Thomas Friedman’s book The World Is Flat popularised the notion that globalisation has done just that. The book explains how barriers around the world have been levelled for the rapid delivery of goods, services and information and lists ten world ‘flatteners’, which can be summarised as the demise of the Eastern Bloc economy, the growth of digital technology and the vast expansion of internet usage.
The events Friedman describes will increasingly affect the way the medical technology industry provides goods and services to the world. At the same time, the industry faces its own challenges as it adapts to this new world.
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How these global and industry forces will work together is yet to be defined. The industry needs to prepare for the consequences of a flatter world by developing a shared strategic flattening agenda.
MANUFACTURE AND CONSUMPTION
For the medical technology industry, this flattening is already affecting the way products are manufactured, delivered and consumed. While most medical devices and diagnostic products are still sold primarily in their domestic market, multinationals manufacture a large share of the more sophisticated and innovative medical devices. They employ the same types of global R&D and supply chain techniques used in other technology industries to manufacture and deliver products as efficiently as possible.
Global sourcing also means that manufacturing, distribution and R&D costs can be reduced. The question is whether these changes will lead to greater consolidation of the medical technology industry, as larger firms are required to take advantage of economies or small companies continue to develop innovative products. Flattening provides small firms with greater access to information and experts worldwide.
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By GlobalDataAt the same time, consumers are also contributing to a flatter world. The pharmaceutical industry has been experiencing this consumer flattening for several years, with direct imports of drugs from Canada and Mexico into the USA and parallel imports of drugs among EU member states as consumers compare prices in different countries.
The medical device and diagnostics industry is beginning to witness a growing consumer demand for information, particularly on safety, prices and quality, in countries as diverse as China, Japan and the USA. Patients are travelling to find the best deals or to seek therapies not available at home as ‘medical tourists’. This reveals both the flattening trend as well as the barriers that remain.
Doctors are interacting more with their colleagues in other countries, which involves the use of telemedicine and discussions about costs. Hospitals are outsourcing their procurement to specialist firms, which are purchasing medical goods and services from suppliers.
GOVERNMENT RESPONSES
Government healthcare policies are flattening barriers in some ways, but creating hurdles in others. Governments around the world are implementing more complex regulations in response to public expectations, stricter methods for assessing coverage and more constraints on reimbursement rates. They are also exchanging an increasing amount of information and sometimes adopting similar approaches to address issues that impact the industry.
Pricing information on medical devices is increasingly being shared by governments. Japan is demanding prices from European markets to use in its reimbursement system. China and Brazil are considering similar use of foreign price data. European health ministries are sharing some price information among themselves. Private price-collection firms are facilitating this exchange.
Unfortunately, such comparisons do not take into account the significant differences in the local costs of doing business. The main obstacles to the further flattening of price information are the variety and complexity of medical technology products and associated services, confidentiality clauses in contracts, and the variety of reimbursement systems. At the same time, reimbursement systems are flattening.
The diagnosis-related group (DRG) prospective payment system pioneered in the USA over two decades ago is being implemented in a number of European countries. Japan has a limited bundled system in some hospitals, Korea uses some DRGs and China is considering DRGs for the future. While a standard reimbursement methodology has not emerged, governments are more willing than ever to implement policy initiatives used in other countries in an attempt to limit healthcare expenditures.
In many countries the government is the largest purchaser of healthcare goods and services. Governments use their purchasing power to get concessions from suppliers, including the medical technology industry, by re-engineering their procurement systems. Auctioning – often over the internet – is also being used in a number of countries, including the USA, the UK, Italy and France, and many of China’s provinces are employing tendering systems.
In the regulatory area, the Global Harmonization Task Force (GHTF) is providing guidance to members and non-members alike. That guidance relies on international standards as a key element to promote convergence of technical requirements. Implementation of GHTF guidance documents is a flattener.
Governments that impose unharmonised pre-market and post-market requirements, and that insist on implementing individual domestic regulations or repetitive conformity assessments that do nothing to improve safety or efficacy are preventing positive flattening.
In the hope of achieving more value, governments are also imposing more evidence-based requirements for price and, sometimes, coverage determinations, although health technology assessments (HTAs) are still used in only a handful of such decisions. Governments want companies to prove that a medical technology has some clinical or cost-effectiveness advantages over existing therapies or diagnostic tests before deciding whether to include the product on their formularies.
In some cases, HTA is viewed as an additional regulatory hurdle – another anti-flattener. Whether recent harmonising by a few European governments and Nordic initiative EUnetHTA will be levelling or inhibiting remains to be seen. The effects on timely access of patients to new technologies are also not yet known.
The Japanese are also examining HTA, ostensibly to improve patient access and stimulate a domestic industry. However, this was the same motivation for the revised Pharmaceuticals Affairs Law, which has so far had the opposite effect.
GLOBAL GROWTH LEVELS
The medical technology industry is facing competing forces affecting demand in major markets. The industry had enjoyed double-digit consumption growth in the US market and more modest but steady growth in Europe. However, in recent years growth in the USA has slowed to less than 5%, and revenue in many European countries is growing even more slowly, if at all.
At the same time, medical technology sales in emerging markets such as Brazil, China, Korea and India are experiencing rapid growth – but from relatively low base levels.
What are the forces that will determine the medical technology industry’s future? In terms of increasing demand, expanding economic growth will be very important. Economic growth provides the foundation for governments and personal expenditures on healthcare. As per capita GDP rises, better healthcare becomes more accessible in developed as well as developing countries.
