Pulse of the industry
Medical technology report 2021
The 15th annual Pulse of the industry report finds the medical technology industry in a position of strength. Last year we reported on MedTech’s heroic efforts on the frontline of the pandemic, supplying ventilators, diagnostic equipment and personal protective equipment (PPE) to health care systems plunged into a worldwide crisis. Now, just over 18 months after the World Health Organization declared COVID-19 a pandemic and the United States declared it a National Emergency, the data show that MedTech has weathered the global operational disruption and entered a period of recovery and renewal.
Over the course of 2020, the industry’s revenues grew for the fourth consecutive year (+6.3%), with the non-imaging-diagnostics segment recording a particularly impressive 24% annual growth rate largely from pandemic-related demand. While some MedTechs, particularly those reliant on elective procedures that were deferred as the crisis broke, took a hit during the pandemic, even these companies witnessed a resurgence from the second half of 2020 onwards as procedures resumed. Notwithstanding further disruption from the Delta variant in the US and other geographies, companies reliant on elective procedures seem set for accelerated growth as surgeries and other elective procedures get back on track. Indeed, 94% of the commercial leaders and conglomerates that reported their first-half financials for 2021 have improved their revenues compared to 2020.
MedTech’s strong fundamentals are reflected in investor sentiment for the industry: market capitalization has strongly rebounded since the global dip of March 2020 (outpacing big pharma and the broader indices) driven by the very strong performance of MedTech’s emerging leaders. MedTech’s emerging leaders (companies with annual revenues below US$500 million) saw a 128% rise in public valuations between January 2020 and August 2021.
Investors’ ongoing confidence in MedTech is validated by data indicating the health of the industry’s innovation ecosystem: specifically, the industry’s level of investment in the R&D and M&A fields and the level of venture capital (VC) it attracts. Pure-play MedTechs reinvested heavily in R&D in 2020 — recording the largest annual growth rate in R&D spending (+17.2%) since before the financial crisis of 2007 — signaling the industry’s confidence in its capacity to keep innovating.
M&A is the other established driver of MedTech innovation, with start-ups traditionally seeking an exit via acquisition after developing a novel product or technology. Over the 12 months ending in June 2021, MedTech companies executed 288 M&A deals — the highest annual number seen since EY researchers began creating the Pulse of the Industry report in 2007.
M&A deal volume288
Number of M&A deals executed by MedTech companies from June 2020-June 2021.
The innovators that form the standard acquisition targets for MedTech’s larger players are dependent on continued funding to support their R&D activities, particularly in the form of VC. Encouragingly, the industry attracted US$9.1 billion in VC in the 12-month period to June 2021, up 34% over the previous year and the highest level seen in the past decade.
The crisis has not significantly slowed MedTech’s commercial progress — but could it have accelerated the industry’s evolution?
A few companies made significant gains from product lines relevant to COVID-19, from PPE to diagnostics. However, the more significant long-term impact of the pandemic may be its effect on the industry’s business models. The pandemic has shifted health care’s center of gravity in fundamental ways, to which the industry must now respond.
To take one example, COVID-19 has pushed health care outside its standard delivery channels, with providers and patients seeking to move away from traditional clinic and hospital settings and towards the home or telehealth settings. We believe that this shift in care delivery is long overdue, and MedTechs should now prioritize locking in and building on the transformation that the crisis has accelerated.
In all, we identify five key areas where MedTechs should focus on rethinking their business models to deliver care better in the future:
- Putting “the human at the center” to make care more accessible, convenient and customer-centered.
- Leveraging data and digital technologies to make products smarter and better connected
- Pushing for regulatory reform to support the industry’s ongoing evolution
- Validating the resilience and agility of their supply chains for the future
- Improving environmental, social and governance (ESG) measures
Humans at the center
One of the key legacies of COVID‐19 in MedTech is the industry‐wide shift towards seeking new ways to connect with patients. Compelled by the narrowing or outright shutdown of traditional care channels, MedTech companies have explored new approaches to delivering care outside their legacy operating models, reaching into patients’ homes to deliver therapeutics, diagnostics, and other tools for remote care.
It is a complex matter to quantify this shift in care delivery, but note that the US Centers for Medicare & Medicaid Services (CMS) introduced the Acute Hospital Care At Home program, providing eligible hospitals with unprecedented regulatory flexibilities to treat eligible patients in their homes. As of April 2021, the program had been adopted by 53 health systems and 116 hospitals across 29 states, indicative of an embracing of home-based care. Among many other initiatives aimed at accelerating this shift towards home delivery, Humana’s alliance with DispatchHealth¹ to offer around‐the‐clock, on‐call care team services is a notable indicator of the shift in care delivery.
While such a shift in care delivery has long been advocated and anticipated by industry analysts, it took the profound disruption caused by the pandemic to make this transformation a matter of strategic urgency. As Giovanni di Napoli, president of Medtronic’s gastrointestinal business, told EY researchers, “COVID has greatly accelerated the adoption of patient‐centered technology.” The wider MedTech industry must pursue the same journey di Napoli describes, focusing on meeting the patient’s needs more flexibly and imaginatively, working to “deliver experiences and benefits that our customers and patients have become accustomed to in their daily lives.”
