What is pricing?
Pricing is the process of determining what a company will receive in exchange for its products or services. It involves setting a price point that balances costs, the value perceived by the customer, market conditions, competitor pricing, and overall business strategy. Effective pricing strategies can maximise revenue, market share, and profitability while ensuring customer satisfaction.
Pricing strategies
Pricing strategies for medical devices must consider the diverse range of stakeholders and the impact on patient health and outcomes that drives value perception in medical devices. Some common pricing strategies and models include:
Cost-Plus Pricing:
Prices are set by adding a standard markup to the cost of producing the device.
- Advantages: Simple to implement and ensures costs are covered.
- Disadvantages: May not reflect market conditions or value to customers.
Value-Based Pricing:
Prices are set based on the customer’s perceived value, which includes clinical benefits, improved outcomes, and cost savings.
- Advantages: Aligns price with the value provided, potentially justifying higher prices.
- Disadvantages: Requires a thorough understanding of customer perceptions and willingness to pay.
Outcome-Based Pricing:
Prices are linked to the outcomes achieved with the device, such as improved patient health or reduced hospital readmissions.
- Advantages: Aligns payment with performance and value delivered.
- Disadvantages: Requires robust outcome tracking and agreement on measurement metrics.
Competitive Pricing:
Prices are set based on the prices of similar devices offered by competitors.
- Advantages: Helps remain competitive in the market.
- Disadvantages: May lead to price wars and reduced margins.
Penetration Pricing:
Initially setting a low price to enter the market and attract customers, then gradually increasing the price.
- Advantages: Can quickly build market share and customer base.
- Disadvantages: May set low price expectations and make it difficult to raise prices later.
Premium Pricing:
Setting a high price to reflect the high quality or innovative nature of the device.
- Advantages: Can enhance the brand’s premium image and justify higher margins.
- Disadvantages: May limit market to high-end segments and require strong value demonstration.
Tiered Pricing:
Different prices are set for different customer segments or markets, often based on volume, customer type, or geographic region.
- Advantages: Allows customisation for different segments and can maximise revenue.
- Disadvantages: Can be complex to manage and communicate.
Bundled Pricing:
Multiple products or services are sold together at a single price.
- Advantages: Can increase the perceived value and drive sales of complementary products.
- Disadvantages: Customers may perceive less value in individual components.
Subscription or Leasing Models:
Customers pay a recurring fee to use the device, often including maintenance and updates.
- Advantages: Provides a steady revenue stream and lowers upfront costs for customers.
- Disadvantages: Requires long-term customer commitment and reliable ongoing support.
Pay-Per-Use Pricing:
Customers pay based on how much they use the device.
- Advantages: Reduces initial investment for customers and aligns cost with usage.
- Disadvantages: Revenue can be unpredictable and depends on usage patterns.
Choosing the right pricing strategy involves understanding the target market, competitive landscape, cost structure, and overall business goals, as well as ensuring compliance with healthcare regulations and reimbursement policies.
Pricing and reimbursement
The relationship between pricing and reimbursement in the context of medical devices is intricate and vital for the successful commercialisation of these products.
Influence on Market Access:
- Pricing: The initial price set for a medical device can determine its accessibility in the market. A high price might limit access, while a competitively priced device may achieve broader adoption.
- Reimbursement: Adequate reimbursement ensures that healthcare providers can afford to adopt and use the medical device. If reimbursement rates are low, providers might be reluctant to use the device, regardless of its clinical benefits.
Impact on Adoption Rates:
- Pricing: Competitive or value-based pricing can encourage quicker adoption by healthcare providers and patients.
- Reimbursement: Ensures that the cost of the device is covered, reducing the financial burden on patients and providers, thus encouraging adoption.
Regulatory and Payer Considerations:
- Pricing: Must align with the expectations of regulatory bodies and payers to ensure approval and favourable coverage decisions.
- Reimbursement: Payers (insurance companies, Medicare/Medicaid) assess the clinical and economic value of the device to determine coverage and reimbursement levels.
