Why device makers will add value to products, driving up revenues

Tough times

As we all know by now, the medical device industry has had a tough year. Alongside the medical device excise tax, they have to deal with reduced reimbursement, reduction in R&D (research and development) capital, and pricing pressure. To offset their losses, device manufacturers have begun developing enhancements through their products to drive down costs, increase productivity, and increase revenue.

MDT SPEnlarge Graph

Shift in strategy

Historically, device manufacturers had been catering to physicians. With rising medical costs, the decisions are slowly shifting to consumers, payers, and medical systems (the people who actually pay for the products). Device makers have been slow to shift their strategy alongside this change but are now noticing the need.

According to a report released by EY, companies are finding and must continue to find ways to create, deliver, and capture more value along the healthcare value chain. Pressure to innovate and spurn growth has mounted on manufacturers, yet reductions in R&D capital (loss of $14 billion since 2008) has made this difficult. However, successful experiments to drive growth are under way in the following three areas.

  1. Product services and solutions: Services delivered alongside the product that help improve outcomes and drive prices down
  2. Treatment services: Remote monitoring and prevention techniques to better manage patient health
  3. Patient services: Providing services so patients can track their health at home without costly hospital visits

The top five chronic diseases make up 80% of healthcare costs. If manufacturers can develop patient engagement tools alongside their products to improve wellness, they stand to capture significant value.

Risk mitigation

In order to effectively engage in the activities above, manufacturers need to manage some key risks.

  1. Focus on effective resource management (capital efficiency)
  2. Develop a better understanding of the healthcare value chain
  3. Collaborate outside their immediate industry and drive communication with diverse companies
  4. Share data to drive collaboration

If manufacturers can effectively engage in these risk mitigating steps, look for device makers to increase their share in the healthcare market and drive revenue up, with expected increases in demand from Obamacare. Healthcare budgets are only increasing, and with low-cost, high-value additions to their devices, manufacturers are looking to thrive.