2007-12: The German MedTech Market: A Growth Engine for the Health Economy

December 2007

Medical technologies are indispensable for people's health and quality of life. They save lives. They help heal. They enable millions of patients in Europe to regain their vitality and mobility. How is the situation of the MedTech market in Germany?

In recent years, major progress towards raising awareness of medical technologies among policy and decision makers in the healthcare market has been made in Germany. This includes comprehensive studies on the situation of medical technology in Germany published by the Federal Ministries of Economics and Research. Federal Health Minister Ulla Schmidt also missed no opportunity to mention the innovative capacity of our industry in the last few months. A so-called "Medical Technology Action Plan", which is to improve the promotion of the industry's innovations, is part of the "High-Tech Strategy" adopted by the German federal government.

These initiatives and the budding strategic approach across governmental departments offer new opportunities for departing from a health policy perspective geared towards cost reduction.

What we need now is a "Health Economy Master Plan" that is aligned across all policy areas and, above all, coordinated with the government's economy, research and health departments as well as with the Federal Chancellery. As a precondition, this would require a broad discussion by society in general on how much health is worth to us. People should be openly informed that the finite resources of Statutory Health Insurance cannot deliver an unending supply of innovative healthcare benefits.

In times of limited resources there is an even greater need for more individual responsibility of the medically insured for their own health and for alternative funding concepts, so that, in the future, medical progress can continue to be made available to all patients in good time. The medical technology companies are gladly prepared to actively participate in this process as a constructive and open-minded partner.

Growth Market Health Economy

The health economy is one of the biggest market segments of the German economy. A total of 4.3 million people are employed in healthcare. Thus, every tenth job in Germany is based in the health economy. Despite the difficult overall economic situation, this number is still growing.

The Medtech sector employs approximately 90,000 people in some 1,200 companies (with a workforce of more than 20 people per company). In addition there are nearly 10,000 related small businesses with about 75,000 employees. The core sector thus employs a total of about 165,000 people in 11,000 companies in Germany. Another 29,000 people work in the retail trade for medical and orthopedic goods. About 7,000 health technicians service and maintain medical devices and keep them in good working order.

234 billion euros in total are spent on health. This represents a share of 10.6 percent of the gross domestic product, thus making healthcare an even more significant sector than, for instance, the automotive industry (9.7 percent of GDP).

Medical Technologies in Germany

Medical technologies are a significant economic and labor market factor. The medical technology companies have a considerable share in the positive development of the health economy in Germany.

The total sales of manufacturing Medtech companies in Germany rose by 8.1 percent to 15.9 billion euros in 2006. The domestic sales volume increased by 3.2 percent to 5.7 billion euros, and the export sales by 11.1 percent to 10.2 billion euros.

Healthcare spending in the medical device sector (without capital goods) amounted to a total of over 21 billion euros in Germany in 2005 (source: Health Expenditure Statistics, Federal Statistical Office). Of this sum, the breakdown shows spending for technical aids at about 10.5 billion euros and 9.5 billion euros for other medical requirements. In addition, there is about one billion euros in spending for the dressing material sector, which is listed in the category "pharmaceuticals". The share of spending incurred by Statutory Health Insurance is about 14 billion euros.

While foreign sales climbed by almost 17 percent to 9.2 billion euros, domestic sales stagnated. In export, Germany, with a world trade share of 14.6 percent, ranked second worldwide behind the USA (30.9 percent) but distinctly ahead of Japan (5.5 percent) (source: medical technology study of the Federal Ministry of Education and Research).

World Market for Medical Devices

The world market for medical devices amounted to some 200 billion Euros in 2006. The European market, estimated at 60 billion euros, is the second biggest market in the world, following the United States at 85 billion euros. Besides the USA and Japan, Germany is the third biggest market worldwide at 21 billion euros and by far the largest market in Europe. It is about twice as large as the French and three times as large as the Italian and the British market.

Outstanding Innovative Capability

The medical technology industry is dynamic and highly innovative. Its product cycles are considerably shorter than those in the pharmaceutical industry. More than half of the turnover is effected with products less than three years old. An average nine percent of turnover is invested in research and development. For comparison: The share of the highly innovative chemical industry's spending on research and development amounts to 5 percent, that of the manufacturing industry to a total of 3.8 percent. According to the medical technology study of the Federal Ministry of Education and Research, the ratio of R&D expenditures to production value is twice as high in medical technology as in the manufacturing industries in general. Germany as a research location is thus of considerable importance for the medical technology companies.

A further indication of the innovative capacity of the branch: According to the European Patent Office in Munich, medical technology heads the list of registered inventions with 14,700 patents. 11.4 percent of patent applications thus originate from the Medtech field, which is followed by telecommunications (10 percent) and EDP (6.7 percent). The structured employment of the ideas of users, such as doctors and nurses, for new medical technology products and procedures are of particular importance for the companies, as in 52 percent of the cases, ideas for new medical devices originate from the users.