Stakeholder Perception:
- Pricing: Needs to reflect the value perceived by all stakeholders, including patients, providers, and payers.
- Reimbursement: Acts as a validation of the device’s value and can significantly influence stakeholder perception and acceptance.
Clinical and Economic Evidence:
- Pricing: Often justified by demonstrating the device’s clinical benefits and cost-effectiveness compared to existing treatments.
- Reimbursement: Payers require robust clinical and economic evidence to support reimbursement decisions, which can influence pricing strategies.
Market Dynamics:
- Pricing: Affects the competitive positioning of the device. Lower prices might drive market penetration, while higher prices might position the device as a premium offering.
- Reimbursement: Influences market dynamics by determining which devices are financially viable for providers to use, thus affecting overall market competition.
Financial Planning:
- Pricing: Directly impacts the revenue potential and financial projections for the medical device manufacturer.
- Reimbursement: Ensures sustainable revenue streams by providing predictable payment models, essential for long-term financial planning and investment in innovation.
In summary, pricing and reimbursement are closely linked, with each influencing the other in various ways. Effective pricing strategies must consider reimbursement frameworks to ensure that medical devices are not only accessible and adopted but also financially sustainable for both providers and manufacturers. Understanding and navigating this relationship is crucial for the successful market introduction and ongoing success of medical devices.
Resources
- MedTech Europe – Market Access & HTA Advocacy and insights into European medtech access policies.
- Global Medical Device Nomenclature (GMDN) Global Medical Device Nomenclature for regulatory and reimbursement classification.
Adoption: The point at which clinicians or healthcare systems begin integrating the device into routine clinical practice.
Authorised Representative: A natural or legal person appointed by a manufacturer to act on their behalf in carrying out specific tasks related to conformity assessment and regulatory compliance.
Benefit-Risk Analysis: The comparison of a medical device’s benefits to its associated risks, often used in regulatory decision-making.
Biomedical Engineer and Technician: Personnel that maintain and repair medical devices to ensure their proper functionality.
Budget Impact Analysis (BIA): A financial assessment tool used to estimate the cost implications of adopting a new healthcare intervention within a specific budget context over a defined time.
Capacity Building: The process of developing and enhancing the skills, abilities, and resources of individuals or organisations to improve their effectiveness and sustainability. Change Control: The systematic process of managing and documenting modifications to a device or its manufacturing process to ensure that all changes are assessed, approved, implemented, and tracked in compliance with regulatory standards and quality management systems.
Classification: The process of categorising devices into different classes based on their intended use, level of risk to patients and users, and regulatory controls necessary to ensure safety and effectiveness.
Clinical Evaluation: A methodologically sound ongoing procedure to collect, appraise, and analyse clinical data about a medical device and to verify its safety and performance, including its clinical benefits. Also see Clinical Investigation.
Clinical Guideline: A systematically developed statement to assist healthcare practitioners and patients in making decisions about appropriate healthcare for specific clinical circumstances.
Clinical Investigation: Any systematic investigation or study in or on one or more human subjects undertaken to assess the safety or performance of a medical device.
Clinical Workflow: The systematic sequence of processes and tasks that healthcare professionals follow when using medical devices to ensure efficient, safe, and effective patient care.
Commissioning: The process of ensuring that a device is properly installed, tested, and verified for safe and effective use in a clinical setting.
Commercialisation: The full journey of bringing a medical device to market, including regulatory approval, manufacturing, marketing, sales, and support.
Compliance: Adherence to regulations, standards, and guidelines set forth by regulatory authorities.
Corrective Maintenance: The process of diagnosing and repairing faults or failures to restore the device to its proper functioning condition.
Corrective and Preventive Action (CAPA): Actions taken to eliminate the causes of existing nonconformities or other undesirable situations (corrective actions) and to prevent recurrence (preventive actions).
Cost-Effectiveness Analysis (CEA): A method of evaluating healthcare interventions by comparing their costs in relation to their health outcomes, typically measured in terms of cost per unit of health improvement gained.
