AdvaMed 2014: The finance behind medical devices

Much of the discussion at this year’s AdvaMed conference concerned the financial aspects of medical devices production. Pricing, consolidation and innovation were among the main topics of conversation.

AdvaMed 2014-1As a result of websites like Amazon and TripAdvisor, both consumers and healthcare professionals have learned to expect that they can compare products based on value and price. Currently, the medical device industry is not organized in such a way that purchasers can compare features and understand the differences in prices. In fact, there is a 40% to 60% variation in price on the same spine, cardio and joint product across 3,000 providers. The FDA is trying to solve this problem with its unique device identifier but additional measures are necessary to minimize the variation.

Another change in pricing is the switch from a fee-for-service model to a fee-for-value-service. Providers expect device makers to share in the risk of testing out a new product and will pay more if they get better results. Hospitals and other healthcare providers are interested in improving outcomes and lowering costs, so they don’t want to pay full price for devices which don’t deliver.

Recent years have seen a trend of consolidation across the entire healthcare industry, with big companies buying out smaller ones and hospitals preferring to purchase from a small number of suppliers. But this does not mean there is no room for smaller companies in the medical device industry. Large companies are helping hospitals become more efficient but it is the little companies which are innovating new technologies.

Companies which succeed in coming up with breakthrough technologies that also lower costs are the ones that will be bought out by the bigger companies and whose products will reach the mass market. While large companies should focus on raising efficiency and lowering costs for healthcare providers, the smaller ones should continue to emphasize innovation.

Patrick Sirois

www.triode.ca

At Triode, we specialize in developing new products and services for complex industries like medical devices and transportation. We work with you closely to help define product strategy, with an emphasis on reducing the risks associated with innovating in these sophisticated and often regulated consumer-oriented environments.


 

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