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Insights and Opportunities in the MedTech Industry

MedTech companies are struggling to pursue new opportunities and grow market share, sales, and profits while navigating through a sea of disruption. This disruption includes:  

  • Intensified competition from less regulated products that produce comparable benefits: MedTech companies must be proactive to the competition and address changing consumer expectations to not lose revenue opportunities.  
  • New regulations from the FDA, such as HFE and device traceability requirements: Such regulations may lead to new challenges in pricing compliance. The FDA is looking for data gathered from clinical trials to demonstrate the effectiveness of these new technologies, and AI is key to providing the evidence required by analyzing a vast amount of clinical trial data. 
  • The rising cost of healthcare insurance, high co-payments, and lower CMS payments: With increased pressures on hospitals and other customers, MedTech companies must take advantage of analytics that provide insight into drivers of the selling process to compete and cross-sell more effectively. 

This paper explores these and other challenges in more detail, as well as the changes that have been accelerated with COVID-19. It then discusses the new rules of digital commerce—listen, personalize, and engage, and how these three rules enable MedTech companies to win on the new competitive front—customer buying experience. Finally, the paper discusses how PROS AI-powered solutions, founded on data science and over 35 years of deep industry insights, enable MedTech companies to increase growth in sales and profits. 

Preview of Brief: To Read the Full Brief, Download it Above!...

Opportunities & Disruption in MedTech

Medical Technology companies are facing significant disruption to their businesses arising from several fronts. On the one hand, a growing and aging world population promises a broader market for cardiovascular, orthopedic, spinal, and neural technologies. On the other hand, this growing demographic is rapidly increasing the cost of healthcare, forcing public and private payers to cap their reimbursement rates. The Center for Medicare and Medicaid (CMS) has continued to reduce reimbursement rates for many procedures and is now actively embracing bundled payments that force hospitals, nursing homes, and their suppliers to share a single payment per episode of care. i Private payers are also following this practice.

As a result, hospitals are becoming increasingly cost-conscious and reducing waste, buying less equipment and supplies, and using GPOs and large health systems to increase their bargaining power for lower prices and better value. Many hospitals are unable to transition from fee-based to value-based reimbursement models and unfortunately closing their doors which only concentrates the buying power of the remaining large hospital systems, further creating price pressure.

Furthermore, a McKinsey study shows the vast majority of medical technology products are in the mid- to low-tech category, where they are highly commoditized by GPOs and large health systems forcing lower prices.ii

Add to these challenges the entry of digital health providers with new business models often from unregulated and related industries, providing health products directly to consumers rather than through traditional channels.iii

These digital health companies, many of which have traditionally sold consumer digital and electronics products, already possess significant knowledge of consumers, have established relationships with them, understand their buying preferences, and have already built digital selling tools to serve their needs.

Growth Opportunities Exist but are Limited

Analysts forecast growth of about 5% a year over the next year for the Medical Technology (MedTech) industry.iv According to a McKinsey report, forecasted growth is 4-5% a year, and according to KPMG, global annual sales for medical technologies are predicted to rise more than 5% a year, or at nearly $800 billion by 2030. v vi

This is fairly remarkable considering the sector is under strong pressure to reduce prices, including in large categories such as orthopedics. The McKinsey study also found that MedTech companies in highly innovative markets such as electrophysiology and neurovascular are the most likely to sustain high growth, while many others will struggle to find profitable growth. vii

Growth factors are attributed to an aging baby boomer population, increases in chronic diseases, and development in artificial intelligence.

And while in the US, the population is aging, thereby requiring a number of devices in the cardiovascular, orthopedic, and neural/spinal areas, cutting-edge devices are extremely expensive to develop and pass the Food & Drug Administration (FDA)’s regulatory hurdles.

Small, highly innovative MedTech companies may have the right innovations but struggle with finding the capital and regulatory savvy to bring their innovations to market, while larger MedTech companies with significant access to capital and the skills to navigate FDA regulations find their innovation portfolios limited. Mergers and acquisitions have helped fuel growth for some MedTech industries, but many continue to see limited growth prospects.

It is important to note that the vast majority of the medical technology market (88%) is in the low- to mid-tech category, with the remaining 12% representing the high-tech, high-growth opportunity.viii MedTech companies must become extremely efficient at marketing and selling products particularly in the low-to-mid-tech categories to maximize revenue and profits. That means using data science and artificial intelligence to identify opportunities, analyze customer willingness to pay, understand demand trends, and beat competitive offerings.

Hospitals Under Significant Pressure to Cut Costs

Changing CMS Reimbursement Models

The Affordable Care Act, in its effort to bend the cost curve of the skyrocketing US healthcare system, initiated the value-based reimbursement model where the Center for Medicare & Medicaid Services (CMS) would reimburse hospitals based on evidence that their services improved their patient's health. ix This principle has since been adopted by private payers as well.

