The booming market for medical technology outsourcing

The evolution of MedTech

The field of medical technology has expanded in recent years and now the term “Medtech” is a generic name for a wide range of healthcare services. The term encompasses product-specific tasks such as design, development, testing, implementation, sterilization, upgrades, and maintenance. It also includes more general tasks such as quality assurance, regulatory consultancy and contract manufacturing.

Medtech no longer means simply manufacturing basic medical devices. The explosion of everyday technologies, combined with increasing patient needs, has led to a boom in this field. Furthermore, the corresponding outsourcing sectors are feeling the ripple effect.

Medtech Outsourcing Overview

The MedTech industry has been growing consistently for many years and this is not going to change. Forecasts show that sales will increase by more than 5% annually and are expected to reach $800 billion by 2030. It is a huge and expanding but complex market whose margins can be very small. There is a need for greater production efficiency, timely adherence to ever-changing regulations, and a demand for increasingly complex products. All of this is driving the outsourcing market.

Few companies have the resources necessary to single-handedly address all areas involved in manufacturing and deploying medical equipment. Even fewer are able to do this and, at the same time, restrict the final costs for payers. All of this is driving the need for outsourcing. Even large healthcare conglomerates like Medtronic now outsource parts of their businesses in order to protect competitiveness and profits.

Medtech Software Overview

Simple, static medical devices are a thing of the past. Patients, doctors and hospitals are now accustomed to highly sophisticated devices like iPhones and tablets. There is an expectation that medical tools will perform at a similar level. Well-designed user interfaces, error-reducing engineering, remote accessibility, security, longevity, and compatibility with other technologies are required in every device. Therefore, medical devices need complex software designed to the highest standards.

It's not uncommon for teams of engineers, designers, web developers, security experts, and programmers to work together to achieve this. Additionally, every device must be approved by the FDA. It is increasingly difficult for healthcare or manufacturing companies to comply with all these standards without external help. Outsourcing MedTech IT services and software is the only viable option for many companies.

The growth of medical technology

Healthcare markets of all types, in all countries, are expanding due to aging populations and the growing prevalence of chronic diseases. The medical technology market may have started with life-saving emergency devices, but it is now focusing on several areas. These areas include complex implantable devices intended to improve long-term quality of life. Additionally, hospital equipment, wearable technology, robotics, disposable equipment, software, testing services, and support services make up the MedTech sector.

The numbers

The size and growth of the MedTech market is easily measurable:

• The US medical device industry is estimated to be worth $173 billion in 2019.
• Forecasts show a compound annual growth rate of 5.3%.
• Healthcare spending in the US is 17.1% of GDP.
• There are more than 6,500 medical device companies in the US, producing more than 4,000 different types of devices.
• As an example, Johnson and Johnson made $27 billion from its MedTech division in 2017.

The chart below illustrates the steady growth of global MedTech revenue from 2011 to 2024:

And the outsourcing market is equally healthy:

• The global outsourcing market is expected to be US$195 billion by 2025, up from US$94.2 billion in 2018.
• Compound annual market growth rate of 10.9%.
• Globally, contract production (the largest outsourced item) will reach US$104.5 billion by 2025.

What's behind the boom?

Several factors are behind the boom in this industry, not just the aging population or high customer demands. Technological developments, as mentioned above, are enabling more patients to access smart healthcare. Additionally, more companies with diverse expertise are entering the arena. Improving economies in countries like India and China also play an important role, as more people are able to access and demand high levels of healthcare. Regulations play another important role in market changes. Increasingly complex requirements must be met promptly. But while this presents a challenge, it is helping to increase the global adoption of medical technology. All of these changes improve customer experience and security. As access becomes easier and devices become more secure, more patients can use this medical technology.

For example, in the US, which spends more of its GDP on health care than any other country in the world, more than 100 million adults have diabetes or prediabetes. Diabetes devices used to measure glucose levels and administer insulin are a significant factor in this important global market.

There is also a wave of M&A activity in the sector, supported in part by many venture capital interests. This trend will see more new entrants shape the future of the medical technology market in the coming years.

