I recall the days in which I was a young entrepreneur starting my career for a small private company. We were developing a class of products called balloon catheters; products which would pioneer the way most coronary artery disease patients would forever be treated without open chest surgery. Admittedly, I was fortunate to begin my career at a time when in only 9 months, I could cross the street and meet with thought leading physicians, sketch ideas on the literal napkin (not the proverbial one), build prototypes on my lab bench, enter into animal studies, transfer to pilot manufacturing, apply for regulatory clearance, and launch into the market. Unfortunately, junior R&D engineers today won’t gain exposure to that entire gamut of activity within such a short tenure in their careers.

“increasing constraints can lead to opportunities for differentiation.

Through the proliferation of medical device technologies being commercialized in the 80s and 90s came commensurate proliferation of regulatory guidance. More defined regulatory requirements ultimately drove the need for more structured data to support clinical safety and efficacy claims. Product development cycles have continued to lengthen and have become more expensive. All the while, market penetrations for those devices that do make it to market has markedly decreased in the advent of greater competition. The result: the current average cost of developing a medical device to regulatory clearance or approval is $31M while 50% of medical device exits are under $100M[1]. Venture capital investment has followed suit decreasing from 13% of total venture investment to just 4%. Yes, I picked a fine time to transition from entrepreneur and corporate executive to a VC,

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In addition to all this, during the last 5–10 years, there have been several tectonic shifts in the medical device health economic landscape that have redefined the playing field. Regulatory clearance no longer provides a ticket for successful commercialization in medical devices. That said, increasing constraints can lead to opportunities for differentiation. Here are three specific factors I recommend to help bring medical device innovation to the market today.

  1. Criticality of demonstrating economic value
  2. Targeting multiple stakeholders including hospital administrators/purchasers/material review boards, and payors in addition to healthcare providers
  3. Developing customized business models to monetize your technology

Demonstrating Economic value: Economic consciousness increased dramatically in healthcare, particularly after the 2008 recession. At the individual level, cost of healthcare was and remains the number one cause of bankruptcy (62% of the 2 million declared bankruptcies)[2]. At the societal level, the cost of healthcare accounts for over one sixth of the GDP in the USA [3]. In addition, one of the most expensive costs to a hospital is the deployment of new diagnostics and therapies which account for over two thirds of the growth of healthcare costs[4]. All the while, in the face of increasing healthcare costs, both government and payors are continually negotiating against hospitals for the reimbursements they receive for providing healthcare. The federal agency CMS (Centers for Medicare and Medicaid Services) sets policy for reimbursement to hospitals of all medical procedures covered by Medicare / Medicaid but is often the basis of private insurers policies as well. So, within this squeeze, hospitals and clinics have had to become increasingly rigorous on optimizing value of therapies and services against cost. Developing cost effectiveness analyses to quantify the cost efficiency of a new technology, preferably demonstrating that the overall cost savings to a hospital /clinic will be greater than their cost of the product, will be critical to successful adoption.

Targeting Multiple Stakeholders: While HCPs (health care providers) remain key to the purchasing process, medical device purchasing decisions are now made by multiple stakeholders assessing economic value in addition to safety and efficacy performance data. Until the last 10–15 years, HCPs were focused on outcomes data of new products, either demonstrating improved efficacy or improved safety over standard of care. Now purchasing decisions also include hospital administrators, chief value officers, VACs (Value Access Committees), and the central office for materials processing which evaluate a product’s impact to overall operations. No longer just focused on physicians, even HCPs are including multiple stakeholders including nursing staff, hospital technicians and any others whose overall operations can be impacted by the adoption of a new technology. So, in addition to safety and efficacy, how a new product impacts “the job to be done” is important to purchasing decisions. Moreover, the implementation of HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems), patients’ survey on their overall satisfaction with their hospital care, is part of the VBP (Value-Based Purchasing) program run by CMS in which up to 2% of a care facility’s reimbursement revenue is driven by the quality of their service. Through such policy, hospitals’ reimbursement has indirectly included patients as stakeholders involved in the purchasing process.

Developing Customized Business Models: Monetizing a medical device technology or product has been focused on traditional fee for product models. In today’s more complex landscape, with multiple ways to bring value to multiple stakeholders, it is also important to consider multiple go-to-market models. The best place to start is to understand the customer’s high level objective. This requires hand-in-hand work with the customer to gain a better understanding of their needs. Analyzing the “job to be done” and the entire clinical work flow with all stakeholders involved will often yield a list of pain points that are suboptimal towards outcomes or cost efficiency. With an understanding of this, it becomes easier to determine the best way the product can address these challenges. For illustration, consider an overly simplistic example of a novel monitoring technology that streamlines the medication process for hospital inpatients. While the cost of product may exceed the current standard of care, it may decrease the time and complexity to a nurse coordinator and the number of HCPs involved in the process, thereby cutting total cost, and may provide the patient with a better care experience, thereby increasing total reimbursement. This product may be sold traditionally at a fixed cost, or it may be sold as a fee per patient treated, or in a profit sharing scheme as a proportion of costs saved. Creativity in the business model is as key as it is in the technology behind the product.

“A clear understanding of the needs of the customer are essential to an optimal design solution

In first year design courses, it is often stressed that a clear understanding of the needs of the customer are essential to an optimal design solution. In today’s health economic landscape, understanding 1. all the players and the whole process of administration of care, 2. the cost of process, time and solution, and 3. creative means by which the value of a solution can be translated into sales are the tenets on which to commercialize medical devices in today’s market.

While the medical device playing field has changed significantly in the last 30 years since I was a young entrepreneur, information technologies and data analytics have brought a whole new dimension to understanding clinical stakeholders and their workflows. Along with increased constraints and red ocean markets, now come new opportunities and waves of blue…and a whole new exciting time to innovate in the medical device space.

Adam Sharkawy

Written by

Entrepreneur, VC, Company Builder, Leader, Passionate Innovator, Humanitarian

Adam Sharkawy

Written by

Entrepreneur, VC, Company Builder, Leader, Passionate Innovator, Humanitarian

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