Medtech - an industry bound for new business models

Established medtech companies need to innovate to compete in the digital healthcare era. Here’s our take on how to create successful #newbusinessmodels.

The entry of major tech companies into the healthcare market is changing how medical device companies do business. Tech companies look to combine digital solutions with innovative hardware to acquire market share from existing players. This article shares what we’ve learned from working with the industry on navigating to new business models.

The pressure is on

With innovative and user-centred wearables, tech companies are knocking on the door of the medtech industry. Apple is investing heavily in the development of sensors and digital apps for the Apple watch to measure blood pressure or blood glucose levels. At the same time, several start-ups have developed standalone digital solutions to help patients better manage their conditions. The diabetes specialist Virta is gaining awareness in the US market, claiming that its patient app can reverse the progress of the disease through behavioural medicine. All of these new solutions are combined with innovative pricing models – from subscription to outcome-based pricing – and so are increasingly catching the attention of payers. The shift from hardware-centred offerings to integrated solutions requires established medical device companies to rethink their business models in order to remain competitive. Here is our approach on how to get started with new business models for medical devices targeted at patients.

#1 - Be clear on your purpose

This is a recurring statement, you might think. However, we have seen several medical device companies coming up with new business models that satisfy the needs of patients, payers and providers at the same time. The result often doesn’t fit anyone. A clear purpose addresses the needs of one single target customer and articulates a new business model going beyond the physical product. As the motivational speaker and organizational consultant Simon Sinek says, the “Why” (i.e. the purpose) is not about what products to sell, but why a company is doing business in a specific market. Therefore, selling a physical product, a digital solution, a service, or a combination of all does not matter, as long as this fulfils a clear purpose for a specific target audience.

#2 - Co-create with end-users and iterate

Continuously obtaining input from end-users of your target audience at regular intervals throughout the development cycle ensures that a solution is fit for purpose. It also helps develop more innovative features, as the development team understands end-users’ needs better through the iterations with them. Even more important is to involve your real customer. Too many companies involve internal stakeholders from marketing or sales to convey the customer voice, but this is not effective as these stakeholders remain biased by the company’s interests. As a role model, the digital behavioural medicine company Omada Health consults end-users on a weekly basis to obtain feedback on new product features. Its innovative approach involving end-users has helped it become the largest federally-recognised prevention programme in the US.

#3 - Bundle hardware with digital components

Adding a digital component to a physical product can benefit patients by helping them manage their condition, and payers too, as it enables them to track outcomes. While some start-up companies such as Virta focus on launching solutions only, established medical device companies should instead bundle hardware with digital components in order to build integrated solutions. This type of bundling goes beyond the product and therefore creates new value proposition to different customer segments. Tsvetelina Müller, Senior Global Program Manager Digital & Commercial Transformation at Roche Diabetes Care, is convinced about the ultimate link between hardware and digital solutions: “digital and physical solutions cannot be separated; we need medical devices to access outcomes data and digital components to help patients better manage their disease”.

#4 - Innovate in your channels

For direct sale to patients – either through healthcare plans or over-the-counter – the retail industry is being used as a role model. Medtech companies have recently started using eCommerce platforms to sell to patients directly. However, for new business models that target healthcare professionals (HCP) and payers, sales representatives remain a significant B2B channel. Moving forward, new varieties of channels should be used in order to target B2B customers in a differentiated manner. Why not establish a B2B eCommerce platform to reach a broader audience and achieve an efficient omni-channel strategy? Extending eCommerce capabilities to the B2B environment is the first cornerstone for a medtech company to connect the B2B and B2C worlds and become like the next Amazon in the industry.

#5 - Price up the value delivered to payers

New business models with access to outcomes data help payers better understand the population’s trends for a specific medical condition. Such a level of transparency provides them with greater accuracy when modelling the risks related to the population’s health outcomes and therefore helps them better estimate the appropriate health interventions for a specific condition. This will have a positive impact for payers, so medtech companies should proactively consider the value created for payers when defining their pricing models.