A CEO-grade, system-level deep dive

Authors: Dr Vikram Venkateswaran, Dr Paritosh Dubey, Dinesh Aagrawal

Medical Devices are an essential part of the healthcare ecosystem. The entire sub-sector is a paradox that challenges the traditional economic wisdom that demand equals growth, and that even together, growth and demand don't create value. In this article I will try and review some of these paradoxes and see what lies ahead for the MedTech/Medical Devices Industry.

First disconnect: Healthcare demand vs. reimbursable activity

1.      Demand-Growth Mismatch

A useful way to understand healthcare markets is through what I often call the demand–growth mismatch. Just because a disease burden exists does not mean the corresponding healthcare products or services will scale at the same pace. Diabetes in India is a good example.

India is estimated to have roughly 75–80 million people living with diabetes, making it one of the largest diabetes populations in the world. From a clinical standpoint, this clearly signals a large and growing need for long-term disease monitoring and management. In theory, technologies such as Continuous Glucose Monitoring (CGM) devices should see widespread adoption in such an environment.

However, the reality is quite different. The number of people using CGM devices in India is only a small fraction of the total diabetic population. Most patients still rely on periodic finger-stick glucose measurements or infrequent laboratory testing. CGM devices remain concentrated in a relatively narrow segment of patients, typically those who are more affluent, urban, or under specialist endocrinology care.

2. Reimbursable Activity

In day-to-day medical practice, the care that occurs most consistently is the care with a defined payment pathway. Hospitals, clinics, and doctors all operate within systems in which insurers or governments specify which services are covered and how they are paid for. When reimbursement is clear, infrastructure and expertise tend to develop quickly.

India offers a good illustration. Procedures such as dialysis, cardiac stenting, and many oncology treatments have become widely available, in part because insurance schemes and government programs such as Ayushman Bharat recognise and cover them. Hospitals have invested in equipment, trained specialists, and created efficient service lines around these treatments.

Globally, the pattern is similar. Whether in the United States, Europe, or parts of Asia, structured reimbursement has helped expand access to life-saving interventions, from joint replacements to complex cancer therapies. In many ways, reimbursement systems have played an important role in scaling modern medicine.

3. The Gap Between Need and Delivery

Even with these advances, healthcare systems are still learning how to address the full spectrum of patient needs. Conditions that develop slowly, such as diabetes, hypertension, or mental health disorders often require long-term engagement rather than a single procedure or hospital visit.

India is a good example. We know the country carries one of the world’s largest burdens of diabetes and cardiovascular risk. Yet many patients enter the healthcare system only when complications appear. This is gradually changing as awareness increases and screening programs expand.

Several countries have already demonstrated what can be achieved. Japan’s national health check programs and preventive screening initiatives across Europe have significantly improved early detection of chronic disease. These experiences show that when prevention is prioritized, population health can improve substantially.

Second disconnect: Procedure volume vs. MedTech value capture

In healthcare, we often assume that if a country performs many procedures, medical device companies must also be doing very well. In practice, that is not always the case. Procedure volumes can grow rapidly, but the value captured by medical technology companies does not always grow at the same pace.

1. Large Procedure Numbers Do Not Always Mean High Device Revenue

India performs a very high number of procedures every year. Cataract surgery is a good example; millions are done annually. Similarly, cardiac angioplasties and knee replacements are becoming more common as hospital access improves.

Yet the device value per procedure is often quite low. After the government placed price limits on coronary stents, the number of angioplasties continued to grow, but the revenue device companies earned per procedure dropped sharply. The treatment volume remained strong, but the economic upside for device makers narrowed.

2. Hospitals Often Decide What Gets Used

In many hospitals, especially large chains and public institutions, purchasing decisions are tightly controlled. In the US, devices are often purchased by Group Procurement Offices (GPOs). Devices are often bought through tenders or negotiated contracts. Doctors may have preferences, but hospitals must also keep costs under control.

