What value proposition supports a premium price strategy in medtech?

All medtech companies need to get their price strategies buttoned up, but few do. Data shows worldwide ASPs for 71 routine-use cardiac and orthopedic devices decreased by an average of 4% since 2010. Prices for these same products decreased 5% in the same periodi.

i. https://www.startribune.com/medical-device-makers-face-challenge-of-falling-prices/367872781/

Key changes driving downwards price pressure on medtech

  • The hospital purchasing power balance shifts - economic stakeholder decision making power increases while the clinical stakeholder’s purchasing power declines  

    • Hospital administrators are more sophisticated and understand the difference between true innovation and incremental improvements

    • Physician champions are wary of approaching the VAC with devices that don’t truly improve outcomes or reduce price

  • Consolidation between healthcare providers and insurers creates medtech ASP transparency

Eleven steps for developing price strategies for innovative medical devices

Here are the steps your team needs to go through do determine what your medical device is worth. Ideally, all or most of these questions are answered before a substantial investment in product development is made.

Part 1: Create a baseline for your medtech device price strategy

1) Many things can change on the journey from device concept to commercial launch. If this device turns out to be a “me-too” product, how does that affect the value of the product? Does it fit in existing reimbursement? Can you make money at an ASP that fits reimbursement? What is the ROI, and does it meet company expectations?

2) What is the size of the total market vs. the addressable market? Are you replacing a competitor with the use of your device? What price could you justify based on comparing your product to the current standard of care/competition? Where does your device fall on the PPI (Physician Preference Index)? The PPI measures the relative power of your target customer to get the devices they want.

3) Is it a 510(k)? Who is the competition, what ASP are they getting and is yours truly worth more? Why? Is it a PMA? What extra value does this PMA product bring to end users? Why?

4) For the hospital, factor in the costs of capital equipment, disposables, or resposables for the purchase of your device. What about services hospitals or surgi-centers will have to pay for such as software updates, subscriptions for maintenance, training, etc.? Hospital and practice administrators will want this all calculated into total cost you present.

5) Does your product fit into existing clinical workflow? If not, how does the change impact users and does that change in workflow require additional cost such as lab fees, extra staff, etc.? Could it reduce the cost of care? How long would it take to prove this in a small clinical study?

6) Does your device have good fit with hospital/care continuum economics? Here are three situations to avoid. Does your device:

a.  Require an extra procedure or additional physician office/hospital visit?
b.  Replace another device that is a high-volume use or a commodity/inexpensive?
c.  Increase the cost of an existing procedure?

Part 2 – Making Choices

7) What is the big picture for the competitive advantage of your product? Is it a win-win for all the stakeholders, such as your company and the hospital or provider?

a.  If yes, go to Part 3 – Calculating a credible price premium

b.  If no, the product may need to be re-defined, if true innovation is your product design goal. Once re-defined, return to Part 1 to assess the baseline economic viability of your product.  

Part 3 - Calculating a credible price premium

8)  Break down the value proposition of your device into individual components.

a.  Cost savings such as reduced liability, decrease in labor costs, etc.
b.  More revenue from an increased number of procedures, or new patients
c.  Improved outcomes such as as a reduction in morbidity or mortality, greater quality of life, reduced length of stay or re-admissions.

9)  Though clinician interviews, what is the additional $ amount for each component of the value proposition worth?

a.  Calculate the sum of the individual components of the value proposition, test a range of prices with physicians. What price will the market truly bear?b.  Are there psychological thresholds? What is the value context?
c.  How far out are the benefits in time?
d.  Who will pay for it? Read more on this important topic

10)  What is the quantifiable benefit to the clinical and economic stakeholders? Look for the financial benefit.

a.  How is the income of each stakeholder affected? Consider each of the following:

I. Government
II. Health System
III. Payer
IV. Hospital/Ambulatory Surgi-Center/Office practice
V.  Service line
VI. Physician
VII. Patient

11) What pricing strategies can you use to justify/establish a price premium?

How can we help you?

When we investigate price strategies in medtech, we consider all these factors and provide actionable recommendation for your device.

Our most recent three projects were:

  • A conjoint analysis for an innovative new respiratory device

  • Voice of the Customer – to identify unmet needs for a device that is rapidly becoming a commodity item

  • M&A due diligence on the buy side for a medtech company in the cardiovascular space

Contact us.

We are medtech, diagnostic and
digital health price strategy experts.

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