2023 presents new uncertainties as optimism generated by a gradual recovery from the upheaval of COVID-19 is being met with new challenges such as staffing shortages, energy market disruptions, and rising interest rates. More than ever, MedTech players need agility and foresight to adapt to an increasingly dynamic global industry.

1. Deglobalization and reshoring are gaining traction and affecting the MedTech industry across the whole value chain.

The most used indicator for globalization — the global trade to GDP ratio (as measured by the World Bank) — has declined from 61% in 2008 to 52% in 2020. The trade restrictions between the U.S. and China, the COVID-19 pandemic, and Russia-Ukraine conflict have emphasized the importance both of having sufficient stock of critical components and raw materials, and of having a well-diversified supplier base.

While manufacturers will likely invest in further supplier diversification and stockpiling efforts, these initiatives have certain limits. If the current global trade environment and trajectory persists, both governments and market players may resort to ‘near-shoring’ or ‘friend-shoring,’ which would benefit certain geographies as production and logistics hubs, depending on their proximity and/or friendliness to a certain geopolitical bloc. Another potential scenario is that fragmentation at the global level may promote further integration at the regional level, leading manufacturers to further regionalize their production and supply chains.

2. The MedTech investment downturn will manifest itself differently in various regions of the globe.

The drop in M&A dealmaking, a severe dip in capital raised, and pressure on R&D investments will dominate the global MedTech scene, but different geographies may face unique manifestations of these challenges. Regardless, MedTech firms in each region must be quick to adapt to the economic slowdown and find enablers of innovation and investment, including for instance, new cross-sector partnerships and collaboration with academia.

United States
In the U.S., M&A deals and venture capital investments have dropped sharply from their peak in 2021, according to PitchBook data. However, many U.S. investors are optimistic that the markets are simply returning to pre-pandemic levels.

United Kingdom
In the UK, as healthcare staff shortages intensify, the NHS is pressed to divert investments that would have gone into technology and re-focus them elsewhere. This will make it more challenging for MedTech to enable new revenue channels and cost savings.

Germany
In Germany, Europe’s largest MedTech market, unease is permeating the previously flourishing Berlin health-tech startup scene. The German MedTech industry prides itself on a higher resilience to recession than the automotive industry; however, in a market where a substantial portion of MedTech sales is driven by products under three years old, any innovation slowdown may have long-lasting consequences.

APAC
Based on Pitchbook data, China accounted for almost 75% of the total APAC MedTech investment (~$15.3 Bn) in 2021. Investment activity is expected to slow down amid rising cost of capital and decreasing risk tolerance in VC and M&A. The investment focus will continue shifting away from “pandemic”-related topics (e.g., telehealth, PPE), to those that improve access, affordability, and quality of healthcare (e.g., point-of- care testing, low cost minimally invasive products, surgical robots, health data, and AI).

3. Direct-to-consumer (DtC) advertising for MedTech has proven its worth and will grow as a tool to drive adoption — especially for devices that patients interact with directly, or that compete with pharmaceuticals.

DtC advertising of medical devices became more visible than ever in 2022, with Abbott Laboratories becoming the first healthcare company to give a public keynote at the Consumer Electronics Show, followed by Cue Health and Hologic airing national TV ads during Super Bowl LVI. This trend extends beyond the U.S., with Insulet running TV ad campaigns in the UK, Germany, and Canada to promote their latest insulin pumps.

DtC advertising will continue to gain momentum as an adoption driver for devices that patients interact with directly. This includes insulin pumps, continuous glucose monitors, oxygen concentrators, at-home diagnostics, and dental devices — and the category will broaden with the introduction of more smart devices, which continuously collect data and leverage patient-facing apps.

As more devices are introduced as alternative to pharmaceutical therapies, DtC advertising will also be an important tool to drive consumer awareness. For example, Boston Scientific ran a DtC campaign to introduce the WATCHMAN implant as an alternative to blood thinners to reduce stroke risk in patients with atrial fibrillation.

4. The expanding scope of the volume-based procurement (VBP) policy will continue to have disruptive impacts on MedTech players' business in China.

Based on an IQVIA analysis, the initial national or province-alliance VBPs conducted in 2020 to mid-2021 saw a median public reported price cut of ~70% and whopping 80-90% reduction for selected high-value consumables like coronary stents and joint replacements.

However, both MedTech players and the authorities (i.e., the National Healthcare Security Administration) may consider these new price levels unsustainable in the long run, as they remove some traditional players from the market. The same IQVIA analysis showcased that in certain product categories, the elimination rate reached 50-60%. Therefore, a slight "upward" correction can be reasonably expected in the next rounds of VBP, covering existing and new consumables. Nevertheless, the political agenda in China will likely remain the key driver of MedTech pricing dynamics, and market participants need to follow it closely.

5. The era of loosely regulated diagnostics reimbursement in the U.S. may be coming to an end.

The breadth and diversity of diagnostic tests, the complexity of coding and billing policies, and the introduction of highly complex tests (such as next-generation sequencing and multianalyte assays with algorithmic analyses) means that even manufacturers and clinicians acting in good faith are sometimes unsure of the proprieties surrounding test administrations, billing, or both.

At the same time, limited regulation provides the opportunity for fraud and abuse. Recently, high-profile announcements by the U.S. Department of Justice have put the spotlight on abuse associated with claims submitted for COVID-19 testing and add-on diagnostics. However, there are larger potential issues in genetic and molecular testing. A combination of widespread coverage of tests for eligible patients, high designated payment rates for certain tests, and the recommended use of generic or unspecified codes all create an environment with a far higher potential for exploitation than the COVID-19 fraud.

