Business Insights

Medtech’s Year Ahead: The Pace of Change Remains High

The medtech industry faces a long and winding road to post-pandemic recovery. Here’s how it can prepare.

When the COVID-19 pandemic first surged in the early months of 2020, medical technology companies took an immediate hit.

Few could have imagined at that time that those rapid shockwaves would transition into lasting, tectonic effects on the industry. The effects — evident across nearly all aspects of sales and operations — are likely to play out over 2021 as the industry grapples with an intense wave of lasting change.

It started with delayed procedures. By the end of June 2020, more than two in five U.S. adults had delayed or avoided medical care — including both routine and urgent or emergency care — due to concerns about COVID-19, according to the Centers for Disease Control and Prevention. According to the American Hospital Association, the loss of elective procedures paired with other pandemic-related expenditures cost U.S. hospitals and health systems an estimated $50.7 billion per month.

The implications were felt throughout the health care industry. As elective surgeries were put on pause, many in the medtech industry felt the effects, particularly medical device makers, who said that 50 to 70 percent of their business dried up over the course of just a few days as providers suddenly stopped placing orders.

But the environment isn’t expected to return to business as usual as patients return to ORs and doctors’ offices. Delayed care is just one of several disruptions that the medical technology industry faced over the last year — and one that organizations will have to bear in mind as they craft their cost management plans for 2021.

Indeed, as medtech companies look to the year ahead, they’ll need to incorporate permanent changes to sales and operations, an indication that COVID-19 ushered in lasting shifts in the way medtech is sold and delivered. With so much still in flux, the medtech companies most likely to emerge from the pandemic stronger and better are those that maintain high engagement with physicians and patients, rapidly scale up their digital capabilities, and anticipate where and when to deploy or pull back commercial resources, inventory, and other investments.

Preparing for Pent-up Demand

The term “elective procedure” is something of a misnomer. The reality is, such procedures are often fundamental to patient health and include everything from vital preventive care to essential interventions. And for health care providers, elective procedures such as knee or hip replacements are often the most lucrative, essential to the solvency of the nation’s health care system, which comprises nearly 20 percent of economic activity in the United States, JAMA reports.

Deferred medical care has resulted in a significant backlog of uncompleted procedures. JAMA reports that as of August 2020, it could take three months to clear the estimated backlog of 5 million surgical cases. In the field of orthopedic surgery alone, the post-pandemic backlog will exceed 1 million cases for spinal fusions and joint replacements, according to The Journal of Bone and Joint Surgery. “It’s more of a pause than an absolute change,” says Richard Gundling, Senior Vice President of Healthcare Financial Practices at the Healthcare Financial Management Association in Washington, D.C., about cancelled procedures. “People didn’t magically get better during the pandemic — they just put off the procedures. They still have the same underlying diseases.”

“You can only put off certain procedures for so long,” Gundling says. “Once the vaccines come in, people won’t delay that cardiac procedure any further.”

That situation will be coupled with another reality: Because procedures were delayed, many conditions likely will have grown worse. While the long-term effects of widespread delays might not be known for some time, in the short-term, the health care industry will need to plan for worsened health conditions and possible wait lists. As a result, medtech should develop cost management plans that take into consideration the release of this pent-up demand for elective procedures.

Another important factor to consider: Not all rescheduled procedures will take place in a hospital. Increasingly, patients are visiting ambulatory surgery centers and office-based labs. Given the attractive economics of ambulatory surgical centers, cash-strapped health systems are likely to intensify their reliance on them. For medtech companies, scaling their ability to provide more just-in-time distribution will be key to success, since most outpatient facilities and alternatives sites don’t have as much inventory space as hospitals.

Further, sales to these outpatient settings could have lower margins than sales to hospitals. As a result, companies should be prepared to find new strategies for keeping costs down, such as by streamlining their commercial model design, simplifying their organizational design, reducing complexity, and having clearly defined roles for their sales representatives, account executives, and technical support staff so physicians can quickly get the support they need.

Adapting to a New Way of Doing Business

The use of telecommunications technology to deliver health services remotely is another major trend poised to affect medtech companies and their cost structures. “The pandemic has sped up changes that had been going on in the industry, like the push toward telemedicine,” Gundling says.

Prior to the pandemic, telemedicine had long promised to improve access to health care and the efficiency of delivering it. But that promise got deferred by federal and state regulations and requirements, as well as inconsistent payor coverage and industry inertia. All of that changed practically overnight with the pandemic, which propelled both patients and providers to embrace digital care. Regulators quickly eased restrictions, while the federal government and nearly all state governments created new rules and waivers for telemedicine.

This transition is having a direct impact on revenue streams. In 2019, at a time when just 11 percent of U.S. consumers turned to telehealth as a means of virtual urgent care for minor ailments, the industry’s annual revenues totaled an estimated $3 billion. According to McKinsey, providers are now seeing 50 to 175 times the number of patients through telehealth than they did before the pandemic, and 46 percent of consumers reported using telehealth to replace in-office visits. Ultimately, as consumers and providers increasingly adopt telehealth, up to $250 billion of current U.S. health care spending could be virtualized.

The monumental shift toward telemedicine has significant implications for how hospitals and other providers allocated their dollars — a shift that could end up being a net negative for medtech. Cash-strapped hospitals may put a larger portion of their capital spending toward investments in virtual care, leaving less of the pie for other areas, complicating the sales environment for other types of high-priced medical equipment.

While this shift toward telemedicine is undoubtedly a boon for many sectors of the medtech industry, for others, it might require rethinking the way they do business. Opportunities for in-person sales and support may be off the table for the foreseeable future since hospitals and health care facilities continue to restrict visitor access as a safety precaution. As a result, medtech companies will need to prioritize the expansion of digital touchpoints, working to ensure that every stage of the customer journey can be successfully conducted online.

Even when restrictions loosen, some industry watchers expect the sales process will have changed permanently. Virtual training and remote access to providers are likely here for good, and medtech sales reps will need to recalibrate their sales and training strategies accordingly. Some of those strategy shifts come from an understanding that patients are likely to remain skittish even after the most acute pandemic risks subside.

“Understand where [provider] business needs are and what their communities are going through,” Gundling says. “If they’re saying their patients are fearful of certain procedures, medtech companies could provide information to show what they’re doing to support patients and communities, especially in terms of the patient experience and disease transmission prevention. It’s about getting out communication.”

With so many aspects of operations and sales still undergoing real-time change, medtech companies should consider stress-testing their operational models under various scenarios and identifying their biggest risks and opportunities, so management can make informed strategic decisions.

“Planning through multiple scenarios is helpful in terms of feeling some level of control in a challenging environment,” says Mike Mauldin, Group Head, Healthcare Specialized Industry Group at Regions Bank. Mauldin suggests planning for at least three scenarios, beginning with the most likely and then adjusting for a more conservative outcome, while exploring different plausible futures and testing strategic choices. A company that has considered the implications of a broad shift to sales to ambulatory surgical centers as well as a resurgence of orders from hospitals is better prepared no matter the direction.

That kind of strategic planning will allow companies to be prepared to grasp the coming opportunities as the industry settles into a likely new way of operating. By conducting the analysis, business leaders can position themselves in the right place to deliver the innovative products that address the health care industry’s changing needs.

Regions’ dedicated Healthcare Group brings deep industry knowledge, experience, insight, and understanding to support our clients’ growth and development. Visit our website to connect directly with one of our healthcare bankers.