Medical Device Link.

Originally Published MX September/October 2004

MARKET ANALYSIS

Emerging healthcare technology markets in regions new to U.S. commerce present surmountable hurdles

Ron Marrocco

Many medical device manufacturers have established a strong presence in the healthcare markets of industrialized areas such as Japan, Western Europe, and North America. For some, the time has come to look beyond traditional borders to the new markets of Asia, Eastern Europe, and the Middle East.

This article explores the issues that international sales and marketing executives might factor into their strategic thinking when considering entry into developing world healthcare markets. With an emphasis on the developing markets of the Republic of Poland, the Republic of Turkey, and the Russian Federation, the article frames some of the obstacles and opportunities that need to be understood in order to define an international strategy with the greatest potential for success.

Analyzing the Prospects

In theory, if a medtech company wants to grow sales, taking its products to new markets is a logical pursuit. Large, underserved populations exist that could benefit from medical products ranging broadly from commodity goods like sutures and urinary catheters to highly sophisticated innovations such as anastomotic couplers, point-of-care diagnostic assays, and surgical navigation systems. Before medtech company leaders book their tickets to unfamiliar lands, however, it would be prudent to conduct a comprehensive demographic and sociopolitical analysis of the markets that await them. And just as knowing something of the local language enriches the tourist's international travel experience, so will an acquaintance with local healthcare systems and politics pay dividends for the medtech manufacturer with foreign-market aspirations (see sidebar).

Whatever a company's global strategy, its executives should have a frame of reference derived from prior market successes or, more importantly, its technologies or products. For instance, a market-specific positioning strategy for a potentially lifesaving neonatal monitoring technology is likely to find a receptive audience if population growth is a local political concern perceived to be addressable through technology that has been proven to lower infant mortality. To anticipate comparable success in markets of similar demographics, however, may be expecting too much. Context matters. New technology will be embraced more readily if it can be shown to have a favorable impact on clinical outcomes, to offer economic advantages, and to benefit the population broadly.

Health Issues Requiring Attention

When a company's product represents a technology that is new to a target market—and competing devices have not yet begun to penetrate that market—it may be helpful to begin the marketing effort by determining the relative importance of the health issue that the technology is designed to diagnose or treat.

By gathering comparative disease data, companies can form a preliminary assessment regarding the importance of a particular market for a disease-specific product, or to help prioritize a list of target markets (see Table I). For example, point-of-care cancer screening tests may be of interest in market regions with documented high malignancy rates similar to those in Western Europe and North America. However, in the former Soviet states, where, admittedly, much of the population cannot be surveyed and accurate data are difficult to acquire, the low incidence of malignancies might justify not entering that market with such products. Further assessment of this market would reveal that national healthcare priorities lie in the management of alcoholism, trauma, and cardiovascular disease rather than in treating malignancies with a broad range of etiologies.

The statistics in Table I suggest why products used to assess and treat cardiovascular diseases are received with great interest in markets around the world. Nevertheless, healthcare innovations are more often met with trepidation than with open arms.

Figure 1. A process for justifying entry into a developing market with a particular medical technology. (click to enlarge)

Using statistics such as these, company marketing executives can devise a flowchart to determine whether entering a developing healthcare market is justified. It would logically start with a question measuring the company's technology against the disease-management needs of the target country (see Figure 1).

Healthcare Spending Trends

Another metric that might well inform a target market prioritization strategy is healthcare spending, which generally reflects the relative importance a nation places on healthcare. The United States places a very high priority on the physical well-being of its citizens, as shown by healthcare spending in excess of 13% of the gross domestic product (GDP), while the industrialized countries of the Organization for Economic Cooperation and Development (OECD) spend 8.4% of GDP on healthcare on average (see Table II).² It is unlikely that a nation that places little emphasis on health spending, such as Russia at 3% and Turkey at less than 5%, will invest much in technology to treat a particular disease on a broad scale unless that disease happens to rank high on the list of national health priorities.