In the two largest revenue generators for hospitals—Cardiovascular and Orthopedics—the CSMs are now pushing bundled payments where it pays a total amount for a given episode of care, including all medical devices, complications, post-acute care, and readmissions.x

This combination of government regulations and emphasis on value-based care has led to pressures on medical devices and equipment manufacturers to reduce their prices. With hospital execs employing new strategies to evaluate devices on their price and effectiveness, such as value analysis committees and third-party firms, MedTech manufacturers and distributors now find themselves in an increasingly competitive market where they must optimize selling processes and prove value in light of the industry's growing criticism of the cost of this technology.

Group Purchasing Organizations

Health Care Providers often turn to Group Purchasing Organizations (GPO), intermediaries who negotiate contracts with MedTech Companies. This is done on behalf of the providers connected to the GPO to obtain lower and more desirable prices. GPO's are primarily concerned with conventional items over advanced equipment and devices, a category where there is significant volume both in the SKU's represented as well as the total amounts purchased. This is precisely where MedTech companies need AI to help them configure their pricing, so they win the business without excessive margin erosions.

Challenging New Regulatory Trends

A key trend revolves around device traceability and tracking. The FDA's Center for Devices and Radiological Health (CDRH) is now reorganizing around product lines into teams responsible for device oversight throughout the product's development and commercializationxi.

There are many similar initiatives internationally including Australia, Taiwan, Canada, South Korea, etc.

At the same time, the FDA is working to simplify regulatory processes for low risk (Class I) medical devices. There are similar processes underway in Brazil and Ecuador, while Costa Rica has eliminated the requirement for Class I devices.

While the regulatory hurdles are coming down in Class I, this is also space where products are highly commoditized and compete on price and service rather than product differentiation.

There is a more substantial move towards Human Factor Engineering (HFE) as the FDA emphasizes this by sending a warning to device makers who fail to conduct post-market HFE study and testing.

All this comes at a time when the FDA has significant resource constraints. This means that Device Makers can expect delays in approval of their Class II and III devices.

The Shift in MedTech Selling Model

The traditional MedTech selling model often relies on one-to-one encounters with sales reps. However, recent trends have revealed a shift away from personal interaction towards a digital sales model. Firms need data-driven insights to compete and cross-sell more effectively via bundled product and service offerings. Yet, many companies fail to capitalize on the promise of these analytics. A study conducted by ZS found that 70% of respondents rated analytics as "very" or "extremely" important to their competitive advantage; however, only 2% said they have generated a real impact from this analysis.xii

Companies may run basic customer analytics but often overlook the opportunity to improve segmentation, deal profitability, and life-time value. One such gap is in pricing analytics, where significant revenue leakage occurs as a result of poor pricing and contract performance.

Digital Transformation of the Selling Process

Given the shift in selling models and consumer expectations, it is now more critical than ever for the MedTech industry to digitize the end-to-end selling process.

Many MedTech companies have traditionally struggled with tensions between pricing teams and sales-centric commercial teams, which has led to an emphasis on immediate sales over long-term value advantages. Additionally, manufacturers and distributors are now finding themselves in a "data disadvantage" relative to their customers, who heavily invest in resources and technologies that analyze a product's price and profitability.xiii

Many MedTech manufacturers typically use ERP systems for pricing and have limited visibility into pricing performance. In some cases, they lack essential AI tools that generate price tracking and reporting analyses. Those who are unable to listen to customers and optimize pricing with data-driven analytics cannot readily differentiate themselves or compete in the new digital normal.

MedTech is also seeing success with virtual sales and eCommerce, a rising portion of the industry's sales model. Although many companies still heavily rely on in-person relationships and are reluctant to expand into virtual selling, the industry now understands the importance of digitizing the selling process after an immediate shift to virtual activities with COVID-19. Companies must begin evaluating and enhancing technologies such as CRMs, eCommerce platforms, intelligent pricing and quoting systems that allow them to listen and readily engage with customers.

How MedTech Companies Increase Growth in Sales and Profits.

MedTech companies are on the brink of something airlines began experiencing 20+ years ago: a far-reaching technological transformation that radically affects the pricing, sales, and buying processes. The scale of the change to come has many MedTech companies wondering: Where do I focus?

The best place to begin any process of change is where that change will have the most impact. When it comes to digital transformation, change will have the most meaningful and measurable impact on the interactions between the company and its customers. From product design, delivery, and pricing through creating a long-term value relationship with the customer, the end-to-end sales process is the best place to invest in and the most critical process to optimize going forward.

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