5 June, 2014 by Lisa Weeks, Marketing Communications, MasterControl Inc.
Because the term “medical device” covers a vast range of equipment, from simple tongue depressors to the most sophisticated life-supporting products, the medical device industry is constantly evolving. Trends such as an aging world population, emerging markets, increased regulation, health care provider consolidation, and consumerization are radically transforming the industry as we know it. In this post, we’ll discuss the top five trends shaping this extraordinarily diverse industry and how device manufacturers can navigate these trends.
People are living longer and remaining healthy well into their golden years. According to the U.S. Department of Health and Human Services, the “60 years or over” population segment in developed countries is expected to increase from 23 percent to 32 percent by 2050. In fact, the senior segment has already surpassed its youngest cohort, “15 years and younger.”(1) As the aging developed world population continues to grow, so does the demand for medical devices, particularly diagnostic equipment and other devices that focus on disease prevention. While this is certainly good news for the medical device industry, there are some caveats. Because a large part of medical device spending will come from government-subsidized health care, profit margins will be lower. To succeed in this higher-volume, lower-margin environment, device companies must streamline their internal processes, including their quality management processes, to continue to reduce costs and increase efficiency.
Trend #1: Aging Global Population
Trend #2: Growth of Emerging Markets
To counteract lower profit margins at home, U.S. medical device manufacturers are expected to continue to pursue a greater share of their sales revenue from emerging markets like China, India, and Brazil. In less than 40 years, the combined economies of these three countries is expected to eclipse the G6 countries (the U.S., Canada, the United Kingdom, Germany, France, and Japan), which means these markets could drive the medical device industry for the next 50 years.(2) While competition is beginning to trickle in from local medical device manufactures, at present, consumer confidence in emerging markets lies with Western brands, for which they are willing to pay top dollar. Although this is music to Western device manufacturers’ ears, long-term success is by no means guaranteed.
To successfully tap into the burgeoning medical device market in developing countries, Western device manufacturers must be willing to rethink their current business models and distribution strategies, which may contradict local procedures and be barriers to entry. The biggest stumbling block for many device companies will be their lack of local regulatory knowledge. Learning how to navigate the varying rules and regulations in these emerging countries is a challenging process, but one that is critical to establishing local operations and attracting government tenders.
Trend #3: Increased Regulation
Regulatory oversight of the medical device industry is at an all-time high. Consumers, as well as industry stakeholders, are demanding better, safer products, and regulators are being compelled to act on their demands. In a recent study conducted by the global medical device consulting firm Emergo Group, respondents, composed primarily of QA/RA professionals and senior managers, cited the “changing regulatory environment” as their greatest challenge in 2014. When asked if they felt the process of obtaining regulatory approval in emerging markets has become easier or more difficult than it was in 2013, respondents in all regions indicated that registration has become more difficult. Results showed China to be the most challenging region, with 41% of the firms indicating that device registration has become more difficult now than it was last year. Thirty-five percent of respondents rated the U.S. market more difficult. Note: These findings are based on 2,527 responses.(3)
Many regulations are expected to impact the medical device market in 2014, but let’s take a look at the top three:
Affordable Care Act
The Patient Protection and Affordable Care Act (ACA) of 2010, which included a $20 billion dollar tax on the medical device industry, signaled a shift in the U.S. government’s focus from the “more is better” philosophy of healthcare toward one that emphasizes a higher quality of care. Opponents of the tax, which became effective on January 1, 2013, argue that it will be devastating to job creation, patient care, and innovation, and make it harder for startups and smaller device firms to secure venture capital (VC). According to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, VC funding of medical device startups fell to $2.1 billion in 2013—down 17% from the previous year.(4) Furthermore, a study conducted for the Washington, D.C.-based trade association AdvaMed claims the tax could ultimately cost more than 45,000 jobs.(5)
Proponents of the tax argue that lobbyists continue to distort the tax’s impact. They claim that the expansion of health coverage will increase the demand for medical devices and could offset the effect of the tax. What’s more, they argue that health reform will promote innovation, not postpone it, by promoting more cost effective ways of delivering care.
FDA’s 510(k) Controversy
The FDA’s 510(k) submissions process, the most widely used approval path for medical devices, has also come under scrutiny. The 510(k) program rests on the idea that if a low- to moderate-risk medical device has already received FDA clearance, then similar devices that are “substantially equivalent” to the already approved device (called a “predicate”) would require little if any clinical testing and scrutiny. Consumer advocacy groups argue that the policy, which was created more than 35 years ago in an era of much simpler devices, is outdated and has failed to keep dangerous and ineffective devices off the market.