Other major MedTechs are investing heavily in capabilities to deliver remote care. In September 2021, Baxter signed a US$10.5 billion deal to acquire connected care specialist Hillrom. As CEO Jose (Joe) Almeida told EY, “patients increasingly want to receive their care at home or nearby, while hospitals and other care providers are increasingly using digital health technologies to expand access, improve quality and lower costs. Baxter and Hillrom are uniting to meet the challenges of a rapidly evolving global healthcare landscape.” This megadeal falls outside the July 2020–June 2021 period evaluated in this report, but even within the period studied, two other major M&A deals addressed the same need for enhanced remote care options:
- Philips purchased BioTelemetry, a maker of digital patient monitoring platforms and AI-based analytics, for US$2.8 billion.
- Boston Scientific announced a US$1.3 billion buy-out of Preventice Solutions, which designs remote monitoring services and mobile health solutions for cardiac arrhythmia patients.
Taking a “humans at the center” approach to care is also a major focus for therapeutic devices companies attracting the most VC funding in 2020–21. For example, Switzerland’s CeQur, which attracted one of the top 10 VC funding rounds, is aiming to make insulin delivery systems that integrate more conveniently into a patient’s everyday life. Outside of surgical robotics, the biggest therapeutic device funding round of the past year went to Quanta Dialysis Technologies, focused on delivering an improved patient experience at home via portable dialysis technology intended to offer greater convenience for the individual.
Using digital technologies to expand home-based care offers MedTechs the prospect of better patient engagement. Analyses suggest that digital health apps and telehealth will play an enlarged role in actively managing chronic conditions from diabetes to mental health for between 30% and 45% of the US patient population in the future. As Nabil Chehade, Executive Vice President & Chief Clinical Transformation Officer at The MetroHealth System, told EY researchers, “the very concept of moving away from an in-person care model to an alternative model of care lends itself to a MedTech offering, from A-to-Z; it’s going to put more stress on MedTech to develop nimbler, more efficient tools, and figure out how to partner to deliver those capabilities.”
Companies like Comcast’s Quil Health² offer the suite of technologies needed to build genuinely “smart homes” capable of tracking and monitoring patients’ biometrics via a battery of home sensors. Traditional MedTechs need to insert themselves into this process of transformation and play a key role in putting “humans at the center” long after the final waves of the pandemic have broken and receded.
Virtual care is here to stay
Nabil Chehade, M.D., MSBS,
Executive Vice President & Chief Clinical Transformation Officer at MetroHealth in Cleveland, Ohio
MetroHealth is a public health system where we have always been focused on health equity. Over the past several years, we have been taking on risk to manage costs and provide access to care most effectively. We worked hard for many years, with limited success, to introduce the concept of virtual care. But we could not move the needle within our own system despite our best efforts; virtual care made up less than 1% of our encounters.
Then, in March 2020, came COVID-19 and overnight, things changed.
Within a week, virtual care made up 75% of our visits. Prior to the crisis, we had been working with a third‐party vendor to offer a virtual urgent care app. We were getting 60–80 calls per month. Now we range from a hundred to several hundred each day, and about half of these lead directly to virtual urgent care visits with providers. Suddenly there was mass acceptance of telehealth in general and more specifically for on-demand virtual urgent care. Today, health care CEOs will tell you they are never going back to traditional care delivery.
Unfortunately, I believe that many health systems will ultimately reduce their virtual care focus. Everybody understands where we need to go. But despite those best intentions, the reality is that health systems have bricks and mortar that they must pay for, hospital beds to fill and outpatient facilities still in place. That inertia is going to drag them back to what they know. The burning platform of one year ago is no longer present, and the rules and regulations that the Centers for Medicare & Medicaid Services (CMS) and state medical boards passed at the onset of the pandemic (covering reimbursement and scope of practice) are very quickly evaporating.
Nevertheless, I also believe that virtual care is here to stay.
Traditionally, it’s been very difficult for new entrants to penetrate the health market, but the price of entry for virtual and home care is much lower. We will see many offerings based on non‐traditional care entering the market. In the end, health systems will have to adopt those technologies and solutions, even if it potentially cannibalizes revenue from their own services. Quite simply, if they don’t offer these virtual care models, somebody else is going to do it instead. Whether it’s payers, employers, large tech companies, or some combination of these partnering to offer an alternative to the traditional provider network, it’s going to happen. It’s a scary prospect for the health systems that aren’t able to adapt quickly and become the first movers.
As many players queue up to offer virtual care, the question for MedTech companies is how they can insert themselves into these new ventures. The very concept of moving from an in-person care model to an alternative model of care lends itself to a MedTech offering, from A to Z. In any scenario where you are providing care at the patient’s home, you need the assistance of devices that can transmit data and assist the remote provider who’s interpreting the data. It’s going to put more stress on MedTech to develop nimbler, more efficient tools, figure out how to partner to deliver those capabilities and prove the value of those capabilities.
