Change is inevitable in any organisation whether you will it or don’t. The question is whether the change can be harnessed quickly enough to help strengthen and build. The medical technology sector, or medtech – broadly defined as any technology used in treating medical conditions which ranges from latex gloves and syringes to total body scanners and implantable pacemakers – is facing huge challenges from shrinking budgets and ageing populations to new technologies and demands from customers.
As medtech companies move to address these factors, different responses are emerging. Medtech is certainly affected by the transformations in the global healthcare landscape, with new approaches for managing, financing and competing. This is pushing all stakeholders in the sector to question their models, and one effect has been to pile pressure on suppliers of healthcare products.
Medtech innovation today is fast and brilliant, with new products and treatments emerging better than ever. New technology is being used to help people born deaf hear their own voice for the first time, or allowing a 29-yearold paraplegic man make the opening kick to the 2014 World Cup in Brazil!
But the main driver in the sector in recent years has been the public cost containment enforced by the financial crisis. With an ageing general population causing healthcare expenditures to continue to rise, the pressure to limit costs and thereby new technologies will only increase over time.
As cost containment of healthcare rises, the pressure on gross margins will only increase, making it harder for medtech companies to continue to finance their existing business models.
“Bringing new products to market in the European Union is becoming increasingly difficult,” says Omer Saka, a Director at Deloitte Consulting.
“There are many companies that are questioning the large investments needed for increasingly smaller returns. This carries a very real risk that patients in the future will no longer have access to these new life-saving technologies.” The shift in overall healthcare aims is having a deep effect on medtech.
Product innovation and quality was once the key to growth, but this is being replaced by a goal of balancing costs and bringing value-add services to hospitals.
As hospitals strive to become more efficient, improve patient outcomes, and be more cost-conscious, medtech needs to adapt too. Indeed, there is now an increasing willingness to pay premiums on products that are labour-saving or save larger, downstream costs.
“Price pressure within the health system is incredibly high. At the same time demand for value-add services from hospitals to suppliers continues to increase,” says Heidi Jauch, Vice President and Compliance Officer at Zimmer, a specialised joint replacement technology manufacturer based in Warsaw, Indiana.
Medtech companies are also facing new customer relationships with a dramatic increase in the number of stakeholders playing a role in decisions. Until recently, physicians were the sole decision-makers for the products they used to treat patients. But with pressure to improve patient outcomes while simultaneously controlling costs, an increased number of stakeholders – purchasing committees, hospital administrators, etc. – are now involved in the purchasing decisions.
And with buying decisions being increasingly driven by tender processes, the purchasing process has become much more complex, raising the administrative burden on both companies as well as hospitals.
So how are medtech companies responding to the challenge? Two broad approaches have emerged: specialisation in particular areas, and broader supply of products and services across different domains.
But in both instances, the industry has been moving from a co-operative business model to a true collaboration with all stakeholders, working closer with hospitals and healthcare authorities to anticipate needs and build relationships.
“Hospitals look for long-term partnerships which offer win-win solutions for both parties. This demand will increase over time,” says Paul Timmermans, the COO of University Hospital Leuven, in Belgium.
Renaat Vermeulen, who runs the European operations of orthopaedic device firm Biomet with global headquarters in Warsaw, Indiana, says specialisation will drive efficiency. “Specialisation of hospitals is a clear trend throughout Europe, something which we definitely support,” Vermeulen says.
“The literature has clearly demonstrated that specialist hospitals have higher quality results for patient outcomes.” The logic is that performing higher volumes of specific procedures gives teams more experience with treatments and possible complications ensuring a deeper understanding of specific ailments.
Having more specific experience allows for better patient treatments. “The future for companies is where they offer integrated solutions to hospitals along the entire disease management chain from diagnosis, treatment, manage the symptoms post-treatment, and providing feedback to hospitals and government.” says Deloitte’s Omer Saka.
One example of this is Minneapolisbased Medtronic, a world leader in medical devices, which created the Hospital Solutions group helping hospitals outsource their catheterisation laboratory or cath lab. Maastricht University Medical Center in the Netherlands estimated that they had saved €4.5 million in one year working with Medtronic.