Cost-Benefit Analysis (CBA): A technique for assessing the financial feasibility of interventions by comparing their costs and benefits, where benefits are expressed in monetary terms.
Cost-Utility Analysis: A type of economic evaluation that compares the costs of healthcare interventions to their outcomes in terms of quality-adjusted life years (QALYs) gained, providing a measure of health-related quality of life.
Decommissioning: The process of safely retiring or discontinuing the use of a device, ensuring proper disposal or reprocessing following regulatory and environmental requirements.
Demand Forecasting: The practice of using historical data, market trends, and analytics to predict future customer demand for a product.
Distribution: The logistics and infrastructure used to deliver a medical device from manufacturer to customer or end user.
Distributor: A natural or legal person in the supply chain, other than the manufacturer or importer, who makes a medical device available on the market.
Economic Evaluation: The evaluation and analysis of the costs and consequences of using a medical device or intervention, often comparing different options to inform decision-making. This may also be called an Economic Assessment.
Economic Operator: Any person or entity engaged in the production, distribution, import, export, or supply of medical devices.
End-of-life: The stage in the medical device lifecycle when the manufacturer no longer supports the device due to obsolescence, discontinuation of production, or inability to provide necessary components or services.
Endpoint: The measurable result at the end of a study, including types such as:
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Clinical Endpoint: A precisely defined and measurable outcome used to determine the effect of an intervention.
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Performance Endpoint: A measure of how well the medical device achieves its intended purpose.
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Primary Endpoint: The main result that is measured at the end of a study to see if the treatment worked (e.g., the change in a clinical measurement from baseline to the end of the study).
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Safety Endpoint: A measure of the frequency and severity of adverse events experienced by participants during a clinical trial.
Equipment Management: The systematic process of acquiring, maintaining, calibrating, and retiring equipment to ensure it remains suitable for its intended use and complies with quality and regulatory requirements.
Equivalency: Demonstrating that a new device is as safe and effective as an already marketed device by comparing its technical and functional characteristics.
Enterprise Resource Planning (ERP) Systems: Integrated software platforms that manage and automate core business processes across an organisation, facilitating the flow of information and improving efficiency.
Equipment Management: The systematic process of acquiring, maintaining, calibrating, and retiring equipment to ensure it remains suitable for its intended use and complies with quality and regulatory requirements.
FDA Approval: The process by which the U.S. Food and Drug Administration (FDA) officially recognises that a medical device is safe and effective for its intended use.
Financing: Securing capital or funding to support the development, regulatory process, manufacturing, market entry, or adoption of a medical device.
Follow-Up: The period of observation of participants after the intervention has been applied.
Go-to-Market Strategy: A comprehensive plan outlining how a company will introduce and promote its products or services to its target customers and achieve competitive advantage in the marketplace.
Healthcare Professional: An individual trained and licensed to provide medical care, treatment, and advice to patients, encompassing a range of roles such as physicians, nurses, pharmacists, and allied health professionals.
Healthcare Provider: An individual or organisation licensed or otherwise authorised to deliver medical, nursing, dental, or other healthcare services to patients or clients.
Health System: The organised network of institutions, resources, and people that deliver healthcare services to meet the health needs of a specific population.
Health Technology: The application of organised knowledge and skills in the form of devices, medicines, vaccines, procedures, and systems developed to solve a health problem and improve quality of lives (WHO definition).
Health Technology Assessment (HTA): A systematic evaluation of the properties, effects, and impacts of health technology, such as medical interventions, pharmaceuticals or medical devices, to inform healthcare decision-making.
Health Technology Management (HTM): The systematic planning, procurement, implementation, and evaluation of medical technologies to ensure their safe, effective, and efficient use within healthcare settings.
Importer: A natural or legal person who places a device from another country on the market.
Indication of Use: A concise statement specifying the medical conditions or purposes for which the medical device is intended to be used, as approved by regulatory authorities.
Intended purpose: The use for which a medical device is intended according to the information provided by the manufacturer on the labelling, in the instructions for use (IFU), or in promotional materials. This may also be referred to as the Intended Use in some jurisdictions. Also see Indication of Use.
