A Heavy Burden: Medical device industry battles excise tax, FDA oversight and policymaking challenges

A Heavy Burden: Medical device industry battles excise tax, FDA oversight and policymaking challenges

The boom times of the medical device manufacturing market may have subsided from their double-digit growth of the past, but the $400 billion global medical device industry hasn’t yet contracted. At around a five percent annual increase worldwide and about three percent domestically, the future is still expected to bring expansion for medical device makers.

But there are mitigating factors. Product saturation, changing reimbursement rates, and the effect of legislation at a federal level — on everything from the industry’s migration from a fee-for-service to an outcome-driven business model, the scope of FDA oversight, and whether the medical device excise tax will be repealed — are all on the table.

For Venkat Rajan, industry manager of medical devices at the market-watching firm of Frost and Sullivan, the demand for services hasn’t been reduced, but the way that manufacturers respond to it is evolving.

“A lot of the [contemporary] strategies are about making business more profitable,” he said; “how they manage their sales forces, hospital consolidation.”

“There are opportunities for growth, but they’re in connectivity solutions and remote-care based options, whereas some of the other products that have had strong growth to date might tend to become commoditized,” Rajan explained.

“It’s the natural dynamics of markets beyond med tech,” he said. “How can you make the sale of [a device] more profitable?”

Today, device manufacturers are focusing on their “core value propositions, rather than being everything to everyone,” Rajan said, which had led to “a lot of spinoffs, rebranding, and splitting consumer and pharma divisions,” as opposed to mergers and acquisitions that were traditionally centered on acquiring an emerging product line.

“Now we’re seeing M&A trends that are around solidifying your position,” he said; “Medtronic acquiring Covidien, a lot of the talk around it was the tax inversion. You’re assuming that more of your revenue growth is going to come from markets outside the U.S.”

In the U.S. markets, the breadth of an expanded product portfolio allows multi-line corporations to sell to hospital customers who want an array of devices, or to act as a group purchasing agent or distributor. That environment has also diminished the influence of individual physician patients, who would often have been the sole advocates for a specific product or service, and who could drive purchasing decisions with their specific requests or brand loyalty.

“Large hospital networks are a bit more standardized in how you treat the patient; panels are making decisions and negotiating better purchase prices,” Rajan said. “The everyday doc, his influence is limited, so how motivated is he going to be to bang on the table and say, ‘I need this product?’ ”

Today’s sales decisions are made by committee, Rajan said, which involves department heads from nursing, administration, legal teams, and other stakeholders in the evolution “from a door-to-door sales model to an Amazon.com sales model,” in which the ordering is automated and the purchasing decisions are made before the meeting.

Future product development, according to Rajan, will come in the form of evolving “smarter” products and technologies that will expand into mobile healthcare, health IT and “service-based solutions.” Whether for hospital groups or individuals, technology will necessarily become “smarter,” involving features that provide analytics or workflow optimization components that add value to the devices that Rajan said are becoming commoditized. 

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