Developing countries now account for over half the world’s output, with the share continually rising – increasing the prospect of even stronger medical technology sales in the future, particularly as the middle class continues to grow and prosper.
With expanding GDP comes rising public expectations for better healthcare, which is a force in its own right. Rapid innovation of medical technology fuels these enhanced expectations, as the industry develops new diagnostics and therapies to more precisely detect ailments and customise treatment to the individual patient.
People see the healing power of technology and want it. The internet is, of course, the primary vehicle for this dramatic increase in consumers’ knowledge about innovative medical technology.
POPULATION NEEDS
Demographic trends will also stimulate demand for medical technology. With ageing populations in most developed countries, there will be even more people who need diagnostic procedures and medical devices.
In the USA, the elderly comprise 12.6% of the total population, but consume nearly 40% of healthcare dollars. Half of medicare expenditure is used in the last six months before death. The large youth population in developing countries will become the older generation in the latter half of this century.
These demographic trends combine with large gaps in utilisation to create a huge demand potential; that is, several country-specific studies show that the share of the population that needs particular therapies is far higher than the proportion receiving them.
In addition, medical technology innovation has largely been driven by unmet needs – mainly in developed countries, but increasingly in emerging economies. Meeting these needs as populations age should strengthen demand for medical technology around the world.
Finally, a possible demand-enhancing trend is rising healthcare expenditures. Healthcare budgets – whether government or private – need to be used more efficiently. A number of studies have shown how more extensive use of medical technology – from early diagnosis to minimally invasive therapies – can reduce patients’ hospital stays, moving patients more quickly out of expensive in-patient settings to much less costly out-patient clinics, or even homecare.
It can also improve economic productivity, which encourages economic growth. To ensure that this trend expands demand, rather than acting as a constraint, will require vigorous efforts from the industry to educate healthcare providers and decision-makers about the long-term money-saving benefits of using the most advanced medical technology.
Of course, rising healthcare costs can also act as a brake on demand for medical technology. Governments tend to act on the basis of annual budgets and hospitals’ in silo budgets, with little regard to the long-term consequences.
Healthcare budgets are viewed in the light of high and rising government deficits, with forecasters predicting healthcare costs exploding due to increasing purchase prices of innovative medical products (drugs, devices and diagnostics) and a population demographic that needs these products. However, the cost savings that result elsewhere in the system frequently go unrecognised or unrewarded.
How will the meeting of medical technology industry trends with global flattening – as described by Friedman – affect the industry? The acceleration of information flows, both between and among consumers and businesses will increase competition and drive down costs and prices.
These same flatteners will heighten consumers’ awareness of the benefits of innovative medical technology and stimulate global demand for our industry’s products. The key to the medical device and diagnostics industry’s future is sustained innovation and the ability to demonstrate value to society, government payers, providers and patients.
ECONOMY AND DEMAND
Government macroeconomic policies, dominated by market-based economics, will stimulate global economic growth, enabling patients to afford improved healthcare.
Government policies in the field of medical technology, while converging in some limited ways due to information exchanges, are not likely to harmonise enough to have a significantly favourable impact in the foreseeable future; that is, governments will maintain barriers preventing our industry from realising additional cost savings that could result from more harmonised regulatory policies.
They will, however, make use of forces in this flattening world to drive down reimbursement rates. These effects could reduce investment in the medical industry, which must compete for capital with other industries that are much less dependent on government regulatory and reimbursement behaviour.
Put simply, demand is expanding at the same time that prices are being artificially pushed down. The industry is being squeezed.
Products are being pulled out of some markets. Patients are not receiving the care that is potentially available. R&D funds may become less readily available. Innovation may suffer. The inherent conflict between economic growth through medical technology innovation and the need to limit healthcare expenditures must be resolved to meet societies’ healthcare objectives.
The medical technology industry needs its own flattening policies to counter this trend. Each company must determine how to meet the challenge of future global and industry forces. There are also steps the industry should take that would enhance ability to adapt to a flatter world. As Friedman points out, collaboration and timely information are critical to thriving, if not surviving, in a flat world.
PROVIDING INFORMATION
First, the industry should gather objective and persuasive information for a variety of audiences, including governments, patients and providers. There is a large and growing body of research – quantitative and anecdotal – that demonstrates the value of medical technology to patients, healthcare budgets and societies.
AdvaMed is developing additional material in the USA, France, Germany, the UK and Japan. People need to see the benefits of medical technology based on evidence in their respective nations.
Second, the medical technology industry should provide information to patients, physicians, hospitals and governments. Some of this information is broad, such as on alternative payments systems – varying from government financed to private insurance – and experiences with various government reimbursement methods.
Other types of information include that which explores the value of medical technology. Some information would be even more specific to a product category and country – such as estimates of the gap between ‘need’ and ‘have’ – in order to stimulate additional demand.
Third, companies in the industry that have sales outside the USA should be willing to share information about policy developments within their companies and with other companies. Company representatives should recognise that, while every country has unique market characteristics, what happens in a particular country is relevant in other markets, particularly in the area of government policies.
The industry’s basic policies and messages should be consistent across global markets, while remaining flexible on how those approaches are implemented within each country. Company representatives should act locally, but think globally.
Associations such as AdvaMed can improve the information flow for medical technology by working together with international companies. Both patients and those in the medical profession will be able to expand their knowledge of the industry and see the opportunities open to them in a ‘flat world’.
