Optimizing Medtech Pricing Flexibility in a Digital World: Subscription Versus CapEx

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ARTICLE SUMMARY:

As medtech companies modify their business practices and pricing models to draw out the maximum value of their integrated digital and medical device offerings and respond to customers’ concerns about high up-front costs of adopting new technologies, they need to discern the trade-offs and proper use cases. By Wendy Diller with Thomas F. Busby and Oded Ben-Joseph, PhD, Outcome Capital.

The digital revolution, though arguably still in its early stages, is upending medtech industry norms thanks to technological advances, macro conditions accelerated by the pandemic, reimbursement availability, shifting customer expectations, and new commercial strategies enabling low acquisition prices for innovation. While initially slow to realize its potential, executives now have digitization at the top of their minds.

Medtech companies are increasingly incorporating software components into their traditional medical devices, enabling the delivery of additional capabilities and providing an avenue of differentiation for maturing product lines. Across nearly all industry segments, top executives are modifying their business and pricing models to draw value out of these potentially high-margin opportunities.

The stakes are high: digitization offers the promise of enabling mature product lines to remain competitive via data capture and interpretative analytics, which can guide decision making, speed access to care, and ultimately improve patient outcomes. In the future, connectivity capabilities, along with availability of integrated data-driven clinical support tools, will determine the competitiveness of devices as providers carve out their strengths in a more digital era.

Manufacturers of all stripes, no matter how well established, are grappling with how best to capitalize on—and navigate—this transition, which also introduces disruptive strategies for commercializing and pricing products based on these enhancements. Large companies may need to rapidly revamp existing product lines and organizational structures to accommodate such innovation. Venture-backed medical device start-ups face new complexities around the most appropriate model to adopt: one that can simultaneously attract a strong sales team, while also enabling future integration with potential strategic acquirers.

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