International Medical Device Regulators Forum (IMDRF): A global regulatory collaboration focused on harmonising medical device regulations to facilitate patient access to safe and effective devices. This organisation was formerly the Global Harmonization Task Force (GHTF).
Interoperability: The ability of different systems, devices, applications, or products to connect, communicate, and work together effectively without requiring special effort by the user.
Just-in-Time (JIT) Inventory Management: An inventory strategy that aligns raw material orders and production schedules closely with actual demand to reduce storage costs and waste.
Key Performance Indicators (KPIs): Measurable values that demonstrate how effectively an organisation achieves key objectives.
Labelling: The label on a medical device and all descriptive and informational literature associated with the device. Also see Instructions for Use (IFU)
Lifecycle Management: The process of overseeing a product, service, or system from its initial development through its growth, maturity, and eventual decline or disposal, ensuring optimal performance and resource utilisation at each stage.
Logistics: The process of planning, implementing, and controlling the efficient movement and storage of goods from origin to consumption.
Maintenance: Regular, planned actions taken to ensure that the devices remain in optimal working condition, including inspection, calibration, cleaning, and repair. Also see Preventative Maintenance and Corrective Maintenance.
Manufacturer: A legal entity that designs, produces, assembles, or labels a medical device with the intention of placing it on the market.
Market Access: The process of ensuring a medical device can be reimbursed, adopted, and used within a specific healthcare system or market.
Market Development: Expanding or creating new customer segments, geographies, or clinical indications for a medical device.
Marketing: Activities that promote awareness, education, and demand for a medical device among stakeholders like clinicians, payers, and patients.
Market Launch: The coordinated introduction of a medical device into a specific market, often involving regulatory clearance, marketing, sales training, and distribution setup.
Medical Device Management System (MDMS): A comprehensive framework that oversees the lifecycle of medical devices from acquisition to disposal, ensuring regulatory compliance, safety, and operational efficiency.
Meta-Analysis: A statistical technique that combines the results of multiple scientific studies to integrate findings and derive overall conclusions about the effectiveness or impact of a health technology or intervention.
Mode of Action: The means by which a device achieves its intended therapeutic or diagnostic effect.
Needs Assessment: A systematic process to identify and prioritise gaps or requirements in healthcare delivery that could be addressed through technological interventions.
Notified Body (NB): An organisation designated by a country authority to assess the conformity of certain products before being placed on the market, ensuring they meet applicable regulatory requirements and standards.
Payer: An entity or organisation, such as an insurance company or government agency, responsible for reimbursing or funding healthcare expenses related to using health technologies.
Preventative Maintenance: Scheduled inspections, servicing, and adjustments performed regularly to prevent potential equipment failures and ensure continued reliability and safety in clinical settings.
Post-Market Surveillance (PMS): The proactive collection and review of experiences and data related to a device after it has been released onto the market to ensure continued safety and performance.
Predicate Device: An existing on-market device that provides a basis for comparison or reference in demonstrating substantial equivalence for regulatory purposes.
Pre-market Approval (PMA): The process by which the U.S. FDA evaluates and approves the safety and effectiveness of high-risk medical devices before they can be marketed and sold in the United States.
Pricing: The strategy and process of setting the cost at which a medical device will be sold, balancing value, market conditions, and reimbursement.
Procurement: The process of acquiring, purchasing, or obtaining medical equipment, supplies, or technology necessary for healthcare delivery.
Qualification: The process of determining whether a product meets the definition of a medical device in a particular jurisdiction. Quality Management System (QMS): A formalised system that documents the structure, responsibilities, and procedures required to achieve effective quality management.
Quality Management System Regulation (QMSR): The U.S. Food and Drug Administration (FDA) regulation that aligns its medical device quality system requirements with ISO 13485:2016 to streamline global compliance and enhance device safety and effectiveness.
Quality System Regulation (QSR): Outlined in 21 CFR Part 820, the U.S. Food and Drug Administration (FDA) framework requires medical device manufacturers to establish and maintain a quality management system to ensure their products consistently meet applicable requirements and specifications.
