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Med Tech Bets on Value as Its Future Business Model

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Consumerism | 
Economics | 
Innovation | 

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 4sight Health Author
David W. Johnson
David Johnson CEO 4sightHealth

David Johnson is the CEO of 4sight Health, a boutique healthcare advisory and investment firm. Dave wakes up every morning trying to fix America’s broken healthcare system. He is a frequent writer and speaker on market-driven healthcare reform. His expertise encompasses health policy, academic medicine, economics, statistics, behavioral finance, disruptive innovation, organizational change and complexity theory. Dave’s book, Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare, is available on www.4sighthealth.com