Medical Device Link.

Originally Published EMDM October 2005

Med-tech Perspectives

The German medical device industry is at a crossroads. Early national elections, declining market share, and incipient signs of a brain drain are among the symptoms of an industry facing challenges to its historical role. While the German medical device industry continues to be a major market force—it remains the third largest medical technology market in the world—an attitude of complacency would be dangerously foolish. If the country is to maintain its leadership position, product innovation and technological advancements must be nurtured, say industry experts.

The outcome of Germany’s early election on 18 September has great potential to affect the future of the German healthcare system and, in turn, the medical device industry. This comes at a time when the device industry is experiencing a slight rebound from the economic depths of 2004. In the first six months of 2005, member companies of BVMed (Berlin), Germany’s medical technology association, reported 2.9% growth. While it’s less than spectacular, it is a demonstrable improvement over the 1.3% growth registered in 2004. A timely review of how German healthcare reform has affected industry, and what may lie ahead, is in order.

For consumers, the German healthcare system has been a model of generosity. All German citizens are entitled to comprehensive medical services, and the cost of this insurance is essentially financed through payroll contributions by workers and employers. Premium costs for unemployed individuals and their families, as well as pensioners, are paid by the government. About 92% of the population participates in this scheme, according to government statistics.

Educating Users

In terms of preparing healthcare personnel, the education system is doing its part. Medical students receive advanced training to ensure that emerging physicians are cognizant of technological breakthroughs in healthcare diagnosis and treatment. This has a bearing on industry, because medical device equipment procurement in Germany is decentralized. Most purchasing is conducted by individual hospitals and physicians.

There are some kinks in the supply chain when it comes to industry, however. Wolfgang Stehle, head of human resources at Medical Solutions, Siemens AG (Munich), suggests that more needs to be done to retain and, indeed, expand the nation’s pool of med-tech engineers. Existing efforts have had negligible impact thus far, he notes.

The policy of limiting reimbursement to approved services is stifling innovation in medical technology, say industry experts. It is easier to be reimbursed for older medical technology applications than new ones. This policy is based in part on the need to contain costs to preserve a national health system that provides for all German citizens. Ostensibly, the government also wishes to ensure that new devices are safe to use.

There is national consensus that the healthcare insurance system is in need of a makeover. Two alternative solutions are the “citizens’ insurance” concept of the Social Democratic Party (SPD) and the “solidarity-based health premium,” introduced by the Christian Democratic Union (CDU) and Christian Socialist Union (CSU).

In brief, the SPD plan would mandate participation with insurance fees dependent on individual income. Under this plan, insurance companies must insure everyone regardless of risk factors (such as age and health status). High-income workers could not opt out of the citizen’s insurance plan, and their premiums would be deducted at a higher rate than those of low-income workers. The CDU and CSU proposal would deduct premiums at the same rate from each participant, regardless of income, and move to increase competition among the various state and private insurance providers.

Industry veterans, including members of BVMed, laud the potential for more funding of the healthcare system, envisioning a trickling down of resources to their industry. Increasing the fund pool by either means, together with a reform of reimbursement policy, could strengthen the device industry through greater availability of funds, says BVMed director general Joachim M. Schmitt.

Whichever party prevails, it is critical that the system of reimbursement approval for services be revised to reflect the benefits of innovative medical technologies. According to Schmitt, over half of the medical technology products currently on the market are less than three years old. He suggests that this highlights the need for a better appreciation of the significance of recent, innovative developments.

Heinz Schade of Heinz-Schade GmbH (Reutlingen, Germany), which produces minimally invasive cardiovascular products, further emphasizes that innovation is key to industry’s survival. There is no lack of innovative technologies and products, says Schade. What is lacking in Germany compared with other leading med-tech centres, he adds, is a willingness to embrace new medical technologies.

Whether or not the diagnosis-related group (DRG) system that was implemented in 2004 will improve this state of affairs is up for debate. BVMed claims that innovative medical technologies are underevaluated in existing DRG catalogues, or not considered at all. The association is working to rectify this through its seat on the national board that reviews the DRG reimbursement system. As the system is still in transition (and this is, after all, an election year), it is not yet clear how well DRGs will work in terms of the medical device industry.

Declining Market Share

In addition to potential changes in the national healthcare system, the overall condition of Germany’s medical device industry depends on several other factors. Chief among these is maintaining market share in leading-edge products. “Germany has [excellent] prospects for bringing new products and procedures to market,” says Schmitt, “because of the quantity of educated doctors, researchers, and engineers, and the high standards in clinical research.”

Cost-effective clinical research and its short product approval times provide Germany with a significant competitive advantage, according to Schmitt. On the downside, reimbursement restrictions in Europe force many companies to rely disproportionately on the US market.

German leaders continue to project confidence in the nation’s ability to apply its engineering and R&D expertise to medical technology innovations. Many concede, however, that reliance on internal production alone is no longer enough. By now, most are resigned to the fact that Germany simply cannot compete with low-wage nations in a number of manufacturing operations. Outsourcing, in combination with superior medical technology, can be viewed as German companies working globally in order to strengthen their competitive position.

The German med-tech industry is still in a strong position. According to BVMed, it employs about 108,000 workers in 1200 companies. Representing a 15% world share of the med-tech market, Germany is the second largest exporter of medical devices after the United States. However, BVMed further reports that market share has slipped almost six percentage points since 1991, when it stood at 20.3%. This decline must be addressed.

The greatest challenge for the medical technology device industry is the “evaluation and financing of innovations,” says Schmitt. “The procedures of the Federal Joint Committee (Gemeinsamer Bundesausschuss, G-BA) pose problems here. In the hospital sector, the G-BA wants to establish stricter regulations for the introduction of innovative products. BVMed advocates adherence to the innovation-friendly principle of “permission with the reservation of prohibition,” explains Schmitt. “According to this principle, medical technology innovations in hospitals are subject to reimbursement by the statutory health insurance unless the G-BA has issued a negative evaluation. Our [current] healthcare minister Ulla Schmidt supports this view.”

Recent government activities have made some progress in efforts to recognize and reward the contributions of the medical device industry. Speaking at the London School of Economics in February, Ulla Schmidt noted: “We have created financial incentives in the form of budgetary allocations for new forms of healthcare provision . . . . Special incentives are also provided to stimulate the economic use of services and [to promote] healthy lifestyles. These elements exemplify a restructuring of the system with the objectives of improving the quality of healthcare [while] channeling resources where they can be used effectively and efficiently.”

By viewing advances in medical technology as investments in patient care and disease prevention, rather than as costly and discretionary expenses, the economic sense of supporting medical innovations will be realized. As the appeal of innovation increases, the demand for additional technologies will escalate. If this relationship can be nurtured, it will indeed be a win-win situation for both the developers and users of medical device technology.

Copyright ©2005 European Medical Device Manufacturer