The confluence of five forces could create a $34 billion hit to the medical device industry’s revenues over the next five years.
Until now, the medical device industry has enjoyed stability, strong growth, healthy margins and above average price-to-earnings ratios over the last 20 years. But disruptive changes are causing industry executives to focus on differentiated sources of value, customer productivity and total patient disease management, said Dave Powell, a partner with A.T. Kearney and a co-author of a study that delves into the industry’s challenges.
The study points to five disruptors that will negatively impact the economics of the industry if not addressed.
“Radical change is inevitable, and the companies who embrace it will both shape the industry and profit from it,” Powell said.
Kearney interviewed more than 30 global medical device industry executives from 20 of the world’s leading medical device manufacturers. Collectively these companies represent $80 billion in revenues.
According to the study, the five disruptive forces shaping the medical device industry are:
Power shift to payers and providers –Evidence-based decisions and the funding channels are increasingly challenging the traditional business model of clinician choice. Payers and providers are evaluating medical devices based on safety and procedural efficacy as well as cost and value.
Heightened regulatory scrutiny– In recent years there have been many high-profile and damaging recalls, while regulators have been tightening up existing regulations and adding new ones. FDA audits have increased by 40 percent in the past 12 months and the number of warning letters has risen by 24 percent over the past two years.