There are many MedTech innovations created that end up having limited use in broader practice. MedTechs need to offer solutions that are practical, affordable, easy to use and solve problems at scale. For example, we have digital disparities in this country around issues, like Wi-Fi availability — but devices can bypass those problems. MedTech could improve the LTE digital connectivity of the most common devices, build them to continuously transmit 5G data directly from your home to your provider and without relying on the intermediary of a third-party app that the patient has to download on their phone or tablet. This would help ensure that the digital divide doesn’t come between us and the care we’re trying to provide. In this revolution, there is so much opportunity, even in simple things.
Views expressed in this article are those of the author and do not necessarily represent the views of Ernst & Young LLP or other members of the global EY organization.
How digital health is creating a frictionless health care experience
Dr. Jeffrey Krauss,
Chief Medical Officer, Hinge Health
In 2020, the COVID-19 pandemic fundamentally shifted the way we delivered health care from a brick-and-mortar approach to more virtual care. At Hinge Health, we saw an increasing number of employers and health plans partner with us to offer our innovative Digital Musculoskeletal (MSK) Clinic as an alternative to elective surgeries or in-person physical therapy.
The pandemic drove this widespread adoption of digital care, but employers, health plans and patients recognize its lasting benefits. In fact, according to the Business Group on Health, over 70% of large employers plan to add a digital MSK benefit over the next few years.¹
Tackling the fragmented health care experience
While back, neck, shoulder, hip, knee and other joint pain affect over half of Americans today, the current member experience is often poorly coordinated.
According to our of 1,000 US office workers, over half of respondents with moderate or severe MSK pain saw two or more providers for their MSK care; 50% of respondents felt their history got lost in between different providers and 87% felt their MSK care would benefit if their provider looked at their whole picture.²
Here are four ways digital health technologies can provide a more frictionless health care experience.
1. Integrated digital teams providing seamless care
Fragmented care occurs because care is spread out across a large number of poorly coordinated providers. Coordinating holistic care teams across specialties can be a headache when specialists aren’t located in the same office. But with the advent of virtual care and digital technologies, integrated care teams are becoming the new standard of care.
We have pioneered delivering digital care with a comprehensive, holistic clinical care team of physicians, physical therapists, health coaches, nutritionists and other specialists to look at a member’s whole body and lifestyle, not just one injury. When it comes to chronic pain, our team can address both patients’ physical therapy plan and their exercise, sleep, diet, and self-management strategies.
2. Digital tools empower patients
Changing the paradigm from a traditional doctor-patient relationship to a patient-centered approach also is key to creating a better member experience in an integrated world of care. The goal is to empower the patient with the tools to better manage their own care.
Our Digital MSK Clinic provides advanced digital technologies like motion sensors and an easy-to-use app to allow patients to self-manage their care and perform their exercise therapy from the comfort of their homes. We also provide one-on-one health coaches and physical therapists to further support the member’s recovery.
3. Wearable technologies provide pain management
Just as robots can now perform surgeries, new wearable technologies offer care remotely. We recently announced Enso, our wearable technology using high-frequency pulses to provide non-addictive, non-invasive and long-lasting pain relief. The wearable can be worn while a member is exercising or going about their daily life, enabling them to do their exercise therapy and get on a recovery path.
4. Bridging the divide between physical and digital care
While the pandemic prompted a surge in digital care, it also exposed a lack of coordination between in-person and digital providers, resulting in a poor participant experience, lower-quality care and higher costs. The next challenge will be integrating these two worlds of care to create a seamless experience for the patient (sometimes referred to as “click-and-mortar”). For some treatments, in-person care is necessary; for others, digital care is better.
At Hinge Health, we are continuously innovating to improve the participant experience across the worlds of digital and physical care. We recognize participants in our program have in-person providers as well. We recently launched HingeConnect, which leverages data intelligence to set a new standard for personalized care via electronic medical record (EMR) integration, real-time interventions, and robust care coordination across digital and in-person providers.
Another way we’ve integrated the two worlds of care this year is through our partnership with Carrum Health and SurgeryPlus Centers of Excellence, offering high-quality and low-cost surgery when surgery is the right option.
We’re only at the tip of the iceberg when it comes to innovations in the digital health space. While 2020 was a watershed year, the floodgates are now open, and we are continuing to invest in R&D and innovation to redefine how we deliver MSK care.
Views expressed in this article are those of the author and do not necessarily represent the views of Ernst & Young LLP or other members of the global EY organization.
1 "2021 Large Employers’ Health Care Strategy and Plan Design Survey," Business Group on Health website, www.businessgrouphealth.org/resources/2021-large-employers-health-care-strategy-and-plan-design-survey, accessed September 16, 2021.
2 "Creating a Frictionless Healthcare Experience: What Members Want in Musculoskeletal Care," Hinge Health website, www.hingehealth.com/creating-a-frictionless-healthcare-experience-report/, accessed September 16, 2021.
Leveraging data and digital technologies
To deliver care at home and validate its cost‐effectiveness MedTechs will need to capture real‐world evidence (RWE). To this end, the Medical Device Innovation Consortium (MDIC),³ a public/private consortium, has launched the National Evaluation System for Health Technology (NEST) Coordinating Center,⁴ seeking to take RWE from multiple data sources and use it to support pre‐ or post‐marketing. As these expanding data sources become a central element in understanding and treating disease, the device will become just a component in the value that MedTechs deliver.
