Challenges Facing the Medical Device Industry

During the last 6 years, the FDA regulated medical device industry has faced revenue and profitability challenges. The result has been a search for new revenue and profitability, which has included looking for new sources of profit. The field service arm of these enterprises had traditionally been treated as a cost center and a business necessity supporting the sales function. Now, it is being transformed into a profit center, with a substantially new set of goals, tools and KPIs.

Multiple factors have been pressuring the medical device industry revenues and are likely to remain as concerns in the coming years.

• Increased clinical and regulatory standards increase overhead
The increased complexity and volume of medical device marketing submissions has increased the time taken by the FDA to process a 510 (k) from 90 days in 2005 to 140 days in 2010, an increase of over 55 percent. FDA is requesting more clinical data to support claims.

• Increasing R&D expenses
Increased complexity and sophistication of devices and assays are increasing R&D expenditures.

• Reductions in reimbursements
Efforts to capitates reimbursements for medical assays by insurance companies and HHS is reducing providers’ ability to fund capital for new devices.

• Increased complexity of medical equipment/devices
Increased complexity of devices results in more difficult diagnosis and repair processes and increases the cost of field service. It is raising the cost of training of field service technicians and raising the bar for salaries to hire more qualified field service engineers.

• More demanding and diverse customer base
Customers have more choices and are more demanding of equipment and manufacturers, requiring higher MTBF and more aggressive SLAs. Customers are trying to get more out of their reduced capital and expense budgets and asking for greater incentives.

• Increased competition
Increased competition from start-ups and spin-offs reduces the profit margin for manufacturers. Industry consolidations and other changes are eroding customer loyalty since differentiators are not as clear cut and choice has increased.

• Migration of some testing to home based tests (vs. labs)
Migration of some diagnostic testing to home based kits threatens to reduce the volume of laboratory testing and the spending on capital programs for new laboratory equipment.

The overall result is flat or reduced industry revenue growth of up to 12% by some measures.