Blog Tag: Outsourcing
Outsourcing of Services in the Medical Device Industry
As the medical device market continues to grow, the medical device industry has strived to reduce costs through outsourcing. An industry report has found that the global medical device outsourcing market was valued at $33.2 billion in 2016, and is projected to continue to grow. The medical device industry is outsourcing not only the manufacturing of medical devices, but also associated services, such as regulatory consulting and contract manufacturing, to medical device service providers. Medical device manufacturers and outsourced medical device service providers should be conscious of the regulatory and legal ramifications of the delocalization associated with the outsourcing that is increasingly common in today’s global market.
While outsourcing has traditionally been linked to manufacturing, outsourcing of services has become a major growth engine in the medical device industry. Outsourced services include regulatory consulting, product design and development, testing and sterilization, implementation, upgrades, maintenance, and manufacturing contracts. Regulatory consulting, which in 2015 already commanded over 50% of the outsourcing market for services, is particularly expected to grow. Regulatory consulting includes services directed to compliance with national agencies that approve and continually monitor the safety of medical devices, including the F.D.A. in the United States and the E.F.S.A. in Europe. In addition, contract manufacturing is reported to be the fasted growing service in the medical device industry and is projected to grow at a compound annual growth rate of over 11.5% through 2025.
There are several benefits associated with medical device outsourcing. According to an MDDI article, outsourcing can help original equipment manufacturers (OEMs) accelerate time to market for a new product, and speed up return on investment. Furthermore, the article states outsourcing can provide specialized knowledge, expertise, and facilities without the significant resources required to acquire such expertise in house. Moreover, outsourcing can leverage the pre-existing large supply chain of the contractor.
However, outsourcing also carries potential risks. The issues associated with outsourcing so many aspects of services uniquely associated with the medical device industry may not be as well known or well understood as the issues presented by outsourcing manufacturing. According to another MDDI article, these issues may include an increased risk of civil lawsuits from consumers of medical devices. This is especially true as medical devices become increasingly digital, and cybersecurity vulnerabilities are found. The medical device industry may also face increased regulatory scrutiny from national agencies as more regulatory compliance is outsourced to consulting services. Consequently, the medical device industry and medical device legal community will increasingly face new challenges from a world in which more and more industry services are outsourced.
Fighting Fire with Fire – the Medical Device Tax and Outsourcing
Since its passage as part of the Affordable Care Act in 2010, the medical device tax has been hotly debated. The 2.3% excise levied on total revenues may effectively preclude new entrants while hindering the growth of established companies. While industries have turned to outsourcing for a number of years as a way to cut costs, the medical device industry may increasingly consider outsourcing in the coming years as a means to offset the effects of this tax. While outsourcing may help U.S. medical device companies, it may adversely affect Americans currently working in this sector.