By Glenn Snyder, principal, Medtech Practice leader, Deloitte Consulting LLP
As health care transitions from episodic care to improving and maintaining well-being, medical technology (medtech) manufacturers have a tremendous opportunity to influence how the future will play out. Companies that successfully adapt to this evolving market—and lead innovation—could reap significant benefits. But they will need to stay a step ahead of consumer-focused tech-savvy companies that are entering the market.
The global medtech market is expected to reach nearly $529 billion over the next few years, according to a recent analysis from Frost & Sullivan. The traditional hardware and devices that treat specific conditions will continue to make up the bulk of the medtech market, but this segment is only expected to grow 2% by 2024. Most of the projected growth will come from technologies that make it possible to manage conditions and monitor patients remotely. This area is expected to grow more than 14% by 2024 to nearly $172 billion, according to the report.
As more clinicians turn to remote monitoring to make medical decisions, we expect the accuracy, performance, and value of data generated by medical devices will become critically important. In addition, as more care shifts from the hospital to outpatient and other lower-acuity/lower-cost settings (including the home), health systems are likely to opt for less expensive medical devices or exert additional pricing pressure on device manufacturers. We anticipate that this shift to more distributed care will also create demand for a much higher volume of these “less expensive” devices.
Four critical challenges and opportunities for medtech
Medical devices are often designed with the clinician in mind. However, a new generation of devices should be designed with the consumer in mind. That is a significant change. While some devices might be sold directly to consumers through retail pharmacies, other devices might be purchased by a health system and/or covered by a health plan. Companies that have strong consumer business units might be able to leverage their consumer-oriented thinking in new ways. Consider the following challenges and opportunities:
- A new consumer-centric business model: As health care shifts toward prevention and wellness, medtech companies should look for opportunities to engage consumers before they become patients. They might consider partnerships with consumer technology companies to develop consumer insights and products that foster disease prevention and recurrence, as we noted in our report on novel partnerships in medtech. This can enhance brand awareness among patients/consumers and can create new opportunities for companies to identify additional unmet needs. Some medtech companies might opt to build their own consumer-oriented “muscle” (capabilities) for product design, product support, and marketing.
- New growth strategies: A decline in recent mega mergers suggests that companies are pursing growth either organically or through smaller acquisitions. Historically, large medtech companies acquired mature assets to tuck into their existing sales and distribution channels. However, some investors are shying away from early-stage, unproven technologies that could face regulatory and reimbursement hurdles, according to Deloitte research. Limited exits and declining returns for venture capital (VC) investors have made this situation more challenging. It is incumbent on larger companies to help bridge this funding gap by considering strategic investments earlier in the lifecycle of a product. This could help advance the most promising start-ups and create exit opportunities for existing VC syndicates. Similar to biopharma, large medtech companies might consider licensing, co-development, and joint-venture arrangements.
- New-product development: The medtech sector has historically innovated around better products rather than cheaper products. While this is appropriate for buyers like Academic Medical Centers, it could be limiting for Ambulatory Surgery Centers and other non-hospital-based facilities where price-tolerance is much lower. Delivering the right products to the market at the right time is key to driving market share and offering value to patients and customers—in addition to generating returns on investments. In some cases, traditional research and development (R&D) practices have limited the innovation process and have contributed to losses. Rather than sustaining existing products, a recent Deloitte analysis found that top-performing medtech companies are allocating more resources to front-end market understanding and to new, transformational products. We also found that top performers have managed their pipelines more realistically and have adopted emerging practices. These include agile development methodologies and advanced IT tools to support engineering and clinical development, according to our research into marketplace trends in medtech. Many of these adjustments have allowed companies to accelerate their innovation cycles, integrate digital technologies more quickly, and more predictably achieve their marketplace goals. However, many companies still have room for improvement.
- New reimbursement policies: Existing reimbursement policies are putting pressure on some medtech manufacturers to differentiate themselves and demonstrate value. Many companies are rising to the challenge by creating new contracting and value-based arrangements, such as sharing risk with providers for the total cost of care or clinical outcomes. But such arrangements are often expensive and difficult to set up, according to Deloitte research. Outdated regulatory and government payment systems, data requirements, and lack of quality measures—which are not keeping pace with rapid technology advancements—were identified by industry leaders as major barriers to adoption of such models. The transition to non-traditional clinical settings has placed pressure on traditional, in-person sales, which has only been exacerbated by the COVID-19 pandemic. Recent updates, such as the new Medicare Coverage of Innovative Technology (MCIT) rule, which provides same-day national Medicare coverage for FDA-designated breakthrough medical devices, will likely reduce the lag between approval and payment. This is seen as a step in the right direction. But industry leaders say not all innovation is worth the effort of monitoring outcomes and meeting regulatory hurdles, which could be detrimental to advancement overall.
In the years ahead, the most successful medtech companies will likely be those that adopt consumer-oriented models that embrace the shift toward early detection and prevention of disease. Technologies that help to change behavior and drive healthy lifestyle compliance (e.g., diet, exercise, persistence with therapy, etc.) might also gain traction as they prove value.