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What Investors Should Know about the US Medical Device Industry

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Part 11
What Investors Should Know about the US Medical Device Industry PART 11 OF 20

How the Dynamics Are Changing in the Medical Device Industry

Overview

The medical device industry consists of a few big manufacturing companies that dominate the market and a large number of small players. Physicians have historically been the key influencers that impact medical device buying decisions. However, the recent shifts to value-based healthcare and restructured business models have seen an expansion in the number of influencers.

How the Dynamics Are Changing in the Medical Device Industry

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Key influencers of medical device purchases

Physicians increasingly prefer being employed by big hospitals and other healthcare organizations as opposed to owning individual practices. This shift is changing the manufacturer-buyer dynamics. Apart from physicians, entities such as hospital groups and payers like insurance companies and government agencies have also emerged as entities that directly or indirectly influence medical device buying decisions.

How healthcare consolidation is impacting the buyer profile

Consolidation, mainly driven by cost-containment measures to retain profit margins, has led to an increase in stakeholders involved in medical device buying decisions. As a result, group purchasing organizations (or GPOs), hospital financial organizations, and other similar entities are beginning to have greater influence over medical device buying decisions. These entities also consider financial impact analysis for making medical device purchase decisions. Thus, there has been a power shift to payers and purchasers in the medical device industry.

With changing buyer dynamics, medical device companies need to focus on marketing the device with enhanced value proposition and differentiation to cater to the different needs of various stakeholders involved. Companies such as Medtronic (MDT), Abbott Technologies (ABT), Boston Scientific (BSX), and Stryker (SYK) are adopting different strategies and devising ways to sustain their market share.

Investors seeking exposure to the US medical device industry can invest in the SPDR S&P Health Care Equipment ETF (or XHE), a broadly diversified, focused ETF. Another ETF with exposure to the US medical device industry is the iShares U.S. Medical Devices ETF (IHI).

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