Q: What’s in store for the medical device sector in 2014?
The medical device sector has emerged from the winter of the great recession into a much more price sensitive market. Pressure is mounting to reduce cost of devices where there are cheaper alternatives. While the 2.3% medical device excise tax remains the most visible product of the Affordable Care Act, the power of governmental payers is becoming increasingly evident. Cost pressure will be counteracted by roughly 30 million newly insured patients expected to enroll via the health exchanges. These patients have been warehoused for decades, and they bring a deluge of pent-up demand for elective surgeries, such as knee and hip replacements.
Technology in medical devices is eclipsing the rate of growth of the pharmaceutical industry. However, there are new determinants of success for devices. An incrementally improved device can no longer expect enhanced reimbursement. The combination of efficacy, safety, and outcome for the patient and cost-effectiveness for both the payer and the hospital all play into the pricing decision, or more significantly, the coverage decision. Now, where once medical device companies only had to convince physicians and patients, they are now also required to demonstrate the device economics to hospital and payers.