Report: Physicians' role in technology development in flux

The traditional model of innovation in the medical technology industry, which includes iterative product improvements driven by physician collaboration and interaction, is being affected by new restrictions on products eligible for 510(k) marketing clearance, according to Pulse of the Industry: Medical TechnologyReport 2010, Ernst & Young's annual report on the industry's performance. These restrictions may result in a lengthier approval process, according to the company.

The 510(k) changes, plus new concerns about the effect that proposed measures to increase transparency in physician interactions will have on the ability of the medical technology industry to use physician insights to achieve post-approval product improvements, plus the fact that customers increasingly are scrutinizing the value of medical technology, are some of the challenges facing the medical technology industry detailed in the Ernst & Young report.

The U.S. and European medical technology industry struggled to sustain historic rates of revenue growth in 2009 but managed to improve overall net income by nearly 11% as companies realigned to achieve improved financial discipline, according to the report. It also states that although the medical technology industry has fared better than many industries in the current economic downturn, new challenges will put increasing strain on the industry's longstanding business model.

The report details a confluence of factors that are creating unprecedented financial pressures on many medical technology companies. These include the continued tightening of capital markets, the implementation of comparative effectiveness research (CER), increasing regulatory approval costs and hurdles in many markets, and the impending "device tax" passed under U.S. health care reform, which is anticipated by many to disproportionally affect smaller, pre-profitable companies.

"The medtech industry showed impressive discipline last year by improving bottom-line performance even as revenues remained flat, but even bigger challenges lie ahead," said John Babitt, Ernst & Young's medtech leader for the Americas. "With the financing model under enormous strain, the industry will need new ways to fund innovation. As hospitals consolidate purchasing decisions and payers look to CER, companies will need to demonstrate value as never before, and with revenues plateauing-particularly in mature markets-they will have to find new sources of growth."