Shrinking margins.
Product commoditization.
Do these four words make you concerned?
If not, they should.
Profiting from medical devices is an exhausting challenge facing medical device company executives in the C-suite.
Health systems seek to squeeze costs from the devices they purchase—backing executives into a corner as they try to combat price compression.
Combating price compression
Here’s the secret to combating price compression for continued growth: data collection from your medical devices.
This data can be marketed to health insurance companies and large health systems (provided that privacy and other regulations are met).
Once data is collected, your company has the opportunity to shape that data into actionable information that is not commoditized—and that continues to grow in value.
This article shows senior medical device company executives how to use health data collection to overcome product commoditization and shrinking margins.
The problem facing medical device company executives
You know it, and I know it: health systems are looking to cut costs at every opportunity.
Healthcare providers are facing pressure from payers and the government to become more efficient and outcome-driven, resulting in continual cost-cutting measures.
The problem trickles down to medical device companies.
These companies have to keep cutting costs—resulting in shrinking margins.
Over time, these products tend to become commoditized.
If you’re not experiencing commoditization now . . . you will in the near future.
The two questions are . . .
How do you elevate medical device value in the face of healthcare provider price compression?
What strategies can you use to align your company with value-based care?
Why are shrinking margins a problem?
There are two main consequences of commoditization and shrinking margins.
Problem #1: Cutting your price to remain competitive offers diminishing returns.
At a certain point, the viability of your company is at risk.
Cost cutting becomes unsustainable when executives rely exclusively on cost reduction as a solution.
For medical device companies, saving their way to prosperity quickly becomes impractical given the complexity of device development and production.
The risks associated with cutting corners can lead to disaster if a quality or reliability lapse results in an FDA recall or legal issues.
The possible consequences can undo any forward progress and become a liability.
Whether your company is privately funded, venture capital funded or publicly traded, the decision to keep lowering prices to remain competitive can be concerning to investors.
This business strategy puts C-suite executives’ careers at risk, because stakeholders—including the board of directors, shareholders, and private investors—want to see sustainable profitability.
Problem #2: Price cuts discourage product innovation.
Continued price cuts diminish available capital for reinvestment in expansion and innovation.
Having less money to work with in the face of an expensive product development life cycle creates a disincentive to innovate the next generation of product.
If you can’t innovate and create new products, it becomes even more difficult to justify new, higher-margin products.
What’s the solution?
For long-term growth, your business needs a model that includes bullet-proofing against commoditization.
This model includes sustainable margins and lower-risk product innovation.
The model also should align with your strategy toward the growing trend of value-based healthcare.
What is this new model?
Health data collection.
What is health data collection?
It’s the process of acquiring data from medical devices that are in contact with a patient and have the potential to be enabled with sensors (or other data collection technology).
This data can become an asset around which to build a successful business model.
What are the benefits of health data collection?
- New streams of income
- New value proposition
- Proprietary data (that you own)
- Expansion of how you do business
- Expansion of whom you do business with (new customer base)
- Data that becomes more valuable over time (because of a bigger sample set)
- Data that appreciates while hardware depreciates
How do I start growing my company with data collection?
- Analyze the interface between your product and the patient.
- In other words, how can your product be enabled to acquire real-time data?
- Define the process to acquire the necessary technology.
- Technology affords you the ability to convert a standard medical device to a smart medical device.
- Determine who will lead your company into a smart-device business model.
- Assess whether your leadership has the skills necessary to drive this transition.
Why bother changing now?
You haven’t had to change before, so why bother changing now?
True, you didn’t have to change in earlier times, for several reasons:
- Healthcare spending was not scrutinized as it is today.
- Sensor technology is becoming more sophisticated and reliable.
- The ability to capture data on a multitude of available devices didn’t exist until recently.
- The tech giants—Apple, Amazon, Microsoft, Qualcomm and Google—see this as the next frontier to transform healthcare.
The question is: how are you going to compete if you don’t change?
Interested in learning how other companies are transitioning to a smart-device business model?
You can send a message to me by going to the online form here.
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The contact form will ask you for essential information that will make our call productive and actionable.
Once you fill out and send the form, you will get an immediate acknowledgment.
You will receive an email with a calendar invite that includes meeting time choices that best fit your schedule.
During our discovery call, we will:
- Review your exact business situation
- Discuss your goals and objectives
- Design the best pathway to address your goals
- Realize the steps necessary to reach those goals
- Brainstorm specific strategies best suited to your needs
- Determine the strategies to attract the right fit for your company
- Establish a time frame for recruitment (if needed)
- Analyze the costs required to execute your search
- Decide the next steps
Ready to overcome shrinking margins and commoditization?