Dialysis is a useful example. India now performs millions of dialysis sessions each year. The demand is real because kidney disease is on the rise. But many dialysis programs run on fixed budgets, particularly in government-supported centers. As a result, suppliers often compete heavily on price.

3. Devices Grow Faster When Doctors See Clear Clinical Value

When a device clearly improves patient care or makes a procedure easier, doctors tend to adopt it more readily. Over time, hospitals also recognize the benefit.

Robotic surgery is a good illustration. In countries like the United States and South Korea, hospitals invested heavily in robotic platforms because surgeons found them useful for certain procedures, and patients were willing to seek out centers that offered them. One of the challenges we see with SaMD developed by native technology companies is that it is not properly integrated into clinical and hospital workflows. This leads to lower adoption as doctors don’t see clinical value.

In other cases, technologies that add cost without obvious clinical benefits tend to struggle, even when procedure numbers are high.

Third disconnect: Topline growth vs. enterprise value creation

1. Revenue Growth Can Sometimes Be Expensive Growth

It is not uncommon to see healthcare companies grow quickly by aggressively pushing sales, adding distributors, offering discounts, or entering multiple markets at once. The topline improves, but the business may still struggle to turn a profit.

We have seen this with several diagnostic chains in India over the past decade. Many expanded rapidly across cities, opening collection centers and labs to build market share. Revenues increased, but the cost of running the network, rent, logistics, and staff often grew just as fast. The result was growth without strong profitability.

2. Enterprise Value Often Comes from Defensibility

Investors usually value businesses more highly when they have something difficult to replicate. In healthcare, this might be clinical validation, strong physician relationships, regulatory approvals, or proprietary technology.

For example, companies working in specialized medical devices or deep diagnostics platforms tend to command higher valuations when they demonstrate strong clinical evidence and intellectual property. Even if their revenue is still modest, investors recognize that the business has long-term defensibility.

3. Sustainable Economics Matter More Over Time

Many healthcare businesses eventually reach a stage where the focus shifts from “How fast are you growing?” to “How sustainable is the business?”

Hospital chains offer a good example. In India, several hospital groups expanded rapidly in the early years by adding beds and entering new cities. Over time, the market began to reward those who showed strong occupancy rates, efficient operations, and predictable cash flows. Stable operating margins often mattered more than rapid expansion. After the PE firms entered the market, this became a must-have rather than a good-to-have.

2. Where the Translation Used to Work (and Why It’s Breaking)

For many years in healthcare, there was a predictable relationship between disease burden, clinical activity, and business growth. If a condition was common and treatment volumes increased, hospitals expanded, device companies sold more products, and healthcare businesses grew along with demand. In many ways, disease prevalence translated quite directly into economic opportunity. That's one of the reasons many device companies have incubated consulting groups that help set up hospitals, as hospital demand is directly correlated with device sales.

That translation worked reasonably well for a long time. But today it is becoming less reliable.

Shift from volume to value (or budget caps)

Traditionally, healthcare systems grew by increasing activity. More procedures, more hospital admissions, and more diagnostic tests were seen as indicators of progress. As a clinician, that model was familiar to patients who came in, we treated them, and the system expanded as disease burden increased.

However, healthcare systems around the world are beginning to recognize a simple reality: doing more medicine does not always mean creating more health. This has gradually shifted the conversation from the volume of care to its value. The shift is slow, uneven, and sometimes uncomfortable, but it is clearly underway.

1. Clinical Outcomes Are Becoming as Important as Clinical Activity

From a doctor’s perspective, the traditional model rewarded activity. If a hospital performed more surgeries or more interventions, it was seen as growth. But over time, we realized that the real question is not just how many procedures were performed, but how well patients recovered.

In several healthcare systems, particularly in the United States and parts of Europe, hospitals are now evaluated on outcomes such as complication rates, recovery times, and readmissions. If a patient returns to the hospital soon after surgery, it is increasingly viewed as a signal that something in the care pathway did not work as well as it should have.