Why Medtech Outsourcing Is Now Common

The growth of medical technology outsourcing

The need for outsourcing in the MedTech industry is clear. Studies show that outsourcing helps original equipment manufacturers reduce production costs by 15%. The returns for companies that use external partners are significantly higher. Medtech companies that report strong returns on investment are 2.6 times more likely to outsource than their struggling counterparts. As hospital budgets shrink and individual patient spending comes under scrutiny, passing high production costs onto consumers is simply not an option.

Regulatory issues also come into play here. The Affordable Care Act, for example, imposes a 2.3% tax on all medical devices sold domestically in the US. This further reduces Medtech profit margins and increases pressure on companies to optimize production and reduce costs.

With numbers like these, it's no surprise that so many are turning to outsourcing. On the one hand, initial costs and internal costs can be kept low. The speed at which products can get to market also increases significantly with the use of a suitable outsourcing partner.

Outsourcing fears

There are some things that hinder the adoption of outsourcing in the medical field. Many companies fear delivery delays, quality issues and the inability of third parties to comply with regulations. Problems in any of these areas can classify an outsourcing partner as “unreliable”. Security and privacy are also more important in MedTech than in many other sectors. As a result, using in-house teams for product development, design, testing, security, quality, and compliance often feels safer. Full autonomy over the supply chain has also been considered fundamental to secrecy.

Changing Attitudes

Changes in the market over the last ten years are changing mindsets. Companies can keep everything in-house, struggle with limited knowledge and resources, or use outsourcing to produce the same result, more efficiently.

Obviously, companies that chose to maintain vertical integration at the expense of performance did not fare well. What started as a trickle became a wave of players moving into outsourcing. This initially happened incrementally, but as processes have become more common, this is now true for entire parts of the business.

Outsourcing is now so ubiquitous that the variety of trusted third parties and consultants in this space assuages ​​many of the long-held fears regarding reliability. And along with the benefits of reduced costs, increased agility, accelerated production and increased returns, outsourcing also allows companies to focus on non-core activities such as research. Research will be a crucial driver for market advancement. Companies that give themselves the space to focus on this are more likely to succeed.

Software outsourcing

The FDA governs medical device software, and vendors have many hurdles to overcome. The software must be unambiguous, consistent, verifiable, traceable, complete and correct. All of these requirements must be true for all aspects of the software, including interfaces, data storage, performance, security, and safety. This is no small task. When added to all the usual software requirements for any high-tech device, it can be overwhelming for non-experts.

As if all this wasn't enough, remember that software is not static. Requires updates and must respond to variable user input. It must be a dynamic part of any medical device, requiring continuous attention and knowledge. Managing software, especially complex instrumentation, requires considerable planning and effort. Collecting data from deployed devices is an important tool for understanding usage as well as developing updates. But again, this is a difficult task that requires continuous connectivity, tracking, and maintenance of the instrument in question.

Training staff internally to perform these tasks or hiring software experts directly is an expensive and time-consuming process. Outsourcing the digital side of medical devices is necessary for many companies that do not have enough knowledge to develop and deploy a product themselves that meets all the requirements.

Trends in outsourcing

The market is changing all the time. Expected trends in the outsourcing market over the next few years include:

• More mergers, especially of IT companies with traditional healthcare providers, to produce disease management businesses that rely on AI.
• A shift toward home care, partly for cost reasons and partly to increase the number of patients receiving treatment. Patients can connect to home devices and doctors can monitor remotely, saving time and costs. These devices also help eliminate accessibility issues.
• AI developments in certain domains such as image recognition will have a major impact on medical fields such as radiology. Advances could mean that human diagnosticians are eliminated and AI-related medical technology providers become indispensable.
• Robotics is infiltrating hospitals. Sophisticated surgical robots that lower risk for patients and doctors are taking over simple systems like billboards. This trend will continue, with robots becoming more sophisticated for complex tasks.
• Increased complexity brings increased risks and in the future there will be more focus on IT security in medical devices. Devices have been compromised by hackers in the past.

The future of MedTech

The predominant need for efficient, high-quality medical care will prevail. Medtech is on a solid growth trajectory with nothing standing in its way. Outsourcing will continue to be a partner in the expansion of MedTech services. Companies in the space are striving for greater innovation, new markets and new revenue streams. All of this depends on outsourcing, not just for simple contract manufacturing, but as a critical partner in problem solving, product development and continuous delivery.