Reforming European medical technology regulation23 October 2013
New demographic trends and financial pressures mean that the European medical technology industry has to change. John Brennan, director regulations and industrial policy at Eucomed, announces the launch of a five-year strategy that aims to transform the sector by making it more efficient, cost-effective and truly sustainable.
The music technology industry did it in the 1980s and 1990s; the consumer electronics industry did it in the 'noughties'. Now, it is the turn of medical technology companies.
Coming to the realisation that the fundamentals of your market have changed and you must act quickly to adapt is not easy - just ask Kodak or Nokia. Today's medical technology businesses need to adjust to evolving realities if they are to stick around and join in what promises to be one of the most exciting - and radical - changes in modern healthcare delivery.
Europe has a problem: it faces rising demand for health services at a time when public spending is under pressure and it has ever fewer healthcare resources. At the root of this problem is a demographic trend that will see an expanding aging population - in need of, and expecting, a high level of care - while the number of taxpayers contributing to the national treasury is shrinking.
Europe must rethink its healthcare system and steer it back onto a sustainable path. The medical technology sector, including medical devices and in vitro diagnostics, recognises the consequences. The current business model is coming to the end of its life cycle; it is time to go to the next level - it is time to change.
But why change?
It is a simple question of economics driven by demographics.
Healthcare has a huge capacity for helping to improve GDP, economic growth, and sustained and new employment. The medical device industry is a significant contributor to European health, growth and jobs. With a total European market of around €100 billion - equivalent to almost a third of the global market - this sector not only provides the technologies and breakthroughs that patients and doctors need, but also substantially boosts Europe's economy, growth and employment.
It is characterised by a very high proportion of SMEs. These make up around 95% of almost 25,000 medical technology companies across Europe, and the medical device industry employs more than 575,000 people. Producing over half a million different types of healthcare technologies - everything from walking sticks to heart valves - the medical technology industry has helped Europe become a world leader in available, affordable and safe medical equipment, supplies and services.
Innovation: at the heart of the industry
Another particular characteristic of the industry is the role of its SMEs as the source of innovation. Consistently reinvesting in R&D to the tune of around 4% of revenues, the innovation engine of the industry is based on research at the bedside and not at the bench. Close and proper collaboration between practising physicians, academia and SMEs leads to speed, flexibility, new ideas, and the resulting medical progress and patient benefit. This collaboration is essential to the flourishing of these ideas; without it, there can be no new solutions to unmet health needs and health system efficiencies.
Innovation cycles are on a par with those in the IT sector: a new device can expect to be replaced by an upgraded version, with improved quality, performance or cost effectiveness, every 18 months. A patent is filed on average every 50 minutes, making medical technology the number one industry sector in IP development. This continuous commitment to innovation in the medical technology field, and the substantial investment with which it is underpinned, is crucial to Europe's ambitions to become a smart, sustainable and inclusive economy.
While innovation has always been at the heart of what we do, the future will demand a different kind of innovative thinking from all stakeholders across European economies. For the healthcare industry, this means focusing on the common goal of designing a sustainable healthcare system.
Once upon a time, the 'key opinion leader' physician could make the purchasing decisions according to what promised the latest and best treatment for patients, and with a nod in the direction of the budget. Thus, the medical device industry focused on scientific excellence in innovation, offering ingenious solutions and treatment options that were predominantly technology driven.
This model served patients and health systems well in the past, but must now change.
The current state of play
Today, demographics are an unstoppable force and this model of healthcare delivery is coming to the end of the line. By 2030, the acute in-hospital care system will need to provide inpatient care for 40-50% more patients. Hospitals will no longer be able to offer the beds or the staff to meet these needs. Moreover, the chronic disease burden is also expected to double by that time. These challenges will require a significant increase in healthcare spending as a percentage of GDP.
This means patients, policymakers, payers, healthcare workers and hospital administrators will need to do things differently. Indeed, the value of current healthcare professionals' contributions will only be realised if others recognise that it is a time of change and seek to collaborate to solve this common challenge. Together, the industry needs to be courageous by directing its resources towards smarter models of care that can deliver a demonstrable, positive return on investment in terms of healthy life years for citizens.
Today's health ministers are trying to balance increased demand on health delivery with constrained budgets. Hospital managers and national health systems increasingly purchase technologies using professional buyers or purchasing groups. Payers are ever more discerning. Social insurance groups are seeking only those technologies that offer value for money in either of two ways: improved outcomes or more efficient treatment cycles. And they are making more precise demands regarding how this is measured, asking for concrete clinical and economic health data. Patients are increasingly empowered, seeking more information and the ability to actively manage their own treatment, rather than simply being recipients.
The fundamentals of what health systems, providers, patients and consumers need and perceive as 'good value' - and are hence willing to purchase - has changed. This means that companies also need to rethink the basics and ensure they are indeed making what customers want.
In short, coming up with a slightly better way of doing what we do now and expecting to charge a premium price is no longer good enough.
From a business-model standpoint, it is clear that the status quo has to go. This is what the medical technology industry's alliance organisation MedTech Europe and the international European Diagnostic Manufacturers Association, in collaboration with Eucomed, call drawing up a 'Contract for a Healthy Future'.
So what must the industry do?
By publicly announcing its commitment to this 'Contract for a Healthy Future', the medical industry has signalled that it is already adapting and ready to play its role in future health delivery.
Fundamental to the industry's change is recognition of what change means internally for medical device businesses, which must:
- build and engage stakeholder networks to collectively establish the opportunity and value of medical technology and innovation
- collect, develop and share evidence-based cases of medical technology that support
effective, personalised care, a sustainable healthcare system
and healthy aging
- demonstrate the cost-effectiveness, potential cost savings and socio-economic value of medical technology, while improving healthcare outcomes and quality of care
- innovate care processes to address labour shortages
- increase the value of the industry to the European economy.
Change will not be easy, particularly as health - whether in the GP's surgery or in the hospital - is a traditional industry and slow to change. But change is coming.
Some companies are already busy responding to this change. Take cardiovascular disease, for example. The leading cause of premature death and disability in Europe, its complications are costly to treat, and leave many sufferers incapacitated and unable to contribute to society. Medtronic, a world leader in the treatment of cardiac and vascular diseases, is branching out into selling medical technologies while at the same time becoming active in health service delivery. It is doing so by taking over the management of cardiology services at two UK hospitals, where it will now also be providing staff, training and assistance in purchasing decisions.
Another example of a company responding to the new healthcare reality is Volcano, which is adapting its strategy in order to actually use the demographic and economic pressures in Europe to its advantage. By expanding its focus to include new markets and business opportunities, which include linking up its therapeutic solutions with diagnostic and imaging technologies, the company is offering devices that help hospitals and physicians optimise usage.
So expect to see many more medtech companies shifting their focus, delving into new territories and adapting their strategies in the coming years. The medical device development industry is fully aware that this change is necessary. Failing to keep up could, in the space of just a few years, risk a business becoming an 'also ran'.
By signing up to and executing the 'Contract for a Healthy Future', the highly adaptive innovation capacity that defines the industry can be directed towards new business models that are closer than ever before to the real needs of customers, and help steer healthcare systems towards more sustainable waters.