“A hospital clearly benefits through bringing in our expertise in change management,” says Yvan Deurbroeck, Medtronic’s Vice President Communications for Europe, Middle East and Africa. “We have readily available in-house knowledge and talent which hospitals can benefit from.”
Of course, as companies adapt their business models to start providing value-added collaboration and not just products, it means adapting skill sets and structures in medtech firms. Renaat Vermeulen says that is already happening, with more segmentation and specialisation of sales representatives to deal with a broader group of highly differentiated stakeholders.
“The times of a generalist sales rep doing everything within a hospital is fading.Through having a more specialised people we are better able to get the key messages across to the different groups,” he says.
Frédéric Hoffmann, Business Unit Director at Baxter, a US healthcare leader with headquarters in Deerfield, Illinois, adds, “We are definitely driving our sales organisation to develop consultative sales skills with hospitals – through this we add value to our customers and strengthen our longterm business relationships.”
Indeed, one consequence now is that medtech sales reps now have second highest industry average salary level within the life science industry - higher than pharmaceutical and biotech reps. The risk of this specialisation, though, is that the focus on individual sales could mean losing sight of the broader relationship.
“Sales reps are driven through their bonus: they fight for each and every device, and hence are not willing to give up accounts, no matter how small. But does this really make the most sense from an organisational perspective?” asks Zimmer’s Heidi Jauch.
To take an example from Pharma industry – which is struggling with some of the same issues – GlaxoSmithKline (GSK) is addressing this issue by remodelling its sales teams, no longer incentivising them for individual sales targets but focusing on building the relationship with the prescribing physician and adding clinical value.
When it comes to finding the talent to meet these challenges, many medtech companies still recruit only within their sector. That is likely to change.
“As the market needs continue to evolve, I could definitely envisage going outside of medtech to hire new skills,” Renaat Vermeulen says. The changing landscape means new recruitment demands.
The focus in sales is likely to be on a Key Account Management (KAM) supported by a team of specialists.
Negotiation and contracting competencies will be needed to manage the growing tender environment. As relationships become more complete, medtech firms are expected to go beyond the product to providing services and solutions to help improve patient outcomes and reduce total costs of care for hospitals and healthcare authorities.
A key skill for driving partnerships will be talking with many different stakeholders and find value add between each one of these. “The ability to communicate effectively with a broad range of stakeholders is something which will continue to increase in importance,” says Roy Bridges, Vice President Regulatory Affairs and Public Policy with BD, a medical technology company based in New Jersey.
Indeed, marketing needs should take on a more important role in the selling process: selling arguments need to be made around value and clinical outcomes and health economic data analysis. “Economic value needs to be built into new products already at the product development stage,” says Yvan Deurbroeck.
This emphasises the massive ongoing change within the sector starting from how products are developed all the way through to tailoring different messages to a more diverse audience. For Neil Chalker, Vice President Human Resources, Europe, Middle East and Africa at Medtronic, the difference will continue to be made by the people within the company.
“Our people will continue to play the key role in everything we do,” he says. “The amount of training, skills and knowledge we have available in our company is tremendous. Our hospital partners will continue to benefit from these as we move forward.” How will these changes play out for medtech firms in the future?
It remains to be seen in the long-term whether the market will move towards broad-range suppliers across many medical fields, or large specialty providers in specific fields such as orthopaedics.
But it is likely to mean an ever closer relationship with customers and finding collaborative value added relationships. “We will continue to move beyond products to finding services and solutions to health problems together with hospitals and governments,” Medtonic’s Yvan Deurbroeck says.
He is echoed by Roy Bridges, who says the key will be building multi-disciplinary teams. “Sharing best practices and developing true partnerships between industry and all other stakeholders is the way forward in healthcare,” he says.
Lucy Harding and Pieter Ebeling, Partners in the Global Procurement and Supply Chain and Consumer...
Lucy Harding and Pieter Ebeling, Partners in the Global Procurement and Supply Chain and Consumer...