How will China's medical device industry develop in the next 10 years?
The development prospect of medical device enterprises seems optimistic, but the medical cost is difficult to sustain. With the participation of new competitive forces, it indicates that the future pattern of the industry may change. If today's manufacturers fail to establish their position in the evolving value chain, they will face a dilemma and the risk of being commercialized. To maintain the leading position, it is necessary to provide value beyond equipment and solve medical problems, rather than just making contributions.
The medical device industry in 2030 - becoming part of the solution
Reshape the business and operation mode, reposition and reconstruct the value chain
The days of "just manufacturing equipment and selling it to medical service providers through distributors" no longer exist. Value is a new synonym for success, prevention is the best result of diagnosis and treatment, and intelligence is a new competitive advantage. This paper discusses how medical device companies will succeed through the "three pronged approach" strategy in 2030.
Rebuild business and operation mode
Medical device enterprises should carefully examine the existing organizations and reshape the traditional business and operation mode in the following ways to adapt to the future development:
Integrate intelligence into the product portfolio and services, positively influence the treatment process, and establish contact with customers, patients and consumers.
Provide services beyond devices and intelligence beyond services - truly realize the transfer from cost to intelligent value.
Investing in enabling technology - making the right choices to support multiple parallel business models based on customers, patients, and consumers (potential patients) - and ultimately serving the organization's financial goals.
Consider from the perspective of "from the outside in" to prepare for the future. By 2030, the external environment will be full of variables, and medical device companies need to reposition in the new competitive landscape to deal with interference from the following aspects:
New entrants, including competitors from unrelated industries.
New technologies, because technological innovation will continue to be faster than clinical innovation.
New markets, as developing countries continue to maintain a high growth trend.
Reconstruct the value chain
The value chain of traditional medical devices will evolve rapidly. By 2030, enterprises will play a very different role. Medical device enterprises need to re-establish the value chain and establish their position in the value chain after experiencing business and business model remodeling and repositioning. A variety of value chain "construction" methods require enterprises to make fundamental strategic choices. It is now clear that manufacturers will continue to establish direct contact with patients and consumers, or combine with medical service providers or even payers through vertical integration. The choice to rebuild the value chain is not intuitive, and may be different according to the company's market segments (such as the equipment field, business department and geographic region). As other enterprises try to reconstruct the value chain and achieve strategic objectives, the value chain itself will undergo dynamic evolution, making the situation more complex. However, the right choice will create great value for end users and help enterprises avoid the future of commercialization.
Industry executives need to challenge traditional thinking and re imagine the role of enterprises in 2030. Therefore, they need to rebuild their current organization and transform from a value chain participant to a sustainable medical cost provider.
Beware of a dilemma
Unbearable pressure subverts the status quo
The medical device industry is expected to maintain a steady growth. The global annual sales are expected to grow at an annual rate of more than 5%, and the sales will reach nearly 800 billion dollars by 2030. These forecasts reflect that people's demand for innovative new devices (such as wearables) and services (such as health data) continues to grow with the increasing prevalence of habit diseases in modern life, and the huge potential released by the economic development of emerging markets (especially China and India).
Although the prospect is very attractive, the relentless downward pressure on prices still hangs over the industry like a haze. Governments around the world are striving to reduce the cost of health care, especially in the most expensive part of the medical system: hospitals. They hope to reduce the expenditure on medical devices, and at the same time, they want to see greater value in achieving better therapeutic effects.
Many purchasing decisions have been transferred from medical institutions to economic decision-makers. Although there is a short-term suspension period like the two-year suspension of the US medical device consumption tax, the pricing seems to be developing in only one direction - lower. With the formal implementation of EU medical device regulations in 2020 and the introduction of Chinese regulations to encourage local innovation, the industry will face more uncertainties in the future.
These developments have put medical device enterprises that have been focusing on manufacturing and R&D for a long time into difficulties. At present, the medical budget is limited, and the new reimbursement system continues to cut profits. In addition, new participants (some from completely different industries) are disrupting the industry by mastering customers, patients and consumers through data. In today's volatile new market, device manufacturers, as simple commodity producers, are facing a major risk of being caught in a dilemma in the value chain.
