Medical Device Link.

Originally Published EMDM July/August 2003

Med-Tech Market Report

In a year designated by the German government as the year of technology, Germany’s medical technology industry is hoping for policy changes in 2004 that will stimulate innovation rather than stifle development. Turnover among German trade association BVMed’s 200 members slowed to 3.9% in 2003 (down from 6.5% the previous year), while expenditure on R&D has declined from 10% to 7% of sales in the last five years.

The third-largest market for medical technology worldwide, Germany’s share of around 8% of global sales is shrinking. While above- average growth of 5.9% was registered for sales of incontinence and ostomy care products, accounting for 18.7% of the German market in 2003, other categories grew more slowly. Sales in the largest category, which comprises medical devices for intensive and nursing care, increased 4.1% to account for 59.6% of total sales. Bandaging materials (representing 14.7% of sales) grew just 1.8%, while single-use surgical equipment (7% of the market) rose 2%.

Click to enlarge.

Higher consumption was the main driver of growth in 2003, as budget constraints and bulk buying by hospitals continued to put pressure on prices. Hospitals are the largest purchasers of medical devices, accounting for 46% of the e24 billion spent on medical technology in 2002, according to the Federal Statistical Office. Manufacturers will face further pressure on prices as hospitals come to grips with the economic constraints of the DRG system.

Introduced in phases, the DRG system came into full effect in January 2004. By the end of 2003, 900 of a total of about 2240 hospitals had adopted the DRG accounting system. The current catalogue, developed by the Federal Ministry of Health, contains 824 DRGs, with the potential for hospitals to agree individually on 25 additional fees. BVMed has achieved some success in getting proposals for new DRGs and additional financing for implants, radiotherapy, and modern wound care accepted by the Institute for the Reimbursement System in Hospitals (InEK). Further improvements to the calculation of reimbursement rates are expected in 2005, when DRGs will be adapted to national base rates.

Gaining reimbursement for innovative medical technologies in the DRG system represents a significant challenge for industry. To accelerate access to new technologies, BVMed has proposed a new financing method. The so-called Delta Financing Model would allow health insurance (or sickness) funds to reimburse the “basic value” of a conventional device, with the additional cost borne by the patient. However, this would entail changes to Germany’s healthcare system, which is based on the principle of solidarity. The insured population pays contributions to sickness funds that are unrelated to the insured risks and it is provided healthcare benefits that are not dependent on the contribution amount. Although discussions on alternative funding mechanisms of the Statutory Health Insurance (SHI) system are under way, changes are likely to be long in coming.

In the meantime, the chronic financial deficit of the SHI has prompted legislative reform of the healthcare system, culminating in the Modernization of the Statutory Insurance Act, which came into effect on January 1, 2004. Among reforms that are expected to save SHI some e9.8 billion are the exclusion of dental prostheses from SHI benefits starting in 2005, and new copayment regulations. As a result, patients are expected to pay an extra e300 million each year on technical aids, a category that is already suffering from sickness funds’ economic policies.

The healthcare reforms endorse the practice of limiting reimbursement claims for technical aids to an average price in the lower third of the price range, despite the fact that supply contracts are based on mutually agreed prices. A lack of transparent methods for calculating average prices and the increasing use of tender purchasing will put the technical aids sector under greater pricing pressure, further eroding its 3.5% share of SHI expenditure. 

Development of the homecare market will be boosted by the introduction of DRGs, new financial incentives for integrated care, and demographic changes. However, BVMed is cautious about the market’s growth potential in light of the sickness funds’ pricing policies. Companies also face constantly increasing administrative expenses and differing legal guidelines that are frequently referred to the courts.

Pricing pressures and rising costs are eroding companies’ profitability, with negative consequences for R&D investment. Little R&D in medical technology is currently conducted in Germany, according to BVMed.

Copyright ©2004 European Medical Device Manufacturer