Medical-device players are venturing into adjacent value pools through solutions and services. What do they require to capitalize on the opportunity and deliver on their profitable growth aspirations?
Recent trends in healthcare and technology are creating an inflection point for the medical-device industry. Manufacturers are shifting away from being product focused to assessing opportunity and impact in device-adjacent value pools. We posit that while solutions and services (referred to as “solutions”) are attractive growth vectors to pursue, there are certain imperatives that manufacturers must consider in order to build attractive and scalable business opportunities.
The opportunity in adjacent value pools
Disruptive trends are reshaping the healthcare landscape: an increasing consumerization or involvement of consumers in their health decisions; redistribution of risk from payers to patients, providers, and manufacturers; maturation of several breakthrough technologies that span digital health; and an evolving regulatory landscape are some examples. One implication of these trends is the shift of value pools from fee-for-service reimbursement to outcome-based models. This shift, in turn, is pivoting manufacturers toward device-adjacent value pools.
Device-adjacent value pools can present a significant opportunity for manufacturers. For example, an analysis of major joint-replacement (orthopedic) and pacemaker-insertion (cardiovascular) surgeries indicates that implant costs make up 5 to 25 percent of overall episode-of-care costs, with the bulk of costs and variance coming from facility services and lengths of stays. Consumable use in knee-replacement surgeries can vary by more than 230 percent across surgeons in large US hospitals, and standardized personnel costs can vary by 190 percent.1 This has resulted in variation in total episode costs. In major joint-replacement surgeries, episode costs can vary from approximately $12,000 (90th percentile) to around $40,000 (10th percentile)—or a variation of more than three times. In pacemaker-implant procedures, episode costs can vary from approximately $16,000 (90th percentile) to around $70,000 (10th percentile)—or a variation of more than four times.
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By Siddhartha Chadha and Chris Llewellyn
Source: McKinsey
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