Article preview from IN VIVO - February, 2012
The US health care system is undergoing substantial change as payors increasingly flex their muscles to move the system from a Fee-For-Service model to an Outcomes-based model. The end result is likely to be a medical device industry comprised of fewer, larger companies working closely with hospitals and physicians to provide integrated patient care. This will impact the types of medical technology companies that will be launched and venture financed going forward. Companies that embrace and enable these industry changes will fare relatively better than those that do not.
Article preview from IN VIVO - February, 2012
We have the dubious fortune of living through an age of dramatic change in the medical technology industry. For entrepreneurs and investors in the sector, this has raised the bar yet higher for company origination and start-up venture financing. As a member of an organization that seeks to do both – company creation through The Innovation Factory (TIF) incubator and venture financing through Accuitive Medical Ventures (AMV) – we regularly take a step back, and with the benefit of data, advisors and some gray hair, make projections about where we believe the medical technology markets are heading. These forecasts drive where we believe we need to innovate today to participate in the expected medium- to long-term trends in the market. Our data reflect both top-down (e.g., a 50% increase in patients diagnosed with atrial fibrillation by 2020) as well as bottom-up (e.g., in 2020 most cardiologists will work for hospital systems for a salary) projections.
Although there are many drivers of change in the health care market today, we believe there are three macro trends that will likely have an overriding effect on the US medical technology market for the foreseeable future. These three macro drivers are the inevitable result of a system that is becoming increasingly unaffordable and delivers relatively poor value for money spent, according to sources such as the Organization for Economic Cooperation and Development. The first two trends are related to changing incentives away from all-you-can-eat to value-for-money and the third trend is a result of the industry’s continuing maturation:
- A gradual change in industry provider incentives from Fee-for-Service (FFS) to population-based (i.e., outcomes-based) payments.
- A shift back to patients bearing a larger share of the cost of their health care through higher insurance premiums, co-pays and deductibles.
- An industrial shift as health care companies transition from product companies to services or integrated solutions companies, mirroring trends in other mature sectors (e.g., IT and defense) over a decade ago.
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