Digital technology has the potential to capture huge value in healthcare systems around the world, with the benefit of improving care while also driving down its cost. The McKinsey Global Institute estimates the costs saved could lie anywhere between $1.5 trillion and $3 trillion a year by 2030, thanks to a range of interventions such as remote monitoring, artificial intelligence, and automation (Exhibit 1).1
The COVID-19 pandemic has accelerated the adoption of some of these interventions. Change that was anticipated over the course of years has been concentrated into months. In the United Kingdom, for example, the proportion of remote primary-care consultations increased threefold between February and June 2020.2 In addition, a more recent McKinsey survey of US consumers conducted in January 2021 found that 56 percent of respondents, down from 65 percent in September 2020, were much more satisfied with telemedicine visits versus in-person appointments. However, as the recovery continues, the moderate shift from telemedicine appointments to in-person care continues as well.
Despite the increased adoption of digital interventions during the pandemic, many medtech companies have been slow to prepare for the new digital world of healthcare. According to McKinsey research, the digital maturity of the pharmaceutical and medtech sector, gauged by measuring a range of capabilities to provide a score between 0–100, was 28, compared with an average of 34 across all industries, while leading sectors such as retail achieved a score of 40.3
While there is a real opportunity for medtech companies to drive new sources of growth and improve patient care through digital solutions, they have a lot of ground to cover.
Hence, while there is a real opportunity for medtech companies to drive new sources of growth and improve patient care through digital solutions, they have a lot of ground to cover. Big tech players and smaller start-ups all see the opportunity in the market, and first movers are likely to be among those best able to shape the industry and capture value.
Turning ambition into reality
A McKinsey survey of 35 medtech executives from global companies—conducted before the pandemic—suggested they were aiming high: digital health solutions represented, on average, 10 percent of their companies’ revenue at the time of the survey, but they expected that figure to reach up to 50 percent within five years.4 Turning those ambitions into reality depends on four fundamental actions.
1. Set a bold aspiration
Changing the magnitude envisioned by medtech leaders will require bold moves. Mere tweaks to the way a company operates will not drive significant value. Therefore, companies need to be clear about the extent to which digital technology will transform their businesses and the way they serve customers; they can then set ambitious business goals and key performance indicators (KPIs) accordingly. They also need to be clear about how they will reach these goals.
Medtech companies’ change in vision will need to be led by the CEO and supported by the entire executive team and business leadership if their goals are to be achieved; it cannot be delegated to the CIO (chief information officer), CTO (chief technology officer), or head of R&D. The company’s leadership will simply have to invest its time and reputation to drive change.
2. Think ‘patient pathway back’ not ‘product forward’
Digital health opens up new opportunities for medtech companies along the entire patient pathway, from primary prevention and screening through diagnosis and staging to treatment and the subsequent management of a condition. Capturing such opportunities depends on understanding where the pain points lie for patients, physicians, providers, and payers and how digital health solutions might address them.
Exhibit 2 shows how different tools and products can be used to address different pain points along the patient journey. One example of this is a new generation of pacemakers. For a number of years, clinicians have been able to monitor patients fitted with pacemakers remotely using near-field or wireless technology. Today, however, devices also focus on patients’ needs, allowing them to check the battery life of their devices, log and track their symptoms, monitor their physical activity, and access relevant educational material, all through their smartphones. Studies have shown that greater levels of adherence to remote-monitoring schedules compared with traditional bedside monitors, however, can present other challenges, such as cybersecurity.5
There are also opportunities to harness real-world evidence to address pain points. In oncology, for example, where the time between diagnosis and treatment is often key to patient outcomes, Roche and GE Healthcare are collaborating to help tumor boards review cases. Their NAVIFY platform pools medical imaging and other patient data so that medical teams have a single, comprehensive view of each patient, helping teams to make better-informed and quicker treatment decisions. The companies say the system has cut the time it takes oncologists to prepare for tumor board meetings by 53 percent.6
Medtech companies are well aware of the growth opportunities that lie in what, for some, will be new areas along the patient journey. While many survey respondents felt most growth over the next five years would come from connected or integrated devices—areas close to the core of their current operations—disease prevention and healthcare provision were also regarded as high-growth opportunities, though ones that were still largely untapped (Exhibit 3).
COVID-19 has spurred progress for some companies on both fronts. ResMed and Medtronic are both developing new digital remote-management solutions for existing products to help clinicians treat COVID-19 patients, while in response to a surge in virtual clinical services during COVID-19, Livongo, a digital healthcare company focused on patient support and improved health outcomes for conditions such as diabetes and hypertension, has merged with US telehealth company Teladoc in an $18.5 billion deal.
3. Embrace new capabilities and a new culture—and perhaps a new operating model
Medtech companies have built the capabilities they need to develop, launch, and sell physical products. Few, however, have the capabilities that will drive growth from digital health solutions, such as data integration and analytics. They must also have a culture that embraces agile ways of working—a prerequisite for success in a fast-changing, digital environment. Obtaining both may require a new operating model.