Take the orthopedics market, which was hit harder in revenue terms than any other MedTech therapeutic area in 2020. Orthopedic MedTechs’ relationships with patients are traditionally confined to the episode of care, so as the impact of COVID-19 demonstrated, outside such episodes, these MedTechs’ access to patients and revenue‐generating opportunities alike are extremely limited. In the future, however, orthopedic MedTechs will build far closer ongoing relationships with patients, like what we currently see in chronic disease therapeutic areas such as diabetes. The key to these strengthened future relationships will be the data captured via sensors embedded within orthopedic implants. This has become a significant area of competition for MedTechs in this space:
- Zimmer Biomet and Canary Medical won FDA approval in August 2021⁵ for its Persona-IQ implant.
- Stryker also is pursuing smart-sensor implants with its January 2021 acquisition⁶ of OrthoSensor, which owns the Verasense interoperable sensor technology.
- Exactech acquired Muvr Labs,⁷ which makes patient wearables and apps, in December 2020, aiming to better monitor patients and connect them with surgical teams.
As Dr. Jeffrey Krauss of Hinge Health notes, a significant future challenge will be seamlessly combining in-person care with the rapidly expanding range of digital health tools, “integrating these two worlds of care to create a seamless experience for the patient.” The data that connected devices capture will only deliver better outcomes if MedTechs can learn to “fit in” with a broader ecosystem, connecting their data to patients, providers, and payers. Application programming interfaces (APIs) will be one key to building this interoperability and access. Dexcom, for example, announced in July 2021⁸ that it has 510(k) clearance to share its APIs, allowing real-time data from Dexcom CGMs to be integrated into third‐party apps and devices. Garmin and Teladoc are already testing the Dexcom APIs.
Data security will be a necessary foundation for the new MedTech ecosystem. As MedTech and its ecosystem partners increase the volumes of data they share, the importance of cybersecurity will increase in lockstep, with the FDA in August 2021 announcing⁹ that it wants to require MedTechs in the future to help ensure their capability to update and patch device security into a product’s design, as well as the ability to require post‐marketing disclosure of cybersecurity vulnerabilities as they are identified. This is one of many regulatory changes that MedTech can anticipate in the aftermath of the COVID-19 crisis.
Detect early, treat early: improving the care experience for patients and physicians
Giovanni di Napoli,
President, Gastrointestinal, at Medtronic
We can summarize our approach in four words: Detect early. Treat early.
That’s the key to better outcomes. Any innovation we bring to market must measure up to this goal and to the core tenets of the Medtronic mission — to alleviate pain, restore health and extend life.
We’re working to solve major challenges in health care. In Gastroenterology, one area where we’ve achieved this is in our advancement of colonoscopy. Colorectal cancer (CRC) is the second deadliest cancer worldwide.1 But it doesn’t have to be. Screening can lead to early detection and diagnosis of earlier stage disease — when it’s most treatable — and help detect and remove precancerous polyps, preventing their progression to cancer. Yet despite dire warnings and hopeful solutions, each year, there are still approximately 22 million people in the US who should — but don’t — get screened, including a disproportionate number from ethnic and racial minorities at greater risk of colon cancer.²
Using AI to disrupt screening
Medtronic believes that AI will supercharge the speed, accuracy and quality of diagnostic and therapeutic decision-making — ultimately giving patients the individualized care they deserve. Earlier this year, Medtronic introduced the gastrointestinal GI Genius™ intelligent endoscopy module — the first FDA-approved computer-aided detection system using artificial intelligence (AI) for identifying colorectal polyps to become commercially available.
GI Genius™ serves as a second set of eyes during colonoscopies. The system scans every frame of the procedure by leveraging the power of AI, providing real-time image analysis in milliseconds, and alerts physicians to the presence of lesions — including small, flat polyps that the human eye could easily miss.
The AI was trained on 13 million polyp images of various shapes and sizes, enabling it to achieve a 100% sensitivity3 in detecting colorectal polyps — robust clinical evidence shows polyp detection increases by up to 14% when using GI Genius™ when compared to the average endoscopist.
Today, GI Genius™ is used to detect precancerous polyps in the colon, but in the future, it also could size and characterize them, helping to determine whether a polyp should be removed and unlocking the even greater potential for making the physician’s job easier and faster.
This is a unique and innovative technology, and we’re committed to a unique and innovative approach to bringing it to customers: with the GI Genius™ Membership, we’re helping physicians access this leading AI technology through a subscription plan. As our AI continues to evolve, new software upgrades will continue to unlock new features and add value each quarter.
Empowering patients and challenging suboptimal care standards
The PillCam™ platform is another first-of-its-kind product helping to personalize care and change the way in which patients experience medicine. It’s an ingestible capsule offering physicians comprehensive digestive tract imaging while giving patients the type of minimally invasive test they prefer. We invented capsule endoscopy 20 years ago. Now, we are reinventing it by changing where it takes place. Last month, we received FDA 510(k) approval for the PillCam™ Small Bowel (SB) capsule that can be administered by the patient in their own home.