Evolving value chain
Compete in the future value chain of medical devices
Medical device enterprises have always provided value mainly by manufacturing and selling products. However, with the increasing pressure faced by the medical system, the medical service model has undergone fundamental changes. Therefore, the industrial value chain will usher in major changes.
Under the new normal, enterprises need to get rid of the role of traditional manufacturers, combine services and intelligent data with products, and provide overall solutions. This requires a "strength contest" in the value chain - to consolidate the existing business to business (B2B) model and create new models while introducing the business to consumer (B2C) model. This strength contest may include a series of transactions - mergers and acquisitions (M&A), strategic alliances and cooperation.
In the end, medical device enterprises will strive to play a more important role in the value chain and close the relationship with customers, patients and consumers. If handled properly, it can not only increase new sources of income, but also shorten the time of medical treatment, reduce costs and reduce the number of visits - thereby reducing medical costs.
Rebuild business and operation mode
Far more than manufacturing equipment
The industry leaders in 2030 will be those medical device enterprises that establish contacts with customers, patients and consumers (end-users) and actively provide value. Enterprises need to combine "smart" services and solutions that help reduce medical costs and improve outcomes, and move from treatment and cure to prevention. Technology will have a significant impact and can help achieve prevention. If still needed, it can also provide efficient minimally invasive treatment options to reduce the time patients stay in the hospital.
In order to provide value beyond devices in 2030, medical device enterprises need to carefully evaluate their own business and business model, and pay attention to the following trends:
Connect with customers, patients and consumers
In order to get closer to the end users, manufacturers should now more than ever use data and add intelligence to their products - intelligence has quickly become an important part of the value proposition of new devices. Data and analysis tools enable enterprises to directly and continuously establish contact with users, put the importance of prevention above treatment and cure, and let patients better control their own treatment. In order to rapidly improve technical capabilities and effectively introduce intelligent services into their product portfolio, medical device enterprises can consider cooperation with other enterprises.
We have seen some enterprises in the industry take the lead in cooperation, which has proved this concept. Zimmer Biomet cooperates with the technology platform supplier HealthLoop to provide support for patients waiting for joint replacement. HealthLoop's doctor-patient interactive application can guide patients how to do "before and after surgery", collect data on surgical results and post surgical treatment, and help estimate reimbursement expenses. Philips has taken another approach to targeting end users. Philips is committed to increasing its market share in a wide range of areas such as healthy living, prevention and diagnosis, treatment, rehabilitation and home care through Philips Health Suite, its digital medical platform. This cloud platform uses the Internet of Things technology to collect and analyze data from various devices, and ultimately can support hundreds of millions of connected patients, devices and sensors.
We are in one of the most challenging times in the history of health care. The challenges we face include: population growth and aging, increasing chronic diseases, global resource constraints, and the transformation to value based treatment. To solve these challenges, we need to use networked medical IT solutions to integrate, collect, merge and send high-quality data, generate actionable recommendations, help improve treatment effects, reduce costs and improve access to quality medical care.
——Jeroen Tas Head of Innovation and Strategy, Philips
The number of home medical devices is increasing (if they are wearable devices, they can be used at any time), and the relationship with end users has changed significantly. Clinicians use intelligent information to help them improve diagnosis, monitoring and prevention of diseases. At the same time, patients also avoid unnecessary (and expensive) medical trips. In addition, both patients and consumers can obtain valuable advice on lifestyle and diet. In 2016, the number of patients receiving remote monitoring increased by 44%, and is expected to exceed 50 million by 2021, while the global market for patient remote monitoring equipment is expected to reach 1.9 billion dollars by 2025.
Manufacturers also integrate intelligence into devices to provide real-time analysis based on patient data. AliveCor has developed a medical ECG/EKG watchband, which can be used by smart watch wearers to detect arrhythmia symptoms that can cause stroke, and to measure heart rate and rhythm. The ECG strap uses intelligent applications to process the data obtained by the sensor of the device. It also allows the wearer to make voice records and send them to the doctor together with the ECG. Portable Medical Technology has developed an application called ONCOassist that has passed the European Union (CE) certification for medical devices. The software provides oncology experts with clinical decision support tools and a series of prognostic auxiliary tools for breast cancer, colon cancer, lung cancer and gastrointestinal stromal tumors.
