The
medical-device industry is facing challenging headwinds. As
governments and health insurers worldwide implement measures to control costs,
public hospitals are operating on tighter budgets, while private facilities are
receiving lower reimbursements. These measures are triggering a transformation
of the purchasing process that will change the way that medical products are
bought and valued.
In the
developed world, decisions that used to be the sole preserve of doctors are now
also made by regulators, hospital administrators, and other nonclinicians. This
broader set of influencers comes with different objectives (for example, the
prioritization of cost effectiveness or even just costs). The result of this
phenomenon is a shift from individual outcomes to a focus on population-level
effectiveness, such as the overall improvement seen within a population for a
given level of spending. Meanwhile, emerging markets, once seen as a safe haven
for premium products thanks to their growing middle classes and rising
investments in healthcare, are leapfrogging developed economies and introducing
cutting-edge purchasing processes and pricing mechanisms.
At the same
time, the medical-products industry has become more competitive. Established
blockbuster categories such as wound care, coronary stents, and orthopedic
devices are becoming more crowded as they mature. As high-impact scientific
innovation in these categories has become harder to identify, smaller
companies, such as Draco in Germany, are gaining market share by offering very low
prices and innovative business models. The greater price transparency enabled
by the growing use of tenders in Europe and the United States is giving an
advantage to low-cost players like these.
All these
trends are combining to create demand for products that are “good enough” and
competitively priced. Our estimates indicate that this new segment is growing
twice as fast as the industry as a whole in some categories. Aware of the
emerging opportunity, global medical-product manufacturers have been looking to
capture it and protect themselves from disrupters that could eventually move
upstream—for instance, Mindray in China. However, few have yet managed to build
a sustainable business around the new segment while protecting their premium
offering. Indeed, in some markets, manufacturers have offered heavy discounts
without sufficiently differentiating their premium offerings, leading to
double-digit-percentage annual declines in pricing in some categories such as
stents.
Before
companies can develop a comprehensive strategy to serve value-oriented
customers, they need to address tough questions about tiered portfolios,
differentiated offerings, go-to-market models, ways of working with customers,
business development, M&A, cost of goods sold, and implications for the
supply chain.
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