At-home diagnostic tests are an increasingly preferred option for many patients as they require less time and logistics than visiting a care site. In the future, we will offer additional at-home PillCam™ tests, such as for colorectal cancer screening, to empower patients to take ownership of their health care.
Enabling this future requires a broad distribution network, cloud services, and other technology solutions to help make PillCam™ more readily accessible and deliver experiences and benefits that our customers and patients have become accustomed to in their daily lives.
Of course, COVID-19 has greatly accelerated the adoption of this patient‐centered technology. As elective procedures in GI were being canceled and backlogs grew, we were able to show how our PillCam™ small bowel (SB) product could be used in the patient’s home rather than the doctor’s office. In Europe, PillCam™ COLON provided a way to risk‐stratify patients and determine who should receive a colonoscopy faster, helping to ease accessibility challenges. Feedback from doctors using the remote PillCam™ COLON procedure in the UK during the pandemic showed that the technology has helped offset a huge drop in volume at surgical centers and has received exceptionally positive feedback from patients.
Another example of how we’re challenging suboptimal standards of care in GI comes into play when a lesion like a colorectal polyp is found and needs removal. Another of our new technologies, ProdiGI™ traction wire, an innovative endoscopic resection platform, could enable clinicians to remove those lesions, without open surgery, during a procedure called Endoscopic Submucosal Dissection (ESD).
This is a proven procedure to remove lesions completely — but it’s technically challenging to perform even for experienced clinicians. ProdiGI™ will help them more easily remove these lesions — endoscopically — with more control and fewer tools.
We believe that improving care requires disruptive innovation, which can only be achieved through a deep understanding of the patient — their needs, journey and experience. So, when we’re faced with a new opportunity, we ask ourselves: will this improve patient outcomes? Will it set a new standard of care? Does it increase access to care? Does it empower patients to take ownership of their healthcare? If it fits in with these criteria, we know we’re on the right path.
Views expressed in this article are those of the author and do not necessarily represent the views of Ernst & Young LLP or other members of the global EY organization.
1 “World Health Organization Cancer Today Fact Sheets,” World Health Organization, website, www.who.int/news-room/fact-sheets/detail/cancer, accessed September 16, 2021.
2 “Colorectal Cancer Facts & Figures 2020-2022,” American Cancer Society website, www.cancer.org/research/cancer-facts-statistics/colorectal-cancer-facts-figures.html, accessed September 16, 2021.
3 GI Genius™ instructions for use (IFU).
New regulatory and reimbursement models
Regulators have struggled with their additional burdens during the pandemic crisis, with the standard device approval processes slowing. Reflecting this, H1 2021 data shows a significant drop in premarket approvals (PMAs) (12) and 510(k) approvals (1,360) compared to H1 2020 . A record number of PMA applications are expected by the end of this year, with the regulators viewing 2021 as a “reset” year and anticipating a resumption of normal approval rates in 2022.
Yet, the industry now has an opportunity to seek more than just a reset in its regulatory environment. As the industry rethinks business models, it needs to work with regulators to forge a regulatory environment that can support this evolution. During the crisis, regulators showed flexibility to accommodate the expansion of remote care provision and allow a rapid emergency rollout of new products; the challenge for the industry now is to consolidate these changes in legislation to underwrite the ongoing transformation of care delivery.
With the industry currently deep in Medical Device User Fee Agreement (MDUFA) negotiations¹⁰ with Congress (intended to reach their conclusion in January 2022), multiple issues are on the table For example, the possibility of value-based care is on the agenda, as is the funding structure for device review, a potential overhaul of the 510(k) pathway, and progress on the Medicare Coverage of Innovative Technology (MCIT) initiative,¹¹ which is a new pathway for medical device reimbursement that would directly reward breakthrough MedTech innovations with immediate reimbursement.
Also, at the forefront is how to widen the “hospital at home” model that has gained such significant traction during the pandemic. The question of whether Congress will support the permanent expansion of telehealth and whether it can allay outstanding concerns about reimbursement rates, fraud, waste and abuse remain, and the US may see uneven national coverage before home care becomes an established permanent policy. With MedTech standing to play a pivotal role in home‐based care, the industry’s advocacy for this long‐term transformation is vital.
Other regulatory issues that will help shape MedTech’s future business model include the role of digital therapeutics, classified as software as a medical device (SaMD). Since the FDA’s April 2020 guidance relaxed the entry barriers for digital therapeutics, anticipating that they could meet the need for expanded access to therapies for mental health, approvals for digital therapeutics have followed, including:
- Akili’s video game EndeavorRx, a prescription-only digital therapeutic for attention deficit hyperactivity disorder (ADHD), was approved by the FDA via the De Novo premarket review pathway¹² in June 2020.
- Cognoa’s ASD Diagnosis Aid software for identifying autism spectrum disorders in children aged 18 months through 5 years old was approved¹³ in June 2021, also via De Novo.
- Happify Health’s Ensemble therapeutic for treating major depressive disorder or generalized anxiety disorder won 510(k) approval¹⁴ in July 2021.