Real World Evidence: Clinical evidence regarding the use and potential benefits or risks of a medical product derived from real-world data (RWD) sources outside traditional clinical trials.
Record: A documented piece of evidence detailing activities, decisions, or results, created and maintained to demonstrate compliance with regulatory requirements and quality management standards.
Regulation: The rules, laws, standards, and requirements set by regulatory authorities to ensure the safety, efficacy, and quality of devices intended for medical use.
Regulatory Approval: Official authorisation from a competent authority or regulatory authority that a medical device meets safety and performance requirements.
Regulatory Authority: An official body overseeing and enforcing laws, regulations, and standards within a specific industry or sector to ensure compliance and protect public interests. Also known as a Regulatory Authority. Also see Competent Authority and Notified Body.
Regulatory Submission: The formal process of submitting documentation and data to regulatory authorities for review and approval to market or sell the device within a specific jurisdiction.
Reimbursement: The process of receiving payment from insurers, government health programs, or healthcare facilities for the use of medical devices in patient care.
Risk: The combination of the probability of occurrence of harm and the severity of that harm.
Risk Management (RM): The systematic application of management policies, procedures, and practices to the tasks of analysing, evaluating, controlling, and monitoring risk.
Safety: The condition of being protected from or unlikely to cause danger, risk, or injury.
Sales: The process of engaging customers, negotiating terms, and closing transactions to deliver medical devices to end users.
Sales Channel: The route through which a medical device reaches the market, such as direct sales, distributors, or strategic partners.
Sensitivity Analysis: The process of evaluating how the variation in the output of a model can be attributed to different variations in the input parameters.
Service: Post-sale support including installation, training, maintenance, and customer assistance to ensure proper use and satisfaction.
Sponsor: An individual, company, institution, or organisation that takes responsibility for the initiation, management, or financing of a clinical investigation.
Stakeholder: Any individual or group with an interest or influence in the delivery, outcomes, or policies of healthcare services.
Standard: A document that provides guidance, requirements, or specifications established by regulatory bodies, industry organisations, or international consensus groups.
State-of-the-art (SotA): The current knowledge or good practice acceptable in the medical devices industry.
Supplier: An entity or organisation that provides materials, components, or finished products used in the manufacturing, assembly, or distribution of medical devices.
Supplier Management: Overseeing and controlling the relationships and activities with external suppliers to ensure the quality, reliability, and regulatory compliance of sourced materials and components.
Systematic Review: A structured and comprehensive synthesis of research studies that aims to identify, select, assess, and summarise the findings of all relevant individual studies on a particular topic.
Technical Documentation: All documents that demonstrate the design, manufacture, and performance of the device, essential for ensuring compliance with regulatory requirements. This is also known as the Technical File.
Technical Specifications: Detailed descriptions of the requirements, characteristics, and standards that a product, service, or system must meet or adhere to, ensuring clarity and consistency in its design, production, or implementation. Also see Standard. Technical specifications can also be an alternative term for Design Inputs.
Technology Integration: The seamless incorporation of health technologies into healthcare organisations.
Total Cost of Ownership: The comprehensive sum of all expenses associated with acquiring, operating, maintaining, and eventually disposing of the device over its entire lifespan.
Total Product Lifecycle (TPLC): A U.S. Food and Drug Administration (FDA) term referring to the entire process of a medical device’s development, from initial concept and design through premarket review, manufacturing, marketing, post-market surveillance, and eventual product retirement. It emphasises continuous evaluation of safety, effectiveness, and quality throughout the device’s lifespan.
User: Any individual who operates or interacts with a medical device, including healthcare professionals, patients, and caregivers.
Validation: Confirmation by examining and providing objective evidence that the particular requirements for a specific intended use can be consistently fulfilled.
Value Proposition: A clear statement of the clinical, economic, and operational benefits a medical device offers to its stakeholders.
Verification: The process of evaluating whether or not a product, service, or system complies with a regulation, requirement, specification, or imposed condition.