2012: A Year of Seismic Change in the Medical Device Industry

2012: A Year of Seismic Change in the Medical Device Industry

Maria Shepherd • Data Decision Group

While 2011 was a shaky year for all medical device companies, driven by the double whammy of a poor global economy and an uncertain U.S. healthcare environment, 2012 was the year of enormous change. Before the 2012 election a common topic of conversation was if or when healthcare reform (HCR) would truly come to pass. Now the election is over, does anyone doubt that HCR and the medical device excise tax are here to stay?

Issues that emerged in 2009 continued in 2012. Price, reimbursement, procedure volume pressures and yet another elevation of U.S. Food and Drug Administration regulatory burden all tighten the noose a little more. We ask once again, is there anything good to say about the prospects for our industry?

Why is This Important?
There is a silver lining for the medical device industry. The rate of acquisition activity in the medical device business continues to grow, which is an indicator of a dynamic industry seeking improved financial and product performance. In addition, there is evidence that hospitals, physicians and payers are beginning to reward medtech companies that provide innovative new solutions that truly improve patient outcomes, reduce financial cost, or the holy grail—deliver the former and the latter together, with the data to prove it. Metrics will become a key success factor for our industry.

Show Me the Money (or the Outcomes)
There is a perfect storm approaching our industry. Hospitals and physicians are being incentivized by Medicare to reduce cost using multiple programs. One pending example in 2013 is penalization for higher than average 30-day re-admission rates for specific high-cost conditions such as heart failure.

In the past, this Medicare policy wouldn’t have worked without the support of physicians, but all that has changed now. Hospitals successfully have been creating a new cost-conscious culture by buying physician practices. With the exception of primary care physicians, OB-GYNs, etc., it is estimated that 67 percent of specialty physician practices (cardiovascular and orthopedics leading the way) have been purchased by hospital groups. This trend aligns hospital and physician incentives, and already is a major factor influencing product price, mix and utilization.

Another Seismic Change
JP Morgan analysts identified another factor that will influence the use of medical devices: The U.S. patient. They note that the financial burden of healthcare is still shifting toward the U.S. patient. This will have a deep impact on American attitudes of utilization and expectations of the U.S. healthcare system.

Change Requires New Strategies
New strategies are rewarded—if they work. So with patients, physicians and hospitals all aligning to reduce cost in the U.S. healthcare system, what can we do? Plenty. Four medtech companies that are being rewarded through Wall Street attention for innovation strategies are listed in Table 1.

A Threat or An Opportunity? Your Choice
There are many more medical device companies that are looking at unmet patient and clinician needs and doing it successfully (see the Datawatch column titled “Strangled Innovation or Opportunity for Disruptive Technologies?” in the November/December 2012 issue of MPO). What patient or clinician segments in your market could benefit from an innovative approach?

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Editor’s note: Readers are invited to submit market data and trend questions to Maria Shepherd. Periodically, selected questions will be presented in this column, with answers from Maria. Send your questions to the email in her bio (below).

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Maria Shepherd, founder of Data Decision Group, has 20 years of leadership experience in medical device and life-sciences marketing. Following a career including serving as vice president of marketing for Oridion Medical; director of marketing for Philips Medical; and senior management roles at Boston Scientific Inc., she founded Data Decision Group. Her firm quantitatively and qualitatively sizes opportunities, evaluates new technologies, and assesses prospective acquisitions for medtech companies. Shepherd teaches marketing and product development courses and recently was appointed to the board of the MSBiV Medtech Investment Committee. She can be reached at (617) 548-9892 or [email protected].