Medical device companies are different

Medical device companies are different.

Most people in the medical device industry believe that regulation by the FDA (and similar entities around the world) sets the industry apart.  While medical device companies are indeed overseen by the FDA, this is not really the primary cause of differentiation.  Many industries, such as wireless communications, are highly regulated.  Quality and reliability requirements in many industries are controlled by tight industry standards (Telecordia), ISO standards, military requirements, and customer demands.

So, what really sets medical device companies apart from other high-tech companies?

The four-part customer: patient, physician, provider and payor.

Medical device companies sell products and services to an incredibly complex four-part customer – the patient, the caregiver (usually a physician), the care provider (typically a hospital, outpatient center, or physician office), and the payor (aka the insurance company).  Successful medical device businesses address the needs of all four constituencies.

It’s common that the needs of these four constituencies are not aligned.  A powered contrast injector saves the interventional cardiologist time and x-ray exposure, but adds expense to the hospital.  So hospitals push back on use.  A better-but-slightly-more-expensive pap smear (ThinPrep) took years to gain market adoption, as insurers needed to be convinced that the improved performance was worth the extra cost.  Robotic tools for prostate cancer have been adopted with relatively little clinical evidence, as hospitals found the device to be useful in their marketing to patients.  Drug-eluting coronary stents achieved rapid adoption because Medicare decided to pay for these devices even before FDA approval.

This four-part customer sets the bar for business success at a much higher level than just FDA clearance or approval.  While some pre-clinical and clinical data are often needed to obtain regulatory clearance, rarely will this provide sufficient evidence to drive significant product adoption.  Economic data is not required for regulatory approval, but physicians, providers and payors all want to save costs or increase income.  As a population, we get sicker as we get older.  So the US Center for Medicare Services (CMS) must be convinced that new medical devices and new procedures will benefit their patients, at a reasonable cost.

The four-part medical device customer impacts every aspect of a medical device business plan, including technology/product, clinical/regulatory, market, and financing strategies.  Failure to master the four-part customer may be the most common cause of medical device business failure.  How does your business address each of these constituencies?

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5 thoughts on “Medical device companies are different

  1. Well stated Jay.

    I think you have laid out the challenge for a medical device executive in today’s environment.

    Being able to conduct the symphony (not to mention build the right product for the TRUE market need) on a tight budget with a timetable (either as a start-up company or a new product in a larger company with capital constraints) — this is a 3-D game of chess with the FDA being only one of the players.

    It is a fascinating and challenging effort with great rewards for patients, investors, insurance companies/governments, and families if it is played well.

    David Kaufman

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