Medical Product Outsourcing

The medical device industry has had ample time to adjust to its “new normal.” Healthcare firms have had years, really, to revamp their business models to jump start growth, but progress has been tortoise-like—hampered by lingering Affordable Care Act uncertainty, new federal regulations, hospital consolidations, purchasing decision instability, fickle reimbursement rates and demands for values-based solutions. Nevertheless, med-tech manufacturers realize that future profits depend on their ability to evolve with the market, and many have begun their metamorphoses, whether it be through acquisition (Medtronic-Covidien, Zimmer-Biomet, Smith & Nephew-ArthroCare, Danaher-Nobel Biocare), partnerships (Novartis-Google[x]), restructuring (Philips N.V., Baxter International and Abbott Laboratories) or redefining innovation. As St. Jude Medical Inc. CEO Daniel J. Starks noted, “Innovation is broader than delivering the next breakthrough product. It is about partnering with physicians, hospitals, payers, patients and our communities to challenge conventional thinking and create medical solutions that save and improve millions of lives worldwide—while reducing healthcare costs for all.” The key to success, of course, lies in the industry’s ability to buck tradition—which historically, has been a virtual sacrilege among device companies. But disruptive change is underway. Companies no longer will be able to earn premium margins by simply selling clinical features and new devices into established market spaces. Rather, they will need to look at new segments and, particularly, new end-to-end solutions to secure additional revenue and maintain margins, contends an A.T. Kearney report on forces currently shaping the medical device industry. “While the future contours of the medical device industry remain to be defined, radical change is inevitable, and the companies who embrace it will both shape the industry and profit from it,” said Dave Powell, A.T. Kearney partner and study co-author. “Executives should urgently be evaluating the impact of disruptors and using this information to determine what capabilities and resources they will need to build a distinctive business model that will enable them to compete in the future.