From Product Supplier to Solution Provider: Why MedTech Companies Need to Act Now!

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medTech companies

The effects of the COVID-19 health crisis are impacting the healthcare industry majorly. In addition to putting an enormous demand on healthcare providers, soon, they will also begin to struggle financially. This calls for MedTech suppliers to step up: Instead of delivering products, they need to become a vital part of finding solutions for ongoing challenges. In our four part series, we outline why this is a necessity, the best strategy to do so, and show best practice examples.

MedTech is a volatile market right now: In fact, the global medical devices market size decreased from 456.9 billion US dollars in 2019 and a compound annual growth rate (CAGR) of 4.4 percent since 2015 to 442.5 billion dollars in 2020 at a rate of -3.2 percent. However, experts expect it to recover and grow at a CAGR of 6.1 percent from 2021 and reach 603.5 billion dollars in 2023. This development can be traced back to lockdowns imposed by the governments across the world that hindered the supply chain in the medical devices manufacturing industry. Nevertheless, there also was an exceptional demand for ventilators that are used to treat COVID-19 patients. In addition, in future years, analysts predict an increase in the incidences of infectious and chronic diseases that will further impact market growth.

These figures indicate high demand and a positive business outlook for MedTech companies. However, there are also more and more challenges appearing on the horizon: Not only are less than ten percent of MedTech companies fully confident that all their innovations will achieve their profit targets, as one of our recent industry studies found out. Which might indicate a possible slowdown in terms of innovative strength and efforts. But more importantly, the COVID-19 crisis will have a lasting effect on healthcare providers’ finances, which gives rise to the danger of price erosion on MedTech suppliers’ ends.

Addressing healthcare providers’ price sensitivity will be vital

Managing the acute as well as long-term effects of the COVID-19 health crisis is and will be a major task for many healthcare providers now and for years to come. Side effect of this will be an increased financial sensitivity once they realize that cost savings will be essential for their economical permanency. Surveys suggest that even though the pandemic has had a significant impact on health care utilization and overall costs in 2020 due to a sharp decline in non-urgent surgeries and elective care, the resulting decrease in medical trend will be short-lived. Globally projected health care benefit costs decreased from 7.2 percent in 2019 to 5.9 percent in 2020, but will rebound to 8.1 percent in 2021. And looking beyond 2021, over two-thirds of surveyed insurers expect medical costs will continue to accelerate over the next three years.

In order to battle these rising costs, reducing supplier prices will be a key pillar of many healthcare providers’ strategies. This could prove successful, since an accelerated vertical and horizontal provider consolidation leads to increased bargaining power. Also, the relative lack of paradigm-shifting innovation reduces the providers’ need for adopting new high-priced products. And while more MedTech product categories become commoditized and “good enough”, low cost options become increasingly available. Regarding this, MedTech companies need to be aware that the commoditization of products could lead to a compression of product prices.

In addition to supply chain optimization, healthcare providers have two other levers to drive financial recovery: On the one hand they can achieve operational cost savings through increased efficiencies due to standardized processes, optimized patient triage, IT solutions, etc. On the other hand, avoiding cost/reimbursement penalties incurred by less than optimal clinical results as well as covering the full patient pathway minimizes the financial burden further. However, even when trying reduce costs via the aforementioned measures, healthcare providers overall have limited bandwidth and capabilities to identify and pursue cost saving initiatives internally. Yet, there are positive signs that the higher price sensitivity by care providers is accompanied by an increased openness to pay for performance schemes. This presents MedTech companies with the opportunity to shift their business model from a budget-based to a performance-based one. As a result, pathways open up for MedTech companies to become part of the solution as a partner by using services and products to drive efficiencies and meaningful clinical outcomes.

Find out in the second part of our series, how MedTech companies can achieve this.

Read more from this series:

Part 2. From Product Supplier to Solution Provider: How MedTech Firms Can Master This Transition

Part 3: From Product Supplier to Solution Provider: How MedTech Firms Start Their Transformation Journey

Part 4: From Product Supplier to Solution Provider: How 2 Medtech Firms Accomplished the Transformation

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