But consider the Russian Federation, which conservatively projects a 30% population loss by 2050. A country facing such a dramatic population decline, along with an aging demographic, can ill afford to underinvest in its human capital—especially as it considers how to fund an emerging national health insurance program. National health insurance typically depends on payroll deductions to support the healthcare needs of the unemployed and elderly. When the critically important pool of working adults declines, there will be a corresponding decrease in tax contributions that fund public services, including healthcare. Knowing that population decline is a serious national concern in the Russian Federation could not only inform a market targeting strategy, it could frame justification for introducing medical technologies that address concerns of population decline by keeping more people healthy and working into their later years.

Meeting the needs of a national health insurance program can also influence the implementation of other social programs. For example, Germany responded to a milder case of population attrition by offering favorable tax deductions and paid daycare for families with young children. Although this policy did not appear to affect healthcare directly, it enabled Germany to strengthen its workforce and ensure its national budget was stronger. This, of course, could translate into additional healthcare funding as well as support for other social programs.

Trade in Medical Technology

Yet another metric to consider relates to a nation's trade behavior with respect to medical imports. A comparison of healthcare product imports for three developing markets (Russia, Poland, and Turkey) and two industrialized markets (Germany and Italy) would seem to validate the relative importance that each of these nations places on healthcare spending (see Table III).³ The per capita consumption figures in Table III correlate well with the percentage of GDP each nation spends on healthcare (as shown in Table II).

Poland imports fewer medical devices, pharmaceuticals, and medical commodities per capita than its counterparts in the European Union (EU), Germany and Italy (see Table III). As Poland has recently joined the EU, it will be looking to the European Community for guidance in rebuilding its healthcare system. The country will embrace EU standards for approval of medical technology, including the CE mark.

Carrying the CE mark does not guarantee that a medical device will be accepted, adopted, or reimbursed, however. That will depend largely upon the policies of private and public insurers, the priorities of the national healthcare system, and the ways and means by which the ministry of health chooses to serve the broad needs of the national population. Factors such as these make each nation's healthcare policy as individual as a fingerprint.

Sociopolitical Factors

Sociopolitical factors might be considered the invisible barriers to medical technology adoption in developing world markets. It's not that the information is unavailable; it simply seems to receive less attention than some of the more obvious target-market demographics such as population size, disease prevalence, and the accessibility of high-profile medical institutions. Factors in this category that are worthy of discussion with reference to developing healthcare systems in Poland, Turkey, and the Russian Federation are healthcare policy and the state of reform; corruption and transparency; characteristics of served populations; and the accessibility, authority, and autonomy of healthcare providers.

Healthcare System Policy and Reform. A company that understands the current state of reform in an emerging market can save a lot of time and anxiety when developing its global strategic plan. If the healthcare system in a particular country is in a state of chaos as the result of a change in political leadership or the imposition of regulations designed to stifle healthcare spending, then it is probably not the right time to target that market for the introduction of innovative, high-tech medical equipment.

This appears to be the situation in Poland. The centrally managed national health fund, recently pronounced unconstitutional, has driven many public hospitals deep into debt.⁴ The Polish healthcare system is supposed to be completely reformed by the end of 2004. The policies that the new system creates for funding, clinical-care guidelines, and arrangements between local and centralized healthcare-management administrations will determine how well foreign manufacturers will succeed in gaining access to the Polish market and selling their products there.

The Republic of Turkey has recently gone through a lengthy period of economic reform which involved its healthcare system. The Turkish Ministry of Health (MOH) takes a centralized approach to the development of the country's health policy. Although the provincial health directorates administer health services locally, MOH makes the resource allocation decisions for capital expenditures, including diagnostic imaging technologies.

In response to this, Siemens Medical Solutions (Erlangen, Germany) has established a strong presence in Turkey by participating in the country's Health Care Products Manufacturers and Representatives Association (SADER in the Turkish abbreviation). This organization works with provider networks and policy makers to create public health policy that benefits the Turkish population as a whole while ensuring that the providers of medical technology have a voice in healthcare administration at the local level. In addition, the Turkish government is working to support the privatization of health insurance. Its goal is to enlarge the currently small base of private health insurance policyholders to 8 million people by 2005.⁵

Another problem that medical device manufacturers have encountered in healthcare markets in the developing industrialized countries is arbitrage. Historically, many medtech manufacturers have had a multimarket pricing strategy. This practice has encouraged the arbitrage of products (and to a lesser extent services) across national borders. As Poland becomes integrated into the EU, this problem has the potential to get worse before it gets better. Strict accountability for inventory and for tracking product usage patterns could be helpful in monitoring this problem, particularly when exporting companies are working with third-party distributors that are well networked within the medical technology industry.