In response to consumer concerns, in 2010 the FDA proposed more than 60 changes to the 510(k) policy that will require device manufacturers to provide more evidence of product safety. Manufacturers argue that such an extensive list of changes will further complicate a path to market that is already fraught with obstacles, pitfalls, and delays. They also argue that it’s unnecessary, citing a study of recall data conducted by Ralph F. Hall, JD, a professor at the University of Minnesota Law School. Hall’s study revealed the majority of Class I safety recalls (55%) are due to post-market issues, such as manufacturing failures, and that 99.78% of 510(k) submissions do not result in recall due to premarket issues. A separate study, conducted by Battelle Memorial Institute and commissioned by AdvaMed, demonstrated that of the nearly 47,000 medical devices cleared by the FDA through the 510(k) process since 1998, only 0.16% were involved in a serious recall event. (6)
Recent UDI (unique device identification) legislation further illustrates the FDA’s focus on product safety. UDI compliance will require medical device manufacturers to establish an identification system for each device; the system is intended to reduce counterfeiting and increase supply chain security and efficiency. The FDA intends to phase in the UDI system over the next seven years, although the regulation will be enforced for Class III devices as early as September 2014. That’s a relatively short amount of time to gather the data required for each device and properly submit it into the FDA’s new Global Unique Device Identifier Database (GUDID).
Regardless of the regulation in question, one thing is clear: a key strategy to successfully navigating today’s regulatory landscape boils down to being prepared, organized, and thorough. A good quality management solution, one that enables robust recording keeping, traceability, change control, and document control, can help manufacturers streamline operations, nimbly navigate unexpected regulatory speed bumps, and ultimately expedite time to market.
The staggering number of hospital mergers and acquisitions that has occurred over the last few years has transformed the way physicians and hospitals deliver patient care. Independent hospitals are being acquired by large health care systems in record numbers, and the shift toward larger health care delivery systems is expected to continue to evolve, particularly if economies of scale can be gained.
Trend: #4 Health Care Consolidation/Mergers & Acquisitions
Companies use mergers and acquisitions as a strategy, along with product line expansion, to better serve customers with a more complete offering. They may also use acquisitions to get into faster-growing or higher-margin businesses. However, mergers also increase complexity, and thus the likelihood of problems and risk. To survive this transition, medical device manufacturers will need to invest in commercial software tools that can help lower business risk in core quality process areas, such as document control, design control, root cause analysis, and supplier quality. Investing in robust reporting tools will also allow them to better illustrate the clinical value of their devices by tying their products to measurable health outcomes.
Trend: #5: Consumerization
Although still a relatively new topic, the consumerization of medical devices, also referred to as the medicalization of consumer devices, has gained significant momentum over the past couple of years. It will continue to be a hot topic throughout 2014. The main drivers behind the concept—the emergence of new technologies (e.g., smartphones and social media), increased focus on costs, and elevated customer expectations—are prompting device manufacturers to increase their commitment to and investment in developing patient-empowering technologies that leverage very specific information.
One example of such a tool is the AliveCor ECG Heart Monitor. When used with AliveCor’s free app, AliveECG, it offers individuals with suspected or diagnosed heart conditions the ability to immediately record and store single-channel ECGs. The monitor fits most mobile devices and is easy to use. The patient simply rests the monitor on his/her fingers or chest to record an ECG, which can be printed or emailed directly to caregivers and other health care professionals. Providers can review and track their patients’ ECG data on AliveCor’s Provider Dashboard, a free web-based application.
While AliveCor’s ECG Heart Monitor may be one of first examples of the marriage of consumer product and medical device, experts predict more technologies are to come, particularly in the diabetes space. Since Medicare expects over 70% of patients to have four chronic comorbidities by 2020, the market for consumerized medical devices looks promising in 2014—and beyond. (7)
The medical device industry is facing unprecedented challenges in 2014, but many opportunities as well. What other trends do you expect to see in 2014? What do you consider to be your biggest challenges this year, and how are you planning to address them?
Editor's Note: This post was taken from the white paper: Five Trends Transforming the Medical Device Industry in 2014, which you can download here.
Lisa Weeks is a marketing communications specialist at MasterControl Inc., writes extensively about technology, the life sciences industry, and other regulated environments. Her two decades of marketing and advertising experience include work with McNeil Pharmaceuticals, SAP AG, SCA Mölnlycke Health Care, Crozer-Keystone Health Systems, and NovaCare Rehabilitation/Select Med.
1 “World Population Prospects: The 2012 Revision,” United Nations, Department of Economic and Social Affairs, Population Division, 2013.
3 “Outlook for the Medical Device Industry in 2014,” wwww.emergogroup.com, January 2014; available from the Internet http://www.emergogroup.com/research/annual-medical-device-industry-survey
4, 10 Arlene Weintraub, “Device Startups Struggle With Obamacare Excise Tax,” Entrepreneur [online], April 15, 2014; available from the Internet http://www.entrepreneur.com/article/233020
6 “IOM Committee Releases 510(k) Workshop Report,” Institute for Health Technology Studies, InHealth [online], October 18, 2010; available from the Internet http://www.inhealth.org/wtn/Page.asp?PageID=WTN000968