In the pre-Obamacare world, medical device companies were able to price their products at a premium, justified by improvements in quality that were in some cases marginal. But premium pricing “typically becomes an easy target for disruption through product innovation in many other technology industries, especially when the market place is crowded with competitors,” writes Mohit Kaushal, a partner at Aberdare Ventures in San Francisco.
“This erosion can be explained in a number of ways. As risk gets shifted to provider systems, the need to show cost-effectiveness of products becomes a core requirement in order to get paid for and adopted. As risks get shifted to consumers, that also will drive more cost-effective purchasing decisions,” Kaushal argues.
“Another and perhaps even larger change is the trend for physicians to become salaried employees. More than 50 percent of U.S. doctors are now salaried, compared with roughly 20 percent in 2002 . What does this mean?” Kaushal asks. “Most importantly, it means the people who decide how to acquire and pay for new technology is changing. Classically, the pharma and medical device industry employed direct-to-physician sales forces to distribute innovation, and cost was rarely a factor when the doctor was the buyer. However, purchasing decisions are now getting pushed up to the enterprise level, and in a world of new payment models and changing reimbursement values, cost and quality of innovation are becoming paramount.”