However, reimbursement pathways for this emergent class of MedTech products have yet to be clarified, for example, by CMS. In Europe, the situation has progressed more quickly since the German Digital Healthcare Act (DGV) of December 2019¹⁵ went into effect.
One of the industry’s regulatory goals should be to make faster launches a permanent reality by embracing the FDA’s proposed Total Product Lifecycle (TPLC) approach. Outlined in an FDA paper in February 2021,¹⁶ it stated, “The FDA’s traditional paradigm of medical device regulation was not designed for adaptive artificial intelligence and machine learning technologies.” TPLC can allow AI and SaMD products into market faster if there is a system in place for subsequent post‐marketing surveillance. In the future, this accelerated model could become the norm for hardware and software devices; but making it work will depend on the industry’s ability to gather data.
The MedTech Minute: What to watch in Washington
Principal, Washington Council Ernst & Young, Ernst & Young LLP
Over the past year, COVID-19 has dominated the MedTech and wider health care agenda in Washington as hundreds of billions of relief dollars flowed into the industry while the resiliency of supply chains and decision-making of regulators came under scrutiny. As public health challenges continue, the Democratically controlled US Congress and Biden administration wants to deliver on campaign promises to expand health benefits, reduce prices and address the cost of care, spurred further into action as the clock ticks down to the 2022 US midterms (and the possible end of their control).
While the policy changes under consideration undoubtedly will have implications for the MedTech industry (i.e., drug pricing and coverage expansion), there are other smaller changes under consideration that could affect the industry as we round out 2021.
Here are three potentially important stories largely flying under the radar:
1. MDUFA V negotiations. With authorization for the current Medical Device User Fee program (MDUFA) expiring in September 2022, negotiations for FY 2023–27 are well underway, and an agreement is due to Congress by January 2022. While the industry is mainly looking for targeted improvements to the program, the FDA wants more money to fund its operations. The agency proposes using leftover user fee money for its Digital Transformation Initiative, which involves updating the medical device center’s IT system and making reporting data more accessible. However, device industry officials contend that any carryover funds be used to lower user fees, improve premarket reviews and eliminate application backlogs.
The FDA also is proposing a new program — the Total Product Lifecycle Advisory Program (TAP) — to increase premarket communication among the FDA, device sponsors, payers and physicians. But the industry has argued that such a program would over-complicate the approval process and cause FDA to overstep its authority.
While industry and regulators hash it out in the coming months, other congressional priorities inevitably will get attached to the negotiations. One prime suspect: cybersecurity. The FDA is considering seeking additional legislative authority to bolster medical device cybersecurity amid growing ransomware and other cyber attacks on health care organizations. Provisions from the bipartisan “CURES 2.0” legislation proposed by Rep. Diana DeGette (D-CO) and Rep. Fred Upton (R-MI) also are being considered, including proposals aimed at improving how Medicare covers innovative health technologies and better incorporates real-world evidence and consumer feedback.
2. CMS coverage decisions. In September, CMS issued a Notice of Proposed Rulemaking (NPRM) that proposes to repeal the Trump-era Medicare Coverage of Innovative Technology (MCIT) initiative, which would have provided automatic reimbursement for breakthrough devices once approved by the FDA. MCIT was celebrated by industry and supported by many in Congress, who saw the pathway as addressing a critical delay between FDA approval of a breakthrough device and coverage by Medicare. However, Biden’s CMS noted concerns that the new pathway could lead to coverage of devices that lack adequate value and safety assessments — a sentiment shared by some insurer and provider groups — and that the MCIT pathway could disincentivize the development of innovative technologies that do not meet “breakthrough device” criteria and thus do not qualify for MCIT. CMS will now try to thread the needle in future rulemaking, leveraging existing statutory authorities to create a more flexible coverage pathway to speed access to new technologies while also prioritizing beneficiaries’ health and outcomes.
Lawmakers also are considering how best to address coverage of telehealth in Medicare, with CMS recently proposing to extend the coverage of certain services added during the pandemic to allow more time for evaluation, in addition to continued expansion of remote monitoring codes. CMS, however, needs Congressional action to permanently expand telehealth in many regards — including removing restrictions on site of care, eligible providers, and non-rural areas. Congress agrees that action is needed, but issues of reimbursement, equity, and the hefty costs of a potential package remain sticking points in the discussions.
3. Changing care and reimbursement models. The Biden administration also is focused on broadening access to value-based, equitable care. President Biden is particularly focused on enhanced access to home- and community-based care, which could lead to new or expanded models for the delivery of home-based primary care, behavioral health and chronic disease management, as well as an expansion of programs providing hospital-level care at home. Proposals may include expansion of the “Acute Hospital Care at Home” program, which provides eligible hospitals with unprecedented regulatory flexibilities to treat eligible Medicare patients in their homes, enabled by virtual care and remote monitoring technology combined with in-home visits.
Unfortunately, the state of the Medicare Trust Fund, which is set to run dry in 2026, may mean that cost-cutting will be part of the overarching calculus. Proposals include a potential emphasis on site-neutral payment, enhanced primary care models, and population-based reimbursement methodologies such as capitation — potentially leaving it up to providers to determine how best to flex their payments to meet quality metrics and patient needs.