This shift encourages clinicians to focus more on care pathways, postoperative monitoring, and long-term recovery, rather than solely on the procedure itself.

2. Chronic Disease Is Forcing Healthcare to Think Differently

Another reason for this shift is the growing burden of chronic diseases. Conditions such as diabetes, hypertension, and heart disease cannot be managed through a single hospital visit or procedure.

India illustrates this clearly. With tens of millions of people living with diabetes, the real challenge is not performing more procedures but helping patients manage the disease over many years. Good care in these cases means fewer complications, less kidney failure, fewer amputations, fewer cardiac events.

From a clinical standpoint, success is increasingly measured by whether patients remain stable and healthy over time, not simply by how often they enter the hospital.

3. Data and Technology Are Making Value Visible

One reason this shift is becoming possible is the growing availability of clinical data. Digital records, remote monitoring devices, and connected diagnostics allow doctors to follow patients more closely outside the hospital.

For example, cardiac monitoring devices, glucose sensors, and teleconsultations allow clinicians to detect problems earlier and adjust treatment before complications develop. Instead of reacting to illness when patients arrive in the emergency department, we can intervene earlier.

In practical terms, this helps the system move from episodic treatment toward continuous care.

Industrialization of procurement

A critical but often under-recognized structural shift in healthcare systems is the industrialization of procurement. Over the past two decades, purchasing of medical technologies has transitioned from physician-influenced hospital buying to centralized, data-driven supply chain governance.

Healthcare supply chains today represent one of the largest procurement ecosystems globally. Hospital procurement typically accounts for 30–40% of total healthcare expenditure, covering medical devices, consumables, pharmaceuticals, and capital equipment. In large health systems, 60–80% of device purchasing is now executed through centralized procurement frameworks or Group Purchasing Organizations (GPOs) rather than individual hospital departments.

This shift has introduced industrial procurement principles into healthcare purchasing:

• centralized contract negotiation across hospital networks
• supplier consolidation and category standardization
• digital sourcing platforms and spend analytics
• performance benchmarking and compliance monitoring

Digital procurement platforms have significantly increased visibility into healthcare spending. Studies indicate that e-sourcing systems can deliver 8–12% cost reductions in procurement categories through supplier competition, contract standardization, and aggregated purchasing power.

At the same time, supplier ecosystems are becoming increasingly concentrated. In several device categories, GPO contracts often restrict hospitals to 2–3 preferred suppliers, limiting market access for smaller or emerging MedTech firms.

Procurement decisions are also becoming increasingly data-driven and automated. Advanced analytics platforms allow procurement teams to optimize purchasing decisions based on historical utilization patterns, inventory risk, supplier performance metrics, and cost benchmarks. These systems reduce supply chain uncertainty but tend to favor established suppliers with proven operational reliability.

The result is that healthcare demand now flows through highly structured procurement architectures before translating into MedTech revenues.

Instead of expanding supplier diversity, rising healthcare demand is frequently absorbed through:

1)     supplier consolidation

2)     standardized device categories

3)     volume-based pricing contracts

4)     centralized purchasing frameworks

Consequently, while global healthcare expenditure continues to grow at ~5–6% annually, procurement systems increasingly capture demand growth through cost efficiency and purchasing leverage, rather than proportional expansion of MedTech supplier markets.

In effect, industrialized procurement has become a structural filter between healthcare demand and MedTech growth, reshaping how innovation, pricing, and supplier access operate across healthcare systems.

Implication:

1. Demand Governance, Not Demand Amplification
Industrialized procurement systems primarily govern cost, compliance, and supplier access, meaning rising healthcare demand is often absorbed through volume consolidation and price compression rather than supplier expansion.

2. Operational Complexity Outpaces Procurement Scalability
As healthcare demand grows, supply chains must manage more SKUs, regulatory controls, and inventory risks, creating procurement bottlenecks that slow the translation of clinical demand into large-scale MedTech adoption.