Market Conditions for Medtech: Strengths and Weaknesses

With its large number of well-educated and well-trained doctors, researchers and engineers, and the high standard of clinical research, Germany has the best prospects to bring new products and procedures to the marketing stage. Owing to our first-rate university hospitals and the numerous competence centers in medical technology, the knowledge at our command is substantial. Germany's advantages also lie in shorter approval times and in its excellent and cost-effective clinical research. The cost of bringing a new idea to marketability is at around 8 to 10 million euros on average. According to experts, these costs are considerably higher in the US at some 80 million dollars. There are, however, substantial challenges when it comes to introducing innovations into the reimbursement system so that they may then be made available to patients without delay. That is why market growth in Germany is not as dynamic as it is elsewhere.

Improved Innovation Management

The medical technology companies are sympathetic to the sickness funds, which are seeking an improved and more predictable allocation of funds in view of limited resources. If, for that reason, there is a lot of talk about "real medical progress", of "technology assessment", "cost-benefit evaluation" and "outcome research", the medical technology companies are an open-minded and constructive partner. On the other hand, the companies are also calling for consideration of the fact that an early integration of health insurance funds in the innovation process will certainly come to its limits wherever company-internal knowledge and the protection of individual ideas prior to being turned into a marketable product are concerned. Innovations are the assets of the companies in this highly competitive industry. It must be the common goal of all stakeholders to introduce innovations offering medical technological and economic progress into the healthcare system at a much faster rate. The long-term savings potentials offered by modern Medtech procedures must be taken into account in coverage decisions for medical technologies. This must be a part of the monitoring and promotion of innovations.

Value for the National Economy

The faster adoption of innovations also offers economic advantages: New examination and treatment methods lead to a reduction of sick days, shorten patients' recovery times and thus enable them to return to their social activities and their jobs more quickly. This also constitutes a benefit for the national economy as a whole. Benefit and effectiveness considerations – and thus also cost-saving potentials – of medical technologies must be put on the front burner. They must be considered an investment in people's health and productive efficiency as they establish a new understanding of healthcare through improved treatment possibilities, shorter lengths of hospital stay, lower disability rates and a reduced number of sick days. The value of innovations is from our point of view often considered for too short a term. The use of medical technology innovations in Germany is often complicated by an isolated consideration of their initial costs, which are mostly higher than those of established procedures, while failing to take into account the benefit and cost effects throughout the whole course of a treatment or disease. That is why we are calling for an "overall consideration of treatment processes".

Promoting Medtech Innovation: What Needs to be Done?

What precisely needs to be done to utilize the potential of medical technologies as a driving force for growth?

  • We need a new health economy with more competitive elements, increased freedom of choice and more individual responsibility of patients for their own health. Our vision is a new health economy in which everyone is free to "buy" their own individual health insurance coverage. Accordingly, this would include the provision of basic care as well as voluntary supplementary insurance options – with premiums emphasizing prevention or with deductible rates, with or without free choice of doctor, a range of alternative options in specific fields of healthcare, etc. This adds up to more individual responsibility. This would be a system with a great number of competitive elements - and most assuredly also with favorable effects on Germany as a business location.
  • We need the clear will to introduce innovations into the German healthcare system and to establish processes for their timely adoption. For this purpose, we suggest the establishment of a cross-departmental "Medical Technology Task Force".
  • Many innovations are initially applied in hospitals. Medical technological innovations in hospitals are subject to reimbursement by Statutory Health Insurance, unless there has been a negative decision of the Joint Federal Committee (JFC – Gemeinsamer Bundesausschuss). This principle of "permission with the reservation of prohibition" in the inpatient sector must be adhered to, so that innovative medical technologies can be made available to all patients who require them without delay.
  • The Medtech companies are still insufficiently involved in the proceedings of the JFC and a more active industry participation is called for. As a first step, BVMed has suggested a case-related designation of medical expert participants from industry in the committee's relevant key deliberations.
  • The introduction of innovations into the system must not be impeded by too restrictive requirements for the provision of evidence. While randomized controlled clinical trials are considered "gold standard" for medical devices, they are not ethical or even necessary in every case. Lower evidence levels can also provide the data necessary for demonstrating a technology's real benefit. The required evidence level should be adapted to the technology and disease in question.
  • We must optimize the general conditions for research and development through improved research management. This requires the establishment of a network of companies, users and scientific research, particularly in the fields of bio, micro and nano technology. We plead for regional clusters including medical technology companies, research institutes and educational establishments, manufacturers of important preliminary products up to software as well as suppliers of venture capital.
  • Above all, there is a need for more outcome research. Basic and interdisciplinary research, by means of which medical and healthcare as well as their general conditions are causally defined and further developed, must in the future play a more crucial role in the healthcare system. From the industry and trade companies' perspective, more outcome research is needed to reflect the overall cost of a therapy and thus be able to demonstrate its individual long-term advantages for patients and the national economy.
  • We need legal clarification on the necessary and politically aspired cooperation of industry, hospitals and physicians. The challenge in this cooperation is the differentiation of legitimate sponsoring and corruption in individual cases. Here, the legislators are called upon to draw a clearer line than before. Meanwhile, industry seeks to establish joint solutions in the market by means of model contracts between companies and hospitals or their doctors, respectively. In 2006, a corresponding guideline providing model contract texts was published by BVMed and the Association of Hospital Directors (VKD) in a joint effort.

The dynamic change of medical possibilities and services must now be followed by a change of the healthcare system that is just as dynamic.

Berlin, December 2007

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