With health policy changes large and small under consideration, communicating the perspective of the MedTech industry will continue to be important for both Congress and the administration through the fall and into next year.
The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.
Supply chain resilience and agility
The COVID‐19 crisis highlighted concerns that the supply of key devices may be vulnerable in times of global disruption. It’s another area where regulatory involvement in the industry is intensifying, with lawmakers discussing the potential need for onshoring or nearshoring certain operations to bolster resilience ahead of future challenges. The FDA’s 2022 budget request includes US$21.6 million in funds for a new Resilient Supply Chain and Shortages Prevention Program¹⁷ intended to allow the agency to track device supply and anticipate and preclude shortages. The program builds on the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act’s extension of FDA authority into MedTech supply chain security. FDA Acting Commissioner Janet Woodcock blogged that “the pandemic has exposed great weaknesses in the medical device supply chain,”¹⁸ with the agency intending in future to apply “state-of-the-art supply chain intelligence” to increase surveillance and transparency of MedTech’s supply networks.
Ernst & Young LLP Managing Director John Polowczyk, a retired US Navy Rear Admiral and former Vice Director for Logistics to the Chairman of the Joint Chiefs of Staff who served as the White House Supply Chain lead on the Coronavirus Task Force, notes that the US struggled to meet PPE demand during the early stages of the pandemic, due to its heavy reliance on overseas production. The federal government deployed the Defense Production Act (DPA) to build domestic capacity and Polowczyk anticipates that MedTech will continue to see DPA awards as the federal government aims to transform the Strategic National Stockpile “from a static warehouse to a distributed system resident in the commercial segment backed up by US surge production.” As Polowcyzk comments, “Congress is likely to legislate additional authorities to the US Department of Health and Human Services (HHS) to formalize an end to end visibility system to understand supply versus demand in real time.”
Yet, while this government‐mandated focus on increasing responsiveness and resilience will inform the future development of MedTech supply chains, the industry has its own internal imperatives to overhaul supply chain operations. If the industry continues to embrace a “humans at the center” model of decentralized care, it will need to evolve its supply chain operations to build agility outside the traditional channels of care delivery.
At present, MedTech supply chains operate in an asset‐heavy business model. They typically hold a significant amount of redundant inventory, from orthopedic spare parts to unutilized loose instruments. If the industry can better translate demand signal into supply chain reality (cutting out, for example, distortions caused by salesforce overoptimism), embrace AI analytics for better forecasting, and build greater flexibility — in addition to other innovations such as using smarter use of imaging to anticipate the size of implants required — the industry could significantly downsize its redundant inventory. On the distribution side, there may be more scope for MedTechs to work directly with suppliers and cut out the sales companies they now rely on as intermediaries. Upstream of these operational changes, MedTechs could incorporate integrated business planning into supply chain strategies to accommodate the industry’s long lead times for supply.
Beyond these opportunities, other supply chain challenges loom, and many MedTechs already are engaging with the need to update supply chain strategy, including:
- Baxter has deployed a cloud-based digital infrastructure¹⁹ to simulate demand patterns for its renal therapy devices, using data modeling to understand the location of critical patients, increase manufacturing capacity and accelerate shopping times.
- Siemens Healthineers signed a July 2020 agreement²⁰ with logistics giant DHL, focusing on digital technology, robotics, and the goal of building “end-to-end, digitally-enabled supply chain solutions.”
- Fresenius Medical Care signed a July 2021 deal²¹ with UPS-owned Polar Speed to help bring dialysis solutions to homes and hospitals in the UK.
With providers and regulators apparently supporting a move away from traditional clinical settings towards data‐driven, home‐delivered health care, MedTechs will need to build smarter, more agile supply chain strategies to deliver care to a patient’s front door.
Improving environmental, social and governance (ESG) measures
The progress made in evolving the MedTech business model in 2020–21 should be just the start of a long journey. Yet, as we have seen, MedTech faces challenges to put the gains made in human‐centered care, data access, and supply chain and regulatory reinvention on a more sustainable footing. More broadly, however, MedTech needs to think strategically about helping to ensure its own sustainability — and committing to measuring this. Global recognition of the need to define best practices for measuring sustainability has increased over the past two decades. That’s because sustainability is no longer seen as a marginal concern but as a core aspect of a company’s market value.
Consumers increasingly prioritize sustainability when assessing a company’s business practices and investors share the sentiment, with Larry Fink’s 2021 letter to CEOs noting a 96% increase in mutual funds’ and ETFs’ investments in sustainable assets in the first 11 months of 2020 compared to the entirety of 2019.
Predicted amount of sustainable debt issuance in 2021.
Sustainability should be a central concern for MedTech. A 2020 Health Affairs analysis²² suggested that the global health industry generated 4.6% of all greenhouse emissions (twice as much as the aviation industry²³), with medical device supply chains presenting major opportunities to increase sustainable practice. (In 2018 alone, device reprocessing in the US, Europe and Canada reduced hospital waste generation by 7,100 tons.) Many leading MedTechs are embracing sustainability initiatives:
- Medtronic, Illumina, Becton Dickinson, Boston Scientific, Edwards were included on the S&P Dow Jones Sustainability North America Index in November 2020.