Although the development of these aspects can produce a lot of useful data, the key challenge facing medical device enterprises is how to make money with this information. Consumers increasingly take this information for granted and do not intend to pay for it. Therefore, the income from consumers may be very small. Therefore, it is necessary for medical device enterprises to cooperate with the payer to achieve effective commercialization and show how the networking function can effectively reduce medical costs. In addition, the care environment will be transferred from the hospital to the home of patients and consumers in the future. Therefore, the customer base of medical device companies is expected to change greatly, and enterprises need to make fundamental adjustments to their business operation models, such as considering the impact on future sales teams.
At the same time, the popularity of data poses another form of serious threat to the industry, that is, the threat to network security. The characteristics of networking make some medical devices vulnerable to hacker intrusion. Enterprises need to follow strict standards to ensure the privacy and security of patients. In view of a series of cyber attacks, the US Food and Drug Administration (FDA) recently released the specific guidance document "Guidelines for Network Security of Medical Devices after Market" to deal with loopholes.
Despite the risks, enterprises should still seek new methods and means to collect data, which can be used to develop intelligent devices and establish contacts with end customers. With preventive and personalized care becoming a new treatment, there will be great demand for technologies that can support patients' behavior changes and affect patients' active lifestyle changes in the future.
The focus shifts from cost to value
Although the current profit of medical services may not be as high as that of pure device manufacturing, if enterprises do not add value-added services to their product portfolio, they will face the risk of sacrificing market share and competing only in the commodity market.
More and more medical device manufacturers have launched a series of services to supplement their products. Fresenius Medical operates 3690 chain dialysis centers, becoming a global leader in the manufacture of dialysis machines (accounting for 50% of the total number of dialysis machines in the world) and the operation of dialysis clinics (as of June 2017, the company has treated more than 315000 patients). Fresenius acquired NxStage Medical, an American manufacturer of home dialysis equipment, with US $2 billion, aiming to play an important role in the growing home treatment market.
Siemens renamed its medical business "Siemens Healthcare". In the fourth quarter of 2017, Siemens Healthcare's sales exceeded $4 billion, making it the largest and most profitable business in the Siemens Group, with a profit margin of 19%. The high profit margin is mainly due to its innovative services, including hosting services, consulting and technical solutions. These services and products are realized through the establishment of strategic alliances and partners. Siemens recently reached agreements with several hospitals in Türkiye, mainly to manage the operation of clinical laboratory services, which is expected to benefit more than 92 million patients in the next five years.
This project combines our expertise in laboratory equipment with our service business, which is a milestone for us. It also shows how we can help customers to meet the current challenges and make them outstanding in their respective fields. The original intention of the new business model is to help our customers improve efficiency and control costs from the beginning.
–BerndMontag CEO SiemensHealthineers
Siemens Healthcare also established a strategic alliance with IBM Wastson Health, focusing on population health management and value based medical solutions in hospitals. This cooperation enables Siemens to use its imaging business and clinical solutions to analyze large amounts of data generated by medical technology, thereby increasing the understanding of diseases.
Although many enterprises set up their service businesses as independent entities, we can see that as the service businesses become part of the truly integrated core services, the service businesses will gradually return to the group.
In addition, services and intelligence will promote the concept of value based pricing from hype to reality. In a cost controlled medical system, manufacturers deal not only with the procurement department of medical institutions, but also with economic decision-makers. It is obviously necessary to balance innovation and value. For each equipment field in the enterprise's product portfolio, the enterprise should determine what the value means to each stakeholder, including the payer, medical service institutions, patients, and even consumers to some extent. In this way, enterprises can find opportunities to enhance product differentiation through more customer solutions, supporting services and value based intelligent devices. In turn, this will promote the decision making of major product portfolio (including divesting low margin business), as well as the development of treatment channels (including online, telemedicine and remote monitoring). The need to show strong clinical and economic data means that by 2030, value based pricing and innovative risk sharing contracts will be the norm for medical device manufacturers.
In order to successfully collect and report measurable and valuable outcome data, medical device enterprises should invest in data strategy and technical infrastructure, so that enterprises can clearly connect data with devices, continuously define results and improve transparency to medical stakeholders. To really work,