Exhibit 4 describes the capabilities required for a medtech company to succeed in digital health. Some of the areas where medtech companies may have to focus hardest given their starting point include the following:
- Customer experience. Understanding the patient journey and experience helps deliver the best care to the patient while also identifying and capturing new value pools. User-design capabilities will be required as well as the ability to personalize the offering.
- Data. Medtech companies are accustomed to collecting and managing data from their products, but they must change the way they do so to drive new sources of value. Rather than keeping data from different teams and different products siloed, companies should link all internal and external data—a capability that is made possible by a modern, flexible IT architecture.
- Models and tools. Building analytics tools on data assets is key to generating value. However, developing bespoke analytics tools for individual use cases can be resource intensive and duplicative. Developing plug-and-play modularized code and analytics models can reduce the workload and turnaround cycles, as well as generate new insights quickly and relatively cheaply.
- Value assurance. Clear links to long-term business value will need to be established. This will require a well-defined business case that is tied to business outcomes and regular reviews of key metrics to ensure the link holds fast. New digital tools will also need to be rolled out across the organization and some processes and activities automated. The aim is to create value across the business, not in discrete pockets.
Too often, companies delay building such capabilities, focusing thin resources on a few pilots. While pilots may get you off to a quick start, they do not build the muscle needed to adopt digital at scale. Companies should start building capabilities across the company at the outset to prevent progress from stalling further down the line.
Unlocking value from digital often requires new ways of working—and a new culture. Companies will need to move away from what are typically lengthy R&D cycles focused on the launch of an end product and instead develop minimum-viable products that allow teams to test and learn from early deployment. To facilitate this shift, a new operating model may be required.
Some companies choose to allow their digital business to operate within a different governance framework, giving it greater decision-making authority, for example. They also instigate a venture-capital funding model whereby funding is released once certain milestones are reached, rather than being restricted by annual budgeting cycles. GE Healthcare, for example, ran GE Ventures as a subsidiary that invested in start-ups before eventually spinning it off.
Other companies choose to partner to bring to bear the right capabilities for exploring digital solutions. For example, as part of a clinical trial of its implanted vagus-nerve-stimulation (VNS) system for people with hard-to-treat depression, medtech company LivaNova partnered with Verily, an Alphabet company, which had developed a wearable device and mobile app to capture behavioral data from study participants.7
Bolder tie-ups, such as Livongo’s merger with Teladoc, also point to how new operating models might evolve that combine digital devices and healthcare services on a single platform.
4. Shape the broader ecosystem
Companies, regardless of sector, need to consider the broader environment in which they operate when designing digital solutions. Medtech companies are no exception in that they need to integrate their systems with those of others in the ecosystem, manage cybersecurity, and protect data. But some concerns are specific to medtech and healthcare. For instance, medtech companies need to demonstrate the impact of their products and services on patient outcomes, secure reimbursement, and manage patient privacy and consent.
Medtech companies depend on four broad sets of enablers to succeed within their ecosystems:
- financial enablers, including payment and reimbursement models
- technological enablers, including common standards around the integration of systems (interoperability) and the use and integration of data
- policy and guideline enablers, including standards for clinical outcomes and common regulatory requirements relating to patient privacy and consent
- social, ethical, and legal enablers, including the ability to build trust with patients and healthcare professionals and the skills required to adopt digital solutions
Our survey highlighted the importance of financial and technological enablers to medtech companies. Both are critical not only to the successful launch of a product or service but also to how survey respondents judged the importance of cross-industry collaboration in establishing enablers (Exhibit 5).
Different participants in the ecosystem will likely prioritize different enablers. Medtech companies would therefore be wise to address the concerns of all, bearing in mind how fast the landscape is changing. The COVID-19 pandemic has spurred the fast development of financial enablers, for instance, establishing new reimbursement and payment models for digital solutions. Italy, Spain, and the United Kingdom have all introduced regulatory changes recently to facilitate the reimbursement of some digital solutions. Physicians’ trust in digital solutions has taken a leap forward, too. In the United States and major EU economies, the amount of time physicians spent interacting remotely with patients during the early months of the pandemic rose from around 3 percent of their schedules to more than 20 percent.8
With so much changing so quickly, medtech companies risk not being a party to the decisions shaping the emerging ecosystem. Payers and providers are working with many different companies, which are all developing new and different digital health solutions. If medtech companies can come together to define, with the help of regulators, common standards and approaches for how to drive greater standardization across these different enablers, they will ensure their voices are heard, while making it easier for payers and providers to engage with the sector on new digital solutions.
One of the significant outcomes of the COVID-19 pandemic is the extent to which health systems have embraced digital solutions. The change may have been borne out of necessity, but that does not detract from its importance, or indeed, its permanence. It is the foundation of the next normal. Medtech companies should therefore consider embarking without delay on a transformation that makes digital healthcare a driver of significant growth, as well as a source of better patient care and more sustainable healthcare systems.