Few market segments today offer the combination of opportunity for technological innovation and rich revenue rewards as does the market for pacemakers and implantable cardioverter-defibrillators. At the same time, it's a segment where market share can shift literally overnight, as physicians flock to the latest developments in these extraordinary, life-saving products. No manufacturer is immune to these forces, and physicians in general seem to be more loyal to technology than they are to a brand name.
And despite the fact that this market is probably less affected than most by price pressures, those pressures are mounting of late. In the U.S., government reimbursements are rising slightly, mostly since no one wants to forestall technological development that could save lives. Nevertheless, at the hospital level today many doctors and administrators are becoming "sensitized" to price issues.
Still, the degree of impact on pacer and ICD prices brought by group purchasing organizations and corporate buying is much less severe than with most other physician preference products. That is because few providers want to be locked into long-term agreements with one or even two manufacturers one day, when a third manufacturer might release a superior product the next. However, companies that can offer a broader range of products, such as Minneapolis-based Medtronic Inc., enjoy a clear advantage when hospitals and systems make their purchasing decisions, despite the dragging effect on prices of such broad offerings. Volume-based rebates are becoming popular.
For device producers, what price pressure there is shows itself in a growing disparity between unit growth and revenue increases. To cope, manufacturers have become more efficient in their manufacturing practices and have instituted a range of other cost controls. But analysts are beginning to question whether the high gross margins that these companies have enjoyed have …