From the September 2021 issue of HealthCare Business News magazine
Finally, the cost behind some medical devices is prohibitive to mass production. While techniques like injection molding and additive manufacturing serve to bring down the cost of production, the complexity of many devices compounds that cost exponentially.
Microelectronics, sensitive instrumentation, biotechnology and more all come with significant costs attached. Companies either need to bear the burden of these costs or pass them on to patients and insurance companies. And, unfortunately, in many cases, none of these solutions are viable.
3. Product quality and recall rates
Medical devices are something of a Wild West. They’re unproven until proven, which can take years and no small investment. Moreover, not every product falls under the jurisdiction of the FDA and thus, isn’t always subjected to the same criteria for approval and use. This is also why medical devices are so hit-or-miss when it comes to insurance coverage.
Without uniform standardization and vetting for every type of medical device, there’s inconsistency in product quality. This isn’t to say that manufacturers are negligent. Instead, it points toward discrepancies between expectations. As a result, recalls are often part of the equation. Devices don’t perform as expected or as intended, or don’t hold up to the rigors of regular use. In some cases, safety becomes an issue due to untested parameters. In others, recalls are preemptive, to avoid an even costlier lawsuit due to some overlooked variable.
All told, a McKinsey study from 2013 estimates that “medical device recalls cost the industry between $2.5 billion and $5 billion per year on average. This includes $1.5 billion to $3 billion per year on non-routine costs, plus $1 billion to $2 billion in lost sales of new and existing products.” While this figure seems trivial in comparison to the estimated total market value, it’s absolutely devastating for any upstart medical device manufacturer banking on their innovation to become profitable.
Forecast for the future
While these three headwinds will continue to blow strong in 2021, there’s hope that they’ll die down soon after. As supply chains remedy themselves and demand forces insurers to consider new and innovative devices, product quality is likely to improve. For many medical device manufacturers, there’s a bright future ahead.
About the author: David Magnani is the managing partner for M&A Executive Search and Consulting.
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