Corruption and Transparency. In markets where a high degree of government regulation has stifled trade, corruption and black markets abound. Developing markets like Turkey, Poland, and Russia offer examples of how this plays out in the healthcare arena.

The World Bank tracks issues of government involvement and private-sector business interference practices around the globe. One of the anticompetitive or corrupt practices found in Turkey pertains to the limited influence that businesses have on the development of MOH policy. SADER was established to create a channel through which medtech firms could voice collective concerns and position their goals in a manner that would benefit Turkish society as a whole. Because the Turkish government has been known to interfere with the sales process—particularly in reviewing government contracts for capital equipment or large quantities of medical supplies—an industry organization that can establish ground rules for ethical business practices is a valuable counterbalance.

A widespread and persistent problem with healthcare delivery in nations like Turkey, Poland, and Russia is the matter of bribes and direct off-the-books payments extended to healthcare providers. These payment practices are not considered illegal, and they are not regulated by the healthcare system. Since physician compensation in Poland and Russia is very low by international standards, doctors rely on the receipt of out-of-pocket payments. The problem is so severe in Russia that the national healthcare system has given it a name: shadow cost sharing. Basically, if a Russian citizen wants more-efficient access to care or to technology that falls outside the scope of traditional care guidelines, the patient must pay directly out of pocket for these services. Such payments are expected, and are considered a support of the healthcare system and a correction of the healthcare system's undercompensation of medical professionals.

In Turkey, individuals' out-of-pocket healthcare expenditures account for more than 30% of total health-related spending. The balance comes from the national budget (43%) and healthcare insurance premiums (25%).⁶

In Poland, providers and some local independent businesses have shown some enterprise. They have established a system of so-called medical tourism, whereby individuals from higher-cost industrialized nations can travel to Poland for medical procedures performed at a fraction of the cost prevalent in the patients' home countries.⁷ The practice is particularly popular for cardiovascular procedures and is even used for transplants. In the latter case, the patient is asked to bring the donor; Polish law precludes the transplantation of Polish organs into non-citizens.

For reform to continue in developing markets such as these, there will need to be greater transparency in not only compensation practices but also reporting of disease incidence and other local healthcare metrics that define the state of development of a nation's healthcare system.

Demographics: Meeting Popular Needs. A variety of forces are converging on the healthcare systems of developing industrial nations, and are bound to culminate in some level of reform that offers greater accountability to the people. Literacy rates are high in these nations, and Internet use, though still limited, is growing rapidly (see Table IV).

The informed citizens of each country are looking for consistency in the delivery of care. They want to know that there is a structured response to the presentation of a particular disease state. The national health ministries, in concert with emerging private insurers and social health insurance administrators, will be responsible for the development of guidelines as a first step toward creating more-responsive healthcare delivery systems.

For their part, manufacturers will likely find that the priorities that surface with this reorganization will relate to the health problems posing the greatest perceived threat to the population as a whole. The data presented in Table I provide merely a snapshot of disease states that occur in various regions. Access to similar tables supplying greater detail will enable international marketing executives to prioritize target markets and position a product technology for effective market entry.

A broad range of medical technologies inevitably will fall outside the scope of a particular country's national health priorities. In markets like Russia and Poland, which possess nonmainstream channels for the provision of noncovered procedures—that is, medical tourism and shadow cost sharing—manufacturers can elect to work with local healthcare providers to deliver medical services and technologies not available through the national healthcare system. Medtech firms offering products that serve so-called carve-out populations not covered by established care guidelines might especially explore this opportunity. Gastroesophageal reflux disease management, diabetes treatment, male and female sterilization, treatment of peripheral vascular disease, and intervertebral disk replacement are commonly not prioritized socially.

Another way to look at needs-based healthcare is to consider trade policy, domestic manufacturing capabilities, and purchasing patterns within a national target market. Poland, for example, is now focusing on cost containment. Virtually any technology that falls outside standard guidelines will not be embraced unless it is accepted through an independent medical practitioner or private medical institution or for the purposes of medical tourism.

