When it comes to medical devices, what's the cost of quality? It could be as much as $36 billion, according to research by McKinsey & Company which suggests the total direct cost of quality is between 6.8% and 9.4% of industry sales. That’s equivalent to between $26 billion and $36 billion each year. One-third of that amount is ensuring good quality, the remaining two-thirds is the direct cost of poor quality.
Global sales of medical devices reached $380 billion last year, rising from $260 billion in 2006 – but during that time, the quality of these devices failed to keep pace. The industry has realized it needs to do more to capture the value of good quality in medical devices.
The growth in demand for medical devices
The medical device industry is worth $140 billion in the US, making it the largest medical device consumer in the world. The industry encompasses more than 5,800 companies in the US alone (80% of which employ fewer than 50 staff members) and employs around 356,000 people.
The combination of increasing demand for more advanced and personalized treatment and increased availability of healthcare is driving the demand for devices. With 15% of the US population aged over 65 and that figure predicted to rise to 20% by 2030, these demand implications are only going to grow. Companies are looking to improve medical care, increase performance and efficiency, and bring down costs through increasingly innovative technology.
Advances in technology mean that popular consumer devices such as smartphones and tablets are able to function as medical devices. Apps make it possible for physicians and patients to access medical records, information about drugs, and medical research with ease.
Investment in the medical device industry offers stability and growth, which generally translates into high returns, low risk, and substantial gains.
Ranging from tongue depressors to replacement heart valves, there are three FDA regulatory classifications of medical devices. Class I includes arm slings and dental floss, class II includes MRI scanners and pregnancy testing kits, while class III includes implantable pacemakers and breast implants.
Class III devices pose a significant risk of illness or injury and are subject to a testing and approval process similar to that found in the pharma industry.
What are the challenges?
Despite the advances and growth in the medical device sector, there remain a number of challenges.
1. Ability to track devices: With so many medical devices on the market, keeping track of them can be tricky. Manual entry can result in a high risk of error, inconsistency and incomplete data. Instead, a standardized, normalized, categorized knowledge solution platform allows accurate, real-time updates to identify, source, manage, document, track, and bill for devices.
2. Waste management: Every year, $5 billion is wasted due to expired, lost or uncaptured medical device charge costs. To avoid operational inefficiencies, information needs to be kept up-to-date and products captured at point of use to enable intelligent healthcare and purchasing decisions.
3. Keeping medical device records up to date: Incomplete or inaccurate records can lead to further challenges in reporting and billing. It also poses a problem identifying which patients are affected when medical devices have to be recalled. The more accurate and up-to-date information is from inventory entry through to point of use, patient discharge and follow up, the easier medical devices are tracked and identified.
4. Mapping medical devices with payment models: Medical device information is often unstructured, incomplete or unavailable. The ability to capture data effectively means users are able to gain the insights they need to make better purchasing decisions. By applying standardization and validation processes to this disparate data, knowledge engineers can create a single data source that is real-time, ready-to-use and up-to-date, thus saving both time and resource.
5. Cyberattacks: Devices are commonly connected to hospital networks creating a pathway for hackers to exploit vulnerabilities in outdated software. We have seen an increase in these attacks on medical devices in recent years – and this will continue as more vulnerabilities are uncovered. Hospitals must work together with manufacturers, software providers and regulators to ensure greater resilience to future attacks.
What’s the cost of quality?
Rapid globalization means that companies need to do everything they can to remain competitive. Increased pressure on medical device companies means they are constantly looking to reduce costs and improve standards.
Quality issues can be the result of a slip somewhere along a complex supply chain or during the design, testing and manufacturing process. A single error can have severe consequences not just for patients, but shareholders too: one major quality event can mean a 10% drop in a manufacturer’s share price.
Companies are all too aware of the risk. According to research, 67% of executives consider cost of quality essential to competitive success. At the same time, the majority of manufacturers rely on cost of quality to boost customer satisfaction (89%) and to remain ISO 9000 compliant (84.5%).
Further research by McKinsey reveals that major recalls or other quality events can mean medical device manufacturers risk losing up to 11.7% of market segment revenue or around $300 million in less than 12 months.
How to boost quality in the industry?
McKinsey identified sources of maturity that relate to good quality in medical devices.
By linking critical quality attributes (CQAs) with critical control points (CCPs) during the production and manufacturing processes, companies can achieve more robust product and process controls.
Stronger operational maturity relating to people and assets means a greater focus on employee retention and shared targets to help manufacturers improve quality.
Mature quality systems – specifically, supplier controls and non-conformance, corrective action/preventive action (CAPA) management – drive better quality performance and reduce quality cost.
Implementing an analytics-driven quality culture and processes across an organization is also critically important.
Leaders in the medical device industry are now recognizing that good quality pays dividends and are taking action through personnel, systems and process controls to guarantee it.
If you would like to find out more about this fast-growing sector, reach out at Contact.Us@epmscientific.com.
 Kaur, P. (2009). Current Cost of Quality Management Practices in India in the Era of Globalization: An Empirical Study of Selected Companies. Decision (0304-0941), 36(1).
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