’s mixed private and public health care systems. In the U.S. Congress, a bill is being presented (although passage is far from certain) to create pharma and med devices price review panels in an attempt to end price gouging. This is a likely response to controversial price hikes for Daraprim and EipPen.

A recent Med City News article highlights the shift happening in med tech amidst a slew of revenue-opportunistic acquisitions and ongoing cost-containment pressures from health care reform.

In the article, Flex Medical Solutions president and former J&J exec John Carlson explains how the healthcare industry is now in a place where technology advances have to be weighed against costs as both commercial and government payers look to contain spending.

The article also illustrates how Medtronic has started evaluating every project against economic value and outcomes to better serve end customers and become more efficient. A more efficient industry frees up more money for R&D activities.

The article brings up two important topics. One is that outcome-based purchasing decisions are upending the traditional model of R&D investment in the med tech industry. The second is that the industry needs to focus on becoming more efficient to fund future innovations.

The Med City article frames these efficiency goals as taking a more pragmatic look at economic value (now driven by product efficacy) when funding R&D activities. However, there are other efficiencies med tech firms should pursue, including how they execute on pricing strategy in the market. While the EpiPen price gouging scandal is more a symptom of rampant consolidation (both of individual products and entire product lines and companies) by some firms seeking to exploit marketplace need to turn quick profits (the Turing model), it also underscores the importance of determining true willingness to pay guidelines for pricing that benefit revenue and margins while not raising the ire of regulatory agencies and the public at large.

Not so long ago, most product innovations – whether or not they were minor enhancements for complex devices or actual product breakthroughs – could command a market at often inflated prices. As healthcare costs soared well past inflation and household income gains, this type of product and pricing strategy is no longer working. Med tech manufacturers have to both re-evaluate what products and enhancements are developed and how they will price them in a marketplace that is far more cost-sensitive and price transparent than ever before.

To learn more about pricing in medical technology, watch the on-demand webinar “Only the Pricing Proficient Survive” with Hologic and Simon-Kucher & Partners.

About the Author

Charles Sweeney

Charles leads PROS strategic pre-sales consultants for the high tech and healthcare industries.

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