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10 December 2008




Complex reimbursement processes and fears over product suitability run the risk of knocking out innovation. Frost & Sullivan's European healthcare team examines how regulators can soothe manufacturers' concerns and encourage pioneering technologies.


Since 1995, medical device manufacturers wishing to sell their products within the EU have had to produce evidence that their products are safe and effective. Products have had to be CE marked in accordance with the relevant Medical Devices Directive. However, CE marking is no longer the only prerequisite for a device to be sold in the EU. Western European countries are adopting complex reimbursement systems that require that the device or the medical procedure for which it is used must also appear on an approved reimbursement list.

These lists are making reimbursement an increasingly complex issue as they vary by country, between public and private healthcare providers, between hospital and outpatient care and, in some countries, even by geographical region. It is therefore becoming imperative for manufacturers to have a thorough understanding of reimbursement issues in order to gain or maintain market share.

Those developing new medical devices need to be especially aware of how they are going to achieve reimbursement as early as possible. Not doing one's homework could mean that it takes years even after CE marking to receive any money from product sales.

Suitability for reimbursement

There are generally two ways in which a medical device can be reimbursed in Europe. Either the device is recognised as providing a health benefit in its own right, or it is recognised as part of a beneficial procedure. For the former, reimbursement levels will be set for the device itself, but when a device is recognised as part of a procedure, payment for the device must come from within the budget set for the procedure as a whole.

Reimbursement agencies across Europe have compiled lists of devices and procedures that can be reimbursed, along with the value of reimbursement. The procedures lists in Western Europe are generally based on a version of the diagnostic-related group (DRG) system pioneered in Australia. In this system, similar and related medical procedures are grouped together. Each group is then coded and given a value, which is the set amount of money that will be reimbursed for each procedure.

DRGs are determined through years of data collection. Through receiving information from hospitals about the treatments they provide and the costs incurred, agencies are able to define the average cost of each procedure. Generally, this is the reimbursement value adopted.

The idea is that, for a set procedure within a DRG, half the procedures will cost the hospital more than the reimbursement value, whilst the others will cost less. These should even each other out over time. One problem this presents for medical device companies is that, should a hospital manage to undertake more than half the procedures at a cost less than the reimbursement value, it will make a profit. There is therefore incentive for them to do this.

However, the continual monitoring of the actual costs of procedures through the DRG software then comes into play. If enough hospitals manage to undertake more procedures at a reduced cost, then the reimbursement value will be reduced. This in turn will reduce the reimbursement for any devices used. In addition, manufacturers that develop a product that reduces the cost of a procedure will also reduce the amount they are reimbursed for it.

Added to the fact that European reimbursement systems require that new technology must fit in a system based on the cost of existing technology, Frost & Sullivan anticipates that this will create barriers to innovation in the short term. However, this problem has been recognised by many of the countries operating these systems and they are looking at potential solutions.

Health technology assessments

In addition to the DRGs, certain government bodies across Europe have been tasked with assessing medical devices and procedures to determine whether the average costs are justified by the patient outcome.

"Reimbursement systems are in danger of taking the focus from delivery of the best possible care to delivery of acceptable care at the cheapest price."

These measurements, referred to as health technology assessments (HTAs) are not standardised across Europe, although they employ the same principles. An HTA will consider how well the technology works for both the provider and the patient, and it will also compare the device or procedure against alternatives, such as medication.

HTAs have a greater scope than the efficacy assessments conducted under the Medical Devices Directives for CE marking. For example, an HTA would consider cost and time implications of training, as well as running costs, such as maintenance.

As a result of HTA and reimbursement, the amount of clinical and supporting data needed to market a medical device in Europe has increased substantially.

Some of the data required may not even be possible to obtain until after CE marking, as the Medical Devices Directive specifies that a clinical trial may only be conducted for the purpose of collecting data to support CE marking. While post-CE marking trials are far less regulated, waiting to conduct them will increase the time to market.

Germany's funding issues

Germany is the largest market for medical devices in Europe. Frost & Sullivan estimates that the country spent $28bn on medical devices in 2006, which is about a quarter of the total European market.

Although the German medical system is advanced, it is facing financial challenges, which led to the introduction of its reimbursement system in 2006. This system operates in conjunction with the Institute for Quality and Efficiency in Healthcare (IQWiG). This is an independent scientific body that evaluates the quality and efficiency of healthcare to determine which therapeutic and diagnostic services are feasible and valuable.

If a manufacturer develops a new medical device that can be encompassed in an existing coded medical procedure in Germany, then gaining reimbursement at the existing value simply requires that it be CE marked. However, if the existing level of reimbursement is thought too low, then an application has to be made for the IQWiG to assess the new device against existing treatment options. This will take a minimum of three years, during which time it may not be possible to market the medical device at the existing reimbursement value without undermining the application for greater reimbursement.

If an innovative medical device is not encompassed by a procedure currently covered by the reimbursement system, then the manufacturer must apply for a full assessment to be conducted by the IQWiG. This will take years, although the German government has recognised that the current system is presenting a barrier to reimbursement and is trying to address this.

French regulation

France spent about $12bn on medical devices in 2006, making it the second-largest market in Europe. The French healthcare market is more heavily regulated than any other in Europe and large healthcare spending decisions are made centrally. There are, however, moves to decentralise this approach to speed up the purchasing process.

If a manufacturer wishes to market a new medical device in France that is encompassed by an existing GHS (Groupes Homogenes de Sejours) procedure code, then CE marking is the only prerequisite. However, if the new medical device is not encompassed by an existing GHS procedure code or needs to be added to the LPPR (Liste des Produits et Prestations Remboursables), the device cannot be marketed in France until it has been included in a GHS or on the LPPR.

This process takes three to four years and there is no specific method to enable payment for an innovative medical device in the interim. However, discussions are ongoing regarding the introduction of a temporary registration scheme for innovative medical devices.

"Manufacturers must now work around a system that relies on human nature to promote advances in healthcare and not monetary incentives."

Italian job

Italy is considered to be the third-largest European market for medical devices, just ahead of the UK. Italian expenditure on medical devices in 2006 was $9bn.

A major problem suffered by manufacturers selling into Italy is late payment. On average, products are paid for between 500 and 800 days after delivery. However, the Italian reimbursement system is more flexible than in Germany or France, in that products that are not on the reimbursement list may still be purchased for use. Because this purchasing must be financed by regional budgets, it is more complex for medical device manufacturers whose products are not listed on the national tariff to sell their product across Italy.

Pricing pressures

While reimbursement systems may provide a good control over healthcare spending, they are in danger of taking the focus from delivery of the best possible care to delivery of acceptable care at the cheapest price. When a doctor receives the same amount of remuneration for undertaking a procedure irrespective of the medical device used, no incentive is given for the doctor to try a new device that could result in a better outcome. At the same time, if the manufacturer does not receive any extra payment for developing a new, enhanced version of an existing device, the incentive for innovation must come from elsewhere.

Previously, doctors had largely driven innovation, requesting advanced device features. Frost & Sullivan believes that a system that rewards doctors for patient outcome vs expenditure may have provided a better way of addressing the problems within Europe's healthcare systems. However, manufacturers must now work around a system that relies on human nature to promote advances in healthcare and not monetary incentives.

Reimbursement is an important concern for all medical device manufacturers and should be tackled as soon as possible.
Number of hospitals in Western European countries; a 2005 and 2012 comparison shows how the number is expected to reduce in the future.
Medical device markets in Western Europe. Germany had the highest spend in 2006 by nearly twice as much as the next highest country.