Russia, on the other hand, has a fairly well developed network of medical device manufacturers that accounts for about half of the domestic medical device market. Their products offer favorable financial value owing to prevailing exchange rates. This is particularly true for orthopedic products, lung and kidney therapeutics, endoscopes, and ECG monitoring devices. However, Russian manufacturers are ill equipped to support their nation's healthcare needs with imaging systems, certain cardiovascular technologies, and laboratory diagnostics. These latter areas represent opportunities for exporters wishing to participate in the Russian medical device tender process.

Naturally, any manufacturer is free to postpone entry into a particular national market until that country's healthcare policy shifts in favor of the medical intervention that company's technology suits.

Healthcare Providers. In developing markets, healthcare providers have varying degrees of authority according to the practitioner's tenure, education, institution, and level of specialization. Although poor financial compensation is almost a hallmark of physicians practicing in the markets highlighted in this discussion, there are exceptions.

Figure 2. Russian healthcare providers recognize a strict hierarchy. (click to enlarge)

Russia has more doctors per capita than any other nation. A large majority of them, 77%, are women. This demographic fact may have implications for communication strategies or tactical initiatives used by medtech manufacturers to reach the medical professional audience in Russia. Among Russian physicians, a well-defined pyramidal hierarchy exists and carries great authority (see Figure 2). This hierarchy should be kept in mind by anyone attempting to influence physician behavior or patterns of care delivery. The most prestigious clinicians work in the tertiary-care hospitals, such as the Institute of Cardiology in Moscow, which have the most modern equipment available to Russian physicians.

Turkish physicians typically work part-time in public hospitals as well as in private practice. Since there are no national programs designed to channel physicians to underserved areas, some regions of the country are severely short of healthcare providers. MOH operates approximately 62% of Turkish hospitals. These institutions are headed by one physician and one hospital administrator. The head physician does not bear responsibility for administrative duties such as equipment or materials acquisition. MOH personnel are considered to be public servants and are compensated according to tenure. They are guaranteed lifetime employment and have little incentive to improve performance or outcomes.

It may be premature to comment on the role of physicians in Poland given the imminent rollout of a new healthcare system. Still, the traditional elevated role of the Polish primary-care physician as the gatekeeper of services may hold implications for the development of exporters' educational and technology introduction strategies for that market.

Conclusion

Although they often lie beyond great hurdles, developing markets hold tremendous potential for medical technology manufacturers whose products serve the interests of the state healthcare system or the local population. Exporters should work with local partners in the target market, and they should become thoroughly familiar with the developing country's emerging healthcare needs. International marketing directors and other top company executives should learn about the role of providers in the country's healthcare system, about the way healthcare is delivered and who pays for it, about the level of corruption and progress toward reform in the national healthcare program, and about the nation's trade history and demographic projections.

Armed with this knowledge, medtech company leaders can create more-successful international marketing strategies. They will operate with realistic expectations while positioning their company for maximum success in a particular product franchise or in supplying technology for the management of a particular disease or health condition.

References

1. Organization for Economic Cooperation and Development, A Disease-Based Comparison of Health Systems: What is Best and at What Cost? (Washington, DC: OECD, 2003).
2. J Lahart, "On the Gurney," Wall Street Journal (July 6, 2004): Sec C, page 1.
3. R Marrocco, "Driving Adoption of Medical Device Innovation in Europe," MX 4, no. 4 (2004): 28–33.
4. P Grabowski, "The Right Recipe," in PMLive.com [Pharmaceutical Marketing magazine on-line], March 26, 2004 [cited July 12, 2004]; available from Internet: www.pmlive.com/pharm_market/europe.cfm?showArticle=1&ArticleID=2891.
5. A Kisa, "The Turkish Commercial Health Insurance Industry," Journal of Medical Systems 25, no. 4 (2001): 233–239.
6. A Tansel, Turkish Health Care System (Ankara, Turkey: Middle East Technical University, 2003).
7. W Jelonkiewic, "A Matter of Health," in The Warsaw Voice Online, May 19, 2004 [cited July 12, 2004]; available from Internet: www.warsawvoice.pl/view/5636.

Illustration by Corbis Images

Copyright ©2004 MX