3. Risk-Weighted Purchasing Bias
Procurement frameworks prioritize supplier reliability, compliance, and cost predictability, which structurally favors established vendors and slows the diffusion of new MedTech innovations.

The Four Structural “Levers” That Actually Turn Demand into MedTech Growth

Capacity-constrained vs. budget-constrained systems

When we discuss medical device markets across countries, it is useful to recognize that adoption is shaped by two very different constraints. In some systems, the main challenge is capacity: hospitals simply do not have enough equipment, specialists, or diagnostic infrastructure. In others, the technology is available, but the system is limited by budget and reimbursement rules. From a clinician’s perspective, both situations influence how medical devices reach patients.

1. Capacity-Constrained Systems: Devices Expand Access to Care

In many emerging markets, the primary issue is the availability of diagnostic and treatment capacity. Hospitals may not have enough imaging equipment, monitoring systems, or specialized devices relative to the patient load.

India offers several examples. Ten to fifteen years ago, access to advanced imaging such as CT and MRI was concentrated in major cities. As more machines entered the market, diagnostic capacity improved significantly, and patients could receive faster diagnoses. A similar pattern occurred with dialysis machines: growth in dialysis infrastructure allowed thousands of patients with kidney disease to receive regular treatment who previously had little access.

In these environments, medical devices often play a capacity-building role. Each additional machine or device directly increases the number of patients that can be treated.

2. Budget-Constrained Systems: Technology Exists, but Adoption Is Controlled

In many developed healthcare systems, the situation is different. Hospitals often have clinical expertise and infrastructure, but device adoption is shaped by reimbursement policies and cost controls.

Take robotic surgery platforms as an example. In countries such as the United States and South Korea, hospitals invested heavily in robotic systems because reimbursement and patient demand supported their use. In contrast, adoption in systems such as the UK’s NHS has been more measured. Technology is available, but decisions about expansion depend on whether it clearly improves outcomes relative to cost.

Similarly, advanced monitoring devices or diagnostic tools may be available in hospitals, but their use can be tightly governed by clinical guidelines and budget constraints.

3. The Device Opportunity Often Lies Between These Two Worlds

For medical device innovators, the real opportunity often lies between these two constraints. In capacity-constrained markets, devices that are simpler, portable, and cost-efficient can dramatically expand access to care. Point-of-care diagnostics and handheld imaging devices are good examples.

In budget-constrained systems, technologies that demonstrate better outcomes or reduce long-term healthcare costs tend to gain traction. Devices that shorten hospital stays, reduce complications, or enable earlier diagnosis often to find stronger acceptance.

Procedural centrality vs. peripheral role

Medical technologies differ significantly in their structural position within clinical procedures, which influences how healthcare demand translates into device demand.

Procedurally central technologies are integral to performing a clinical intervention (e.g., stents in angioplasty, orthopedic implants in joint replacement). Demand for these products typically scales directly with procedure volumes and remains strongly influenced by clinical decision-making.

In contrast, peripheral technologies support but do not define the procedure (e.g., accessories, consumables, supporting diagnostics). These products are more easily standardized and substituted, making them more exposed to procurement-led cost optimization and supplier consolidation.

Consequently, procedurally central devices tend to retain stronger clinical influence and pricing resilience, while peripheral technologies are more susceptible to commoditization and procurement control.

Digital Health Infrastructure Penetration Across India and Advanced Healthcare Markets

The increasing adoption of EHR/EMR systems and national digital health platforms embeds patient data and clinical workflows within software ecosystems, creating foundational conditions for vendor lock-in and higher switching costs.

Structural Drivers of Switching Costs in Digitized Healthcare Systems

As clinical data, workflows, and device integrations become embedded within digital health platforms, switching vendors requires significant operational, technical, and financial effort, reinforcing long-term dependence on existing software ecosystems.