- Johnson & Johnson collected 1.6 million medical devices and reprocessed 670,000 in 2020 alone as part of its broad‐ranging Health for Humanity sustainability initiative.
- Phillips, in February 2021, announced it had achieved carbon neutrality across its operations, with all of its electricity generated renewably, 90% of its operational waste recycled and 15% of its sales coming from circular revenues.
Yet overall, MedTechs have been slower than companies in other sectors to respond to the demands of sustainability. As devices increasingly incorporate digital and electronic components, issues of waste move beyond single‐use plastics and become more pressing. From manufacturing processes to packaging and recycling of products at the end of their shelf‐life, there are significant areas for MedTechs to focus on reducing not only CO2 but the broader environmental consequences of their products.
It’s now acknowledged that environmental degradation creates global public health challenges, such as respiratory disease from air pollution and elevated cancer risks from chemical contaminants in the food chain. For companies in the business of delivering better health outcomes, there is a greater need to walk the talk. That includes not building their operations on supply chains associated with outsize carbon footprints or pollutant by‐products. Instead, companies need to embrace sustainable manufacturing, potentially sharing capacity and infrastructure to reduce wastage.
In 2021, the MedTech industry already has rebounded strongly from the impact of COVID‐19. To sustain that momentum into the future, it needs to focus on ensuring it has patient‐centric business models, the tools to capture and use data effectively, an optimal regulatory environment, and resilient supply chains. It also needs to focus on ensuring it is — simply — sustainable. This will be the final and critical component in locking in long‐term value for MedTech into the future.
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3 MDIC website, https://mdic.org/, accessed 13 September 2021.
4 NEST website, https://nestcc.org/, accessed 13 September 2021.
5 “Zimmer Biomet and Canary Medical Announce FDA De Novo Classification Grant and Authorization to Market the World's First and Only Smart Knee Implant,” Zimmer Biomet website, https://investor.zimmerbiomet.com/news-and-events/news/2021/08-30-2021-120155075, accessed 13 September 2021.
6 “Hot Off Closing on Wright, Stryker is Back on the M&A Trail,” Medical Device and Diagnostic Industry website, https://www.mddionline.com/orthopedic/hot-closing-wright-stryker-back-ma-trail, accessed 13 September 2021.
7 “Exactech Acquires Muvr, Innovative Patient Wearable and Communication Solutions for Orthopaedic Practices,” Exactech website, https://www.exac.com/exactech-acquires-muvr-innovative-patient-wearable-and-communication-solutions-for-orthopaedic-practices/, accessed 13 September 2021.
8 “FDA Clears Dexcom Real-Time APIs for Third-Party Apps and Devices,” Dexcom website, https://dexcom.gcs-web.com/news-releases/news-release-details/fda-clears-dexcom-real-time-apis-third-party-apps-and-devices, accessed 13 September 2021.
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14 “Happify Health Launches Prescription Digital Therapeutics to Treat Depression or Anxiety,” Medtech Insight website, https://medtech.pharmaintelligence.informa.com/MT144260/Happify-Health-Launches-Prescription-Digital-Therapeutics-To-Treat-Depression-Or-Anxiety, accessed 13 September 2021.
15 “Germany’s digital health changes will boost digital therapeutics in Europe,” Deep Dive website, https://deep-dive.pharmaphorum.com/magazine/digital-health-innovation-2020/germanys-digital-health-changes-will-boost-digital-therapeutics/, accessed 13 September 2021.
16 “Artificial Intelligence/Machine Learning (AI/ML)-Based Software as a Medical Device (SaMD) Action Plan,” FDA website, https://www.fda.gov/media/145022/download, accessed 13 September 2021.
17 “FDA’s Budget: Medical Device Supply Chain and Shortages Prevention Program,” FDA website, https://www.fda.gov/news-events/fda-voices/fdas-budget-medical-device-supply-chain-and-shortages-prevention-program, accessed 13 September 2021.
19 “Baxter Advances Enterprise Digital Transformation in Collaboration With AWS,” Business Wire website, https://www.businesswire.com/news/home/20210802005596/en/Baxter-Advances-Enterprise-Digital-Transformation-in-Collaboration-With-AWS, accessed 13 September 2021.
20 “Siemens Healthineers and DHL Supply Chain Team Up to Target Innovation and Efficiency in Americas Supply Chain,” Siemens website, https://www.siemens-healthineers.com/en-us/press-room/press-releases/dhl.html, accessed 13 September 2021.
21 “UPS Healthcare Announces Agreement with Fresenius Medical Care, Expanding Service in the UK,” Polar Speed website, https://www.polarspeed.com/ups-healthcare-announces-agreement-with-fresenius-medical-care-expanding-service-in-the-uk/, accessed 13 September 2021.
22 “Transforming the Medical Device Industry: Road Map to A Circular Economy,” Health Affairs website, https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2020.01118, accessed 13 September 2021.
23 “Single-Use Medical Device Reprocessing: Towards a Circular Economy,” Yale University Sustainability in Health Care Symposium, Dan Vukelich, Esq., 27 May 2021.