Introduction
According to a recent ATKearney Report, the Medical Device industry has been enjoying a 5 percent average annual growth rate and margins in the 23 to 25 percent range. However, because of fundamental changes in the medical purchasing environment, it is likely that between 2015 and 2020, revenue will remain stagnant, and margins will drop by as much as 8 percent unless the device manufacturers change their business models.
One change that will significantly impact both the financial results and customer loyalty is providing value-added solutions to hospitals, labs, and practitioner’s offices. This approach must include becoming very creative with the services offered (both existing and new) to differentiate themselves from competitors trying to achieve the same objectives.
The causes of the projected margin decline
As a result of the Affordable Care Act (ACA) and changes in Medicare reimbursement, the way major medical organizations purchase capital equipment has been changing, and this trend will continue. In the past, department heads or important medical staff members strongly influenced what equipment to buy. Today this practice is becoming obsolete. A committee or a GPO (group purchasing organization) will probably make the equipment purchase decisions. If it is a committee, the head is usually someone from Materials Management (Purchasing) with other representatives from the Medical and Nursing departments, Biomedical Engineering, and Finance. They research and develop a shortlist of potential suppliers before asking for quotes. They have specific objectives in their evaluation, including patient outcome, the total value obtained from the purchase, and the lifetime cost of ownership.
If they are part of a GPO, the shortlist is provided to the committee. It includes feedback from other members of the GPO who share their evaluation analyses and compare actual results to expectations.
So, you can see that the relationships between your business and individual medical professionals are rapidly being downgraded. They are being replaced by objective analyses based on balancing monetized value added and cost.
Examples of value-added solutions
Value-added solutions – One of the most progressive segments of the medical device industry is the imaging segment. The equipment is costly, has some components with a high failure rate (because of the parts’ physics), and significantly impacts patients’ feelings about their treatment.
Acertara Acoustic Laboratories just announced a patented way to monitor multi-element ultrasonic sensors. G. Wayne Moore, president and CEO of Acertara, said, “The new Aureon ultrasound probe testing device allows the user to visualize the ultrasound energy emanating from the aperture of the probe, enabling detection of dead elements and other probe failures in even complicated ultrasound probes, including 2D matrix arrays.”
The device is installed on the clinical tester. A set of parameter measures is taken at the instrument and transmitted to a maintenance computer. An image is derived from the received data and analyzed in comparison with the set of operational characteristics stored in the maintenance computer to identify a predicted malfunction of a device component. The maintenance system can thus initiate a repair of the medical imaging device by generating an alert in response to the identification of the predicted malfunction. All because of a value-added solution.
Upgrade products – GE Healthcare recently announced that it had upgraded two ultrasound system models to improve the comfort and convenience of patients undergoing medical imaging. “We asked clinicians who use these technologies daily to tell us what they need, and we designed upgrades that are cost-effective and that give them more time, productivity, and confidence,” said Brian McEathron, general manager of General Imaging Ultrasound for GE Healthcare. “These upgrades put GEʼs latest imaging technology in their hands without requiring a system replacement.” This strategy may push out some new sales but will ensure that the existing equipment stays in use and is under support for a longer time. Also, the upgrades make the equipment more competitive for new sales.
After Thought About Value-Added Medical Equipment
While this post is about the Medical Device industry and the specific causes of the change going on is also clear, other capital equipment industries are also in the same situation. Capital equipment purchases are all about value-added and extending the useful life of existing equipment. No message is better received in the C-suite than “We have XYZ equipment that is fully depreciated, and I found a way to extend its’ useful life for another five years at less than 10 percent of the cost of a new purchase.”
All capital equipment suppliers had better internalize this message now, or they may be left in the commercial dust called progress.
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization create value-added services for your Medical device customers, please contact us or check out some of our free articles and white papers here.