The interview partners
Prof. Dr. Patrick Da-Cruz is Professor of Business Administration and Healthcare Management at the Faculty of Healthcare Management at Neu-Ulm University of Applied Sciences (HNU) and Academic Director of the MBA program Leadership and Management in Healthcare.
Before joining the HNU, Mr. Da-Cruz worked for renowned strategy consultancies in the pharmaceutical/healthcare sector and in management positions in companies in the healthcare industry in Germany and abroad.
Dr. Danilo Zatta is an internationally renowned expert in pricing. As a management consultant, he has been managing projects for multinational companies, SMEs and investment funds in a wide range of sectors both in Europe and worldwide for 25 years. He has also written numerous books and articles in several languages. Danilo Zatta studied economics at the University of Luiss in Rome and at UCD in Dublin, Ireland, and completed a Master of Business Administration at INSEAD in Fontainebleau, France, and Singapore. He completed his doctorate at TUM in the field of earnings management and pricing.
What challenges is the medical device industry currently facing in the area of marketing & sales?
Dr. Danilo Zatta: The medical device industry faces a number of specific challenges in the area of marketing & sales. Three are particularly relevant:
- Price sensitivity in the healthcare sector: Healthcare systems and hospitals worldwide are under immense cost pressure. They are constantly looking for cost-efficient solutions, which increases the price pressure on medical device manufacturers. Companies often have to lower their prices or offer additional rebates and discounts to remain competitive.
- Reimbursement and reimbursement systems: In many countries, medical device pricing is closely linked to the reimbursement systems of health insurers and insurance companies. Products that receive no or only limited reimbursement often have to be offered at lower prices in order to be successful on the market.
- Competition and market transparency: The market for medical devices is often saturated, with numerous suppliers offering similar products. This leads to high competitive pressure and high price transparency, making it more difficult to enforce premium prices. Companies need to develop innovative pricing strategies to compete in such an environment.
To overcome these challenges, companies in the medical device industry need to develop flexible and innovative pricing and sales strategies that meet both market conditions and regulatory requirements.
What exactly is “value-based pricing”?
Dr. Danilo Zatta: Value-based pricing is a pricing strategy in which the price of a product or service is based on the value perceived by customers rather than on production costs or competitors' prices. In the medical device industry, this means that the price of a product is based on the clinical and economic benefits it offers to patients, doctors, hospitals and the healthcare system as a whole.
Why is this model becoming increasingly important in the medical device industry?
Dr Danilo Zatta: Because the focus is on customer benefit and therefore the monetization of the value delivered is optimal: the price is determined by the added value that the product creates for the customer. In the healthcare sector, this value can consist of various aspects, such as improved clinical efficacy, faster recovery, a reduction in side effects or cost savings in the healthcare system.
In the medical device industry, it is crucial to demonstrate the clinical benefit (e.g. better treatment outcomes, lower complication rates) and the economic benefit (e.g. shorter hospital stays, lower follow-up costs) of the product. This evidence plays a central role in justifying the price.
Products that are characterized by innovation or unique advantages have the opportunity to achieve higher prices within the framework of value-based pricing. However, this presupposes that the manufacturer can clearly communicate and prove the additional value.
What challenges do you see when implementing value-based pricing approaches in a highly regulated sector such as the medical device industry?
Dr. Danilo Zatta: It can be a challenge to communicate the clinical and economic value of a product clearly and convincingly and to substantiate it with studies and data.
In addition, not all stakeholders in the healthcare sector, such as hospitals, insurance companies or patients, are always willing to pay higher prices, even if the added value is proven. It often requires extensive educational work and negotiations.
In addition to value-based pricing, it is very important to engage in value selling, i.e. to communicate and prove the value of the product so that it is recognized and is reflected in a higher willingness to pay.
Are there any use cases from the medical products industry?
Dr. Danilo Zatta: Yes, and they show the great potential of value-based pricing. The following examples are taken from my book “The Pricing Model Revolution”, in which many more can be found.
Normally, we pay a price for drugs or treatments regardless of whether we are cured or not.
Johnson & Johnson was one of the first companies to propose an outcome-based pricing model for cancer treatment in the UK. If the cancer treatment proves unsuccessful, patients are reimbursed the full amount they have spent on the treatment. Other companies have taken the same approach.
The Swiss multinational pharmaceutical company Roche is offering personalized reimbursement, which represents a clear break with the traditional calculation by tablet or other treatments based on the proprietary model. With this new model, Roche is responding to the fact that the effect of medicines can vary depending on the indications, i.e. a patient's individual condition, the interaction with other medicines and the response to them. In this way, customers are adapting to the new reality. Roche calls the model pay-for-response. The calculation is based on the patient's response to treatment with a specific pharmaceutical product over a specific period of time.
The pharmaceutical company Amgen and the insurance company Harvard Pilgrim have reached the following agreement: Harvard Pilgrim will benefit from a rebate if a patient treated with Amgen's drug Repatha (a cholesterol-lowering drug designed to prevent heart attacks) fails to show significant improvement.
Medtronic can also be cited as an example here: “We have almost 1,000 signed contracts that require the company to reimburse hospitals if the antibacterial Tyrx fails to prevent infections in patients who have received a heart transplant,” emphasizes Omar Ishrak, the company's CEO at the time. There is also a reimbursement agreement with the Aetna insurance group if diabetes does not improve after switching to Medtronic treatment. Other outcome-based contracts are being evaluated.
GE Healthcare and Philips are other manufacturers linking payment to real outcomes. This shift to contracts and partnerships where monetization is aligned with outcomes is a natural evolution of the broader shift to outcomes-based care.
Thank you for the interview!
