The Medical Technology Disconnect

The medical technology industry has a legacy of creating life-enhancing, life-extending products while rewarding its investors in the process. In fact, this connection between innovation and profitability has been a fundamental driver in the C-suites and boardrooms of many medical device, diagnostics and equipment companies.

But change is underway. Dominating external forces are disrupting the traditional strategies of medical technology leaders. Companies face greater economic pressures, a reformed healthcare system, new hospital and physician alignments, and new technological challenges.

Accenture Life Sciences’ High Performance Business research indicates that, for these and other reasons, the disconnect between product innovation and financial performance is growing. Medical technology companies’ commitments to broadly defined, clinically oriented missions are becoming less likely to hit financial success now and in the future. They will have to act immediately to address these paradigm changes in the market place and warrant their profitability.

But this is not to say innovation is out and can’t generate a strong ROI today. In fact, some companies continue to generate strong profits from breakthrough products, even in the face of financial concerns, such as earnings levels that lag research investment. But now more than ever, medical technology companies must work even harder to prove their market value in driving positive financial outcomes.

Repairing the Disconnect
Medical technology companies now have the opportunity to work together with their customers to deliver comprehensive cost-effective solutions that increase quality of care and meet their information needs. For best results, we recommend companies take three courses of action.

1. Innovate Your Business Model
Innovation of the business model will be required as product innovation becomes less valued. Some companies may continue their focus on disruptive, breakthrough technologies that significantly alter the future of patient outcomes. But their go-to-market strategies will need to demonstrate an ability to achieve a level of consistent product value to economic buyers and payers. For most companies, those whose offerings are often incremental enhancements, economic benefit will be an increasingly essential justification for adoption.

Innovating the corporate business model can also involve streamlining the process of healthcare delivery and lowering its cost. In this manner, medical technology companies can help their customers develop standardization programs, rationalize inventories, improve utilization levels, and procure more cost effectively. In addition, innovative pricing models can offer novel concepts, such as risk-sharing and outcome-based pricing.

Companies that market electronic medical products can also seek opportunities to transform therapies by using device connectivity. Advanced connectivity can enable more flexible care in alternative, lower-cost locations, such as acute-care facilities. Technology can also significantly help differentiate a company’s products and services from competitors in the medical industry.

2. Connect with the New Customer
As economic pressures reshape healthcare delivery and customer business models,medical technology suppliers will need to understand how those shifts alter buyer perceptions of products. Product features and benefits are becoming less significant, and industry value propositions have to change. Even truly innovative technologies will have to exhibit strong value. To address the interests of new customers, companies must market different kinds of offerings, including adjunct services and information-based packages that help customers deal with economic pressures.

As the power of the economic buyer rises, medical technology companies may need to incorporate new sales and marketing models. More product decisions are being made by in-hospital purchasing and value-analyzing committees. The influence of these committees is likely to go on rising while sales rep access to physicians continues to fall.

To address this issue, companies should look to realign their sales and marketing efforts to address the changes in decision making. One option can be for suppliers, especially those with novel product technologies, to partner with hospitals and other channel partners on marketing campaigns.

3. Excel at Operational Excellence
As pressures to reduce costs continue to reshape healthcare delivery systems, medical technology companies will no longer be able to rely primarily on innovation to ensure top-line revenue growth and profitability. Some suppliers, whose sole focus is clinically meaningful technology, could face scrutiny about their products’ affordability. They will be forced to make significant cost-benefit arguments for their novel technologies and products. For companies playing in lower-tech spaces, the pressure for economic justification will be even greater.

In addition to justifying product affordability, medical technology companies will be increasingly unable to overcome the liabilities associated with inefficient back office functions: from R&D and supply management to HR, finance and IT. They must pursue operational excellence and address issues that many other industries have already faced: the need to dissect every process for its value to customers and for ways to increase efficiency. The result can only be positive: an increased agility to respond to inevitable future marketplace changes.

Medical technology companies need to act now to address the disconnect. Their focus in innovating their business models, connecting with the customer, operational excellence are core areas to target. Approaching the repair work for the disconnect in this way will help companies prove their economic value by driving positive financial outcomes and while at the same time continuing to offer products that improve patients’ lives.

Doug Mowen is Managing Director, Medical Technology, Accenture Life Sciences.

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