While logistically burdensome, the expanded use of test-specific codes or subcodes and more clarity about proper practices will likely become more prominent. Evidence for this prediction lies in the uptick in detailed Medicare billing guides and private payer benefit policy documents for specific branded diagnostics and test classes. The dual push of federal enforcement and bureaucratic entities is creating a system, imperfect as it might be, that will eventually catch the most egregious violators and support a more orderly diagnostics landscape.

6. The continued decentralization of healthcare is increasing pressure to better integrate information flow across disparate care settings.

The COVID-19 crisis has made it painfully clear how difficult it is to leverage multiple sources of data and sites of care to predict outcomes or improve the treatment of a disease. Attempts have been made to integrate electronic medical records, wearables, and health-tech innovations to create personalized outcome and/or risk predictions for patients, but these have ultimately struggled to outperform generic epidemiologic guidance.

However, the pandemic did motivate healthcare stakeholders (including homecare settings, pharmacies, and testing labs) to leverage more digital solutions to better communicate and connect. These tools opened new frontiers in telehealth, but healthcare professionals have struggled with increased competition for their digital time. Technologies that enable healthcare data exchange, interconnectivity, and diagnostic support are currently insufficiently advanced to meet the needs of a rapidly decentralizing system.

While policy differences will vary the speed of innovation across markets, these technologies will likely adapt and evolve in three main directions:

• The emergence of highly customizable, yet standardized, platforms that integrate data generation (including imaging and in vitro diagnostics), dissemination, and analytics (including condition-specific clinical decision support)
• Machine-assisted inferences to focus on digital timesaving across stakeholders
• Increased integration with non-standard healthcare data

7. Healthcare providers will look to MedTech to help address the growing shortage of healthcare professionals through innovations in communication and automation.

In 2021, the labor pool of nurses in the U.S. dropped by over 100,000 nurses — the sharpest drop in 40 years, according to the journal Health Affairs. 99 million Americans currently live in a shortage area for primary care providers, according to the Heath Resources and Services Administration, and the WHO predicts a shortfall of 10 million health workers worldwide in 2030.

Healthcare provider networks will increasingly look to MedTech manufacturers to deliver technological innovations to increase the efficiency of their staff by decreasing both administrative and labor burdens. Medical devices will be expected to have more seamless integration with electronic health records and mobile devices, allowing virtual support from specialists and automated tools to increase the efficiency and flexibility of care teams. Advances in artificial intelligence and clearer regulatory guidance on clinical decision support technology will accelerate introduction of tools that automate patient data analysis, triage, and monitoring, allowing healthcare providers to sustainably deliver quality care with reduced staffing ratios.

8. Major MedTech players are increasingly complementing their portfolios with value-added services.

There are many examples of manufacturers creating digital and hardware ecosystems that bring additional value to customers, increased switching barriers, and differentiation from competitors. Intuitive in the surgical space, GE and Siemens in diagnostics, and BD in hospital pharmacies and labs are but a few illustrations.

Today, the areas of greatest focus include:

• Cost and efficiency solutions (e.g., efficacy analytics, data collection, and process optimization)
• Insights on clinical outcomes (e.g., patient monitoring, clinical decision support, and care team coordination)
• Growth and strategy topics (e.g., patient risk, market development, patient acquisition, and growth) are still an under-leveraged category and may see new offerings coming in the next few years

Certain barriers remain that may prevent a wider adoption of the value-added services, including low awareness of potential benefits, lack of reimbursement, immature legal frameworks, and data privacy regulation. MedTech players must work to overcome these barriers.

9. Inflationary and economic pressures are exacerbating discrepancies in access to healthcare, but they will also create opportunities for MedTech innovations that minimize disparities in outcomes between segments.

Increasingly, the U.S. and some European countries that rely on private insurance markets are seeing a widening difference between the therapies available to those with premium private insurance plans and those with cost-constrained government program coverage. As the world contends with increased raw material, transportation, and labor costs, MedTech markets are becoming even more stratified — not only between geographies, but also within geographies, across market tiers. MedTech is already acting swiftly to respond to inflation and pricing pressures, so it is well-positioned to save the operating margin and boost productivity through targeted innovations across these segments.

It is likely that healthcare payers and providers facing cost pressures, labor shortages, and funding challenges will be more open to innovations from tech-driven healthcare players that allow them to maintain high-quality care for all their beneficiaries and patients.

10. A high interest in sustainability — from both investors and the public — will continue to pressure MedTech companies to set and show progress against ambitious environmental, social, and corporate governance (ESG) goals.

According to the Association of Medical Device Reprocessors, the healthcare industry remains highly carbon-intensive today, generating more than 4.6% of greenhouse gas emissions globally. Medical device manufacturers are a major driver, due a large share of supply chain emissions and single-use devices and consumables in their portfolios. According to recent research, reprocessing of single-use medical devices can reduce ozone depletion by 90% and reduce total hospital costs by up to 50%.

There is increasing pressure from both regulators and investors on industry players, especially public companies, to have a clear pathway towards carbon neutrality. GE, Stryker, Medtronic, and Roche have already set their ambitious ESG targets over the next 20-30 years. As investors increase their scrutiny of environmental footprint, that gets reflected in the access and cost of capital — and there is evidence that suggests that a higher ESG score is correlated with a lower cost of capital. While addressing the supply chain issues associated with deglobalization and reshoring, MedTech companies also need to make sure that their new supply chain partners’ sustainability ambitions and practices are in line with their own corporate ESG targets.