A new healthcare order – Organization is changing, targets are moving, and audiences are differing

It has been told sufficiently that the old way of launching and selling a product is no longer the standard approach. Physicians are no longer the deciding factor, at least not in most of the European countries. In a country like Germany, physicians and surgeons still have influence in some situations, in the sense of having a veto right sometimes. There are other countries that also maintain this aspect within the decision-process.

In previous blogs and articles we have indicated and analyzed developments that substantially change the way that we do business in the current and future (short term) medtech market.

It is worthwhile to keep an eye on the developments within one of the most prominent and growing segments of the healthcare market, namely: private clinics and hospitals (chains and individual units). In this segment, the policy of standardization of equipment and supplies has become common practice and we have seen the homogenization of the installed base. There is not only a clinical effect, but also a serious effect on prices, i.e. a growing market segment and decreasing margins.

The growth and effect of evidence-based criteria in medtech markets

The medical device market has traditionally maintained a large variety of types, models and brands, especially in the non/small-capital segment. Without substantial clinical improvements, differentiation and a concentration of manufacturers in a market of declining margins, the variation of equipment is declining. This is true in the large majority of medical specialties, anesthesia, cardiology, or orthopedics, for example. There is little room and reward for small improvements.

In addition, the elements of evidence-based medicine and institutions that provide more results than just evidence, have an influence on the ranking of equipment, the value for money and will ultimately contribute to a reduced cluster. This is very similar to what we are seeing in the pharmaceutical market, where we observe a reduction of offers, favoring the best value for money.

For quite some time there will be an installed base effect, along with a differentiation on the basis of hospital and physician preference, yet the driving decisive factors that we have seen in the past will disappear.

Economically-based selection criteria, with a reduction of physician influence, is spreading, in a world that decides more and more according to evidence-based medicine reports. Declining prices and margins with a risk of being forced out of the cluster, accompany this trend. Not a nice perspective, especially in a world of reduced buying points, with an increasing formation of Central Purchasing Organizations, individual buyers, and or much smaller volume buyers.

The evolution in care setting and emergence of services outside of the hospital

We have described the current developments in the market many times before: hospitals are gradually turning into high care/higher care units, and the influence of payers is pushing medical care to lower cost settings and lower cost care-givers.

The question is whether the traditional medical device market will show limited growth, without too many new parameters, and declining prices. The question also arises whether a large part of growth will come from non-traditional segments such as homecare, and specialized cure (and care) centers. Not only the size of this segment will prosper, but also additional revenues from auxiliary e-health elements and services are to be gained.

In pharmaceutical markets, chronic patients/medication users are being treated at home more frequently, or in special centers, or any other setting that is out-of-hospital. Pharmaceutical manufacturers are extending their services by increasing their capacity, in the form of new personnel that is specifically deployed to visit and tend to the patient/customers at home.

This may also happen in the medtech segments where services will make a difference, e.g. in the COPD markets, diabetics, cardiac patients, amongst more patient types to come.

It will undoubtedly force the industry to change in a number of ways.

Changes in the market and how companies market their products

  • Most companies have already taken the initiatives to develop/design for a new category of product users, in respect of the new settings where products are used. Smaller, simpler to handle (hence more intelligence inside) and extended communication options, will define these products. Where payers get involved, the changes as described, are introduced faster than before.
  • The organization will need to be adapted to the new circumstances. Less customers with bigger volumes require different sales organizations, e.g. smaller, resilient, and more versatile. The new segments will require more training and support. For the first time, companies will be confronted with the phenomena of call centers, able to provide service at a user level.
  • Marketing has already played a much more sales-supportive role in the medtech industry for a long time; i.e. point of sales material, sales force support, and very little marketing in the more traditional, accelerated consumer goods approach. With a variation on the good old “sell it on the shelf, market it off the shelf” (from Proctor and Gamble), we will see that sales will need to sell into the channel, and market by promoting the product’s use among the patients.
  • If marketing takes a completely different role and responsibility, there will be a need for a completely new message, using different channels to reach a completely different audience. As one of the business development managers in one of my old companies always said: “to physicians you must prove that it works based on clinical evidence; to consumers you use advertisements and colorful material to assure them that it works….over and over again”. The question is whether in the case of patient-consumers, you are looking at a blended message.

The bottom line

Different equipment (that is smaller, smarter, more communicative, rugged and low cost) is coming. These will come from a new type of organization in which marketing plays a much bigger, more important role, communicating a different message through non-traditional channels.

In the past, around 20 years ago, the medtech industry was instrumental to changing the way healthcare was performed. In a never ending flow of technological developments it transformed healthcare’s potential and possibilities, consider in vitro diagnostics, anesthesia safety, cardiology advancements, orthopedic and spinal treatments, and all other ways that made healthcare more effective.

The new direction that healthcare is taking (under the influence of the increasing cost of care, and the changed decision-making powers, where payers are winning authority and patients are getting involved), creates an opportunity for the industry. The traditional larger manufacturers might not yet have the optimal position to grab the opportunities arising outside of the hospital context. However, the market is seeing a lot of new entries and start-ups with an abundance of new technologies, that are optimally and creatively packaged for the new healthcare order.

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About Helgert Van Raamt

Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.