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The Year That Medtech Looks Inward

Posted by Brian Chapman on January 11, 2017




shutterstock_267052457.jpgLast year, I wrote a set of predictions for 2016 that were a bit too ambitious. While I still feel good about every one of them, I got ahead of myself in the speed with which they would unfold. We will see a tech disruption, and we are finally making use of all of our outcomes data, but both have been slower in coming than I had hoped.

For perhaps no other reason than your amusement, loyal reader, and to earn the indulgent smiles of my colleagues, I submit my predictions for 2017:

1. Paradoxically, the rate of policy change imposed on medtech will slow. Let me be clear that this prediction is for those of us working in the acute care setting. I expect a few fireworks, or at least a bunch of noise, while healthcare takes an early share of headlines. We’ll tire of the phrase “repeal and replace,” and tire, for that matter, of thinking that things are uncertain. While hospital stocks like HCA and Tenet Healthcare took a pounding after the election and haven’t yet recovered, I don’t really think there’s that much uncertainty here around the acute space.

Tom Price, Trump’s pick to lead the Department of Health and Human Services, has already shown early alignment with House Speaker Paul Ryan. Price has already told us what he thinks by sponsoring legislation and speaking publically about the Affordable Care Act. He wants choice to be in the hands of the patient, and especially the provider; he wants liability litigation to come under control; he supports cross-state insurance competition and health savings accounts; and he’s unlikely to champion a massive overhaul of hospital payments. In fact, he has been critical of CMS demonstration programs like the Comprehensive Care for Joint Replacement model. But the pick to head CMS, Seema Verma, has a clear view of policies at least from a state perspective and has shown a clear preference toward innovation. The phrase “skin in the game” is very often associated with her.

So what should we expect in 2017 with healthcare in the U.S.? A lot of talk, and maybe some real change in the world of insurance. The biggest dissatisfaction with the ACA is wrapped up there, but there’s also the biggest unsolved dilemma: the notion that many ACA critics hate paying for preexisting conditions while dismissing the individual mandate that makes it possible. I believe that policymakers will get bogged down with solving these two opposing forces and we’ll see very little action in the hospital. I expect that CMS won’t retrench on outcomes-based payments, but we’re less likely to see the big demonstration projects that we saw in the last few years. Hence, there’s likely to be only slow change in the hospital in 2017.


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2. Medtech M&A and hospital consolidation will be tepid. We won’t undo the big consolidations of the last few years, between either manufacturers or the very large vertical and horizontal integration in the provider space, but I also think that industry consolidations will slow since many of the big forces driving them have come off the boil.

Instead, I think that we’ll see much more attention focused inward. More on this in prediction No. 4.

3. The pace of product innovation won’t really pick up much. There already is some evidence of a slowing pace of product innovation. If pre-market approvals or 510(k) submissions are a measure of pure product innovation, things don’t look too hot. Generally, venture capital funding in medtech is lower, the number of medtech startups in the U.S. is much lower than previous years, and there were only a few big IPOs (congratulations, ConvaTec!). It’s controversial to claim that innovation is slowing, but I’ve said before that I think that more change is coming in how we interact with our favorite doctors and medical devices via health tech than pure medtech product innovation.

4. Internal integration will move to the forefront. “You don’t need new toys. Just play with the ones you already have.” If you’re a parent, you may have said this to your children a few times, and I think that medtech boards will say this in 2017. I’m not suggesting that there will be no M&A activity but instead that a great deal of energy will be focused inward to integrate what companies already have.

What do I mean by “internal integration”? When an acquisition is announced, there’s a mad rush to be ready in all of the customer-facing functions (the sales force, customer service, collections, etc.). Many other things are put on the back burner for good reason, but the problem is that these back burner things don’t really return and are simply forgotten in the rush. I propose that medtech will turn inward and finish this unfinished business.

Data and analytic systems aren’t integrated. Different terms and conditions often exist in different divisions. Producing a single clean customer list or purchase history can be a real challenge across divisions. Divisional silos have been left in place, partially because they’re difficult to bring together and partially because the value of combining wasn’t as readily apparent, but this will change as hospital systems clean up their act, reduce vendors and put pressure on medtech to serve them better. And the big multi-divisional medtech companies will realize that there’s value to be had in operating as a combined entity. They’ll realize savings through consolidation and driving customer value in a combined approach.

We’ll also see “big medtech” rethink its sales model and selling teams. My colleagues Pete Masloski and Yuta Ito talk about putting IDNs at the center of the model, and I think that this is exactly what’s needed. Medtech will consider IDNs’ needs in a value proposition design, and will rethink how we go to market with our sales teams.

In addition, we’ll see some long overdue portfolio cleaning as the industry makes tough choices to discontinue, reduce and manage the proliferation of products. While an acquisition could be an excellent time to consider this, nobody wants to lose any single sales opportunity and delay the tough choices. Zimmer Biomet’s recent sales forecasts give us a clear example of why this is important.

5. Marketing organizations also will come to the forefront. I have already argued that marketing organizations in medtech are suboptimal. If, in fact, pure product innovation is slowing, there’s already an argument that we need to get better at marketing what we have. I’ve also seen too many product launches disappoint in recent years, often with the blame clearly sitting on marketing’s shoulders. Too many marketing organizations are U.S.-centric and struggle to consider the needs of global customers, and too many develop products in R&D without considering an economic value proposition or the impact on outcomes.

I’m not just arguing that this change is needed. I can also lean on my personal experience with this prediction. In the last six months, the number of ZS’s medtech clients asking about marketing excellence has risen sharply. Of course, my personal belief is that it’s not just the organization that’s broken, but also the ways of working, the processes that are used and, ultimately, the match of talent to position. Regardless, I hope that the long overdue attention to marketing finally comes to our industry in 2017.  

And with all of this, I wish you all a happy 2017. 

 

Topics: medtech, Brian Chapman, 2017

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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