During 2024, we’re closely watching several key issues resulting from ongoing change medical device manufacturers are facing. The challenges medtech businesses have seen in recent years will continue, and even evolve, into the coming year. The challenges, solutions, and unfolding opportunities are, in large part, driven by advances in technology, and these can’t be seen in isolation from the need for robust cybersecurity and resilient supply chains. Medical device manufacturers are placing greater emphasis on risk mitigation strategies, including revisiting supply continuity plans — a focus we expect to see more of in 2024.
Cybersecurity and connected technologies
Cybersecurity remains a significant challenge for medical device manufacturers and healthcare organizations. The “2023 State of Cybersecurity for Medical Devices and Healthcare Systems” research report by Health-ISAC, Finite State, and Securin outlines vulnerabilities related to medical devices, software applications, and healthcare systems. Their research discovered 993 vulnerabilities within 966 medical products and devices, revealing a 59% increase from 2022. There are risks inherent in the widespread use of embedded and connected technologies in medical devices. Coupled with the rise in sophistication and frequency of cyberattacks, the industry, FDA, and patients continue to be deeply concerned about vulnerabilities and cyberthreats.
Medical device manufacturers must keep up with ever-evolving security requirements. Section 524B was added to the Federal Food, Drug and Cosmetic Act as a result of the Omnibus Appropriations Bill for 2023. Effective Oct. 1, 2023, the additional section requires all new medical device applicants to submit a detailed plan outlining how they will actively monitor, identify, and address potential cybersecurity risks, including device software or other technology that connects to the internet.
Medical device manufacturers should assess their overall cybersecurity strategy for data security practices and the security of manufacturing processes for existing and new product launches to ensure product safety and regulatory compliance.
Supply chain resilience
Medtech companies have been battling over a three-year supply chain crisis, including raw material shortages and product delays, among other disruptions. As a result of material shortages and tight capacity, contract manufacturers tend to prioritize orders from larger customers leading to potential backorder issues. Additionally, many OEMs that built up inventory as a risk mitigation strategy during the crisis are now finding themselves with not only excess inventory, but in many cases, the wrong inventory, prompting them to delay or cancel orders with their suppliers. This in turn is causing financial strain for many medical device suppliers.
The ripple effects underscore the need for medical device manufacturers to institute both robust risk mitigation and supply planning strategies. These include gaining greater insight and visibility into inventory positions to improve planning and forecasting and right-size orders and inventories. Manufacturers are reassessing their geographic footprint and resourcing production to the United States and Mexico, or even initiating joint ventures with overseas partners to diversify production options. Another strategy for OEMs is to qualify additional suppliers to ensure a more resilient supply chain in the event of more disruption.
Inflationary and pricing pressure
The U.S. Producer Price Index (PPI) for medical equipment and supplies manufacturing is at a current level of 131.69, up from 127.36 on year ago. Many other pressures are at play as well, including rising interest rates, economic uncertainty, global competitors developing lower-cost solutions, and health systems’ tightening budgets, which ultimately impact medtech spending. Medical device companies are now under further pressure to reduce costs in order to maintain margin during a time when the highly competitive landscape discourages medical device manufacturers from raising prices. This is driving medical device companies to assess and optimize their product portfolios to reduce redundancies and unnecessary costs.
Additionally, overall M&A activity in the medical device space has slowed over the past 18 months. There is an increased scrutiny on potential acquisition targets, capex, and R&D investments. As we enter 2024, we expect transactions to become even more strategic with increased pressure to create value.
While overall economic uncertainty can’t be controlled, there are many things medical device manufacturers can do to identify and control costs during this time. Additionally, investments under consideration should include strong business cases and ROI projections.
Patient-driven decisions and patient-centered solutions
Patients continue to drive many healthcare decisions, opting for customized solutions and personalized approaches. This continues to drive complexity and the need to be flexible and responsive to the evolving needs. As medical devices become more specialized and custom-built to unique patient needs, the demand for low-volume production rises, which has inspired a shift toward on-demand manufacturing. This can lead to greater inefficiencies for manufacturers who will need to adjust their current operating model to meet the changing needs of the market. In order to adapt, OEMs should focus on integrating new strategies to support on-demand production, including additive manufacturing, increased use of automation, reduced changeover times, and creative inventory strategies.
Patients also want to take more ownership of their health, getting better access to data and having more insight into the detection of potential issues, treatment plans, and overall monitoring of their health. Medical device companies have a unique opportunity to continue to evolve their products and be part of the patient’s journey.
Talent gap
Expect the shortage and competition for skilled and unskilled talent to persist into 2024. The pool of highly specialized talent in the medical device manufacturing industry has always been scarce and we expect that to continue.
It’s expected that there won’t be enough skilled technicians to meet the future demand, including expert machinists, manufacturing supervisors, and programmers. When looking at new geographic areas for production, conduct labor market analysis to assess whether the area has adequate labor. Consider opportunities for automation — smart manufacturing or industry 4.0 technologies to help mitigate some of the shortage issues the medtech industry has been experiencing.
On the skilled labor side, many medical device companies are thinking about talent acquisition in new ways, including revisiting their recruiting methods and approaches. If you’ve been facing talent gaps, focus on reskilling and upskilling for retention and internal mobility. We also see organizations innovating through flexible work schedules and hybrid options.
As we look to the year ahead, there are certainly challenges and evolving complexities that face the medical device industry. If addressed properly, medtech companies can turn these challenges into a competitive advantage. Start by focusing on developing proper risk mitigation strategies, particularly in critical areas like cybersecurity and supply chain. Additionally, right-sizing inventory, strong forecasting and planning processes, and creative approaches to talent acquisition and retention in a time of heightened economic uncertainty can help medical device manufacturers weather challenges and create opportunities in 2024.
