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December 10, 2018
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David Burda
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Med Tech Bets on Value as Its Future Business Model

If you’re looking for a sign that we’re truly approaching a watershed moment in healthcare innovation, look no further than the people whose job is creating new medical technologies that help patients and generate revenue for device company investors, shareholders and owners.

A new report says medical device companies will be spending less of their research and development budget over the next two year on the same things or things related to the same things and more of their R&D budget on totally new things.

The Deloitte Center for Health Solutions and AdvaMed, the trade group that represents medical device makers, released the 20-page report, The Next Wave of Innovation: Technology and Value-Based Care Are Transforming Medtech R&D. Deloitte and AdvaMed based their report on a survey of R&D leaders from 22 mid-size and large med tech companies.

The R&D execs said that their companies would be spending 29 percent of their R&D budget on “new platform innovations,” or transformation products and services, by 2020, up 5 percentage points from 24 percent this year. By comparison, over the same period, the percentage of their R&D budget spent on sustaining core products will drop to 38 percent from 42 percent, and on product extensions to 33 percent from 34 percent.

Why are these companies training their sights on completely new things? Fifteen of the 22 companies, or 68 percent, said they were shifting their R&D budgets because of new value-based care models that demand better outcomes for less cost. Specifically, the 15 companies said they will be upping their R&D spending on products and services that, in ranked order of investment:

  • Improve long-term clinical outcomes
  • Increase post-treatment adverse events
  • Reduce the total cost of care for a patient over a specified timeframe
  • Increase procedural efficiency and cost
  • Provide earlier disease identification and higher accuracy of therapeutic interventions

Seventy-seven percent of the surveyed R&D leaders said that their companies intend to use real-world evidence to inform future product and service development. And 64 percent said that their companies plan to develop more digitally enabled products and services to capture that data.

“Vast amounts of real-world data, including data from connected devices, could be used to understand the patient journey, consumer preferences, and unmet needs and to improve products and services,” the report said.

What’s the end game for this value-based care driven shift in R&D spending? Eighty-six percent of the respondents said their No. 1 priority was to “strengthen/diversify product portfolio to expand market share and new market/segment penetration.” In English: Generate revenue and profits for investors, shareholders and owners.

Medical device companies are betting on value as their money-making commodity in the future. If that’s not a sign of change, I don’t know what is.

Read Dave Burda’s columns here.

Author

David Burda is a columnist for 4sight Health and news editor of 4sight Friday, our weekly newsletter. Follow Burda on Twitter @DavidRBurda and on LinkedIn. Read his bio here.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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