Medtech companies urged to re-engineer business model to survive
Kuala Lumpur, 27 February 2014 - The move towards value-based health care, growing regulatory pressures and resource constraints are challenging medtech companies to be more creative when developing new products and services, and to experiment with new business models. New innovative strategies are now essential if medtech companies are to survive and grow, according to the findings outlined in Pulse of the industry: medical technology report 2013, EY’s annual report on the industry’s performance.
Chow Sang Hoe, EY Malaysia’s Managing Partner for Advisory Services comments, “Innovative technology is no longer enough to secure reimbursement; it has to be linked with demonstrable, cost-efficient improvements in health outcomes. Medtech companies need to expand their offerings, re-engineer their business models and change how they innovate to be more relevant. The good news is that they are experimenting as never before with new approaches to create and deliver value in creative ways.”
New markets, new business models?
Emerging markets offer opportunities for medtech companies; however, policy makers in those markets are as keen to keep a lid on costs as their developed market counterparts.
Chow says, “Larger medtech companies will continue to pursue opportunities in emerging markets, and already some have stepped up their investment in non-pharma assets in recent years. R&D spending needs to be targeted to products that have the best chance of withstanding the scrutiny of payers and providers, including the medical and hospital services industry. More importantly, companies need to invest significantly in expanding beyond products and in developing new business models for a world of value-driven health care.
Companies are beginning to experiment with business models that reflect the needs of new customers in three ways:
- Beyond the product, with services and solutions e.g. call centers that assist patients with product-related issues
- Beyond treatment, by focusing on prevention and real time management and offering better health outcomes and return on investment than point-of-care treatment, e.g. remote monitoring
- Beyond the hospital, with offerings that enable health care everywhere e.g. via “mobile” products that allow patients to manage their conditions without frequent clinical intervention
Building new capabilities
To succeed at business model innovation, medtech companies will need to build new capabilities and use existing strengths differently, including:
- Focusing on capital efficiency to use scarce resources wisely
- Initiating ecosystem-wide scanning to better understand a changing health care environment and designing a holistic solution
- Fostering collaborative cultures to tap the strengths of diverse players from across the ecosystem
- Becoming open data enterprises to pool data and develop insights
- Adopting disease/value pathways to identify and fix “value leakages” – this means to truly go “beyond the hospital” and build new solutions-based business models that enable better prevention and health management
- Using scalable processes with appropriate metrics for robust business model innovation
Across some developed and emerging economies, health budgets continue to grow and very large health challenges remain to be addressed, including chronic diseases and with that there is a large reallocation of health resources based on value. Medtech companies that can truly differentiate their offerings in this new marketplace should secure a larger portion of those resources.
“The medtech industry faces significant challenges, but for companies that can deliver differentiated health outcomes in cost-efficient ways, there are strong opportunities for growth and success. Medtech companies need to strengthen and build new capabilities, including harnessing experiences in both global and emerging markets as well as understanding health economics, government requirements and market segmentation. Such focus can help towards creating and delivering value for payers and patients,” concludes Chow.
Notes to Editors
About EY’s Global Life Sciences Center
Life sciences companies — from emerging to multinational — are facing challenging times as access to health care takes on new importance. Stakeholder expectations are shifting, the costs and risks of product development are increasing, alternative business models are manifesting, and collaborations are becoming more complex. At the same time, players from other sectors are entering the field, contributing to a new ecosystem for delivering health care. New measures of success are also emerging as the sector begins to focus on improving a patient's “health outcome”, and not just on units of a product sold. Our Global Life Sciences Center brings together a worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to anticipate trends, identify implications and develop points of view on how to respond to the critical sector issues. We can help clients navigate their way forward and achieve success in the new health ecosystem.
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