2003-05: Medical Technologies and the German Healthcare System: State and Future

Article by Joachim M. Schmitt, BVMed Director General, May 2003


1. The German Healthcare System
:: Key Data
:: Principles and organisation
:: Current Problems

2. The Political Debate on the Reform of the German Healthcare System

3. The Situation of the Medical Technology Industry in Germany
:: Market
:: DRGs
:: BVMed Activities

The German Healthcare System

The market / Healthcare expenses

In the year 2001 – this is the latest comprehensive set of data which is available at the moment – the Germans spent about 226 billion € on healthcare. Apart from a stagnation in 1996/97 we had an increasing tendency in healthcare expenses over the last years. At the same time, the share of healthcare expenses of the German Gross Domestic Product (GDP) remained more or less stable at a rate of about 10 to 11 %.

According to an OECD-survey, Germany is with its actual share of 10.7 % among the top three countries with regard to this indicator. Only the United States spent more of their GDP on healthcare products and services (13.0 %). In contrast, countries like Japan and Britain showed significantly lower rates of healthcare expenses (7.8 % and 7,3 %).

An even more interesting figure – particularly from the point of view of the medical technology industry – is the number of cases, which means the number of patients making use of healthcare services. In fact, the number of cases in hospitals has increased by almost 20 % (exact: 18,6 %) over the last decade in Germany.
Needless to mention that this has a positive impact on the demand for medical devices, too.

The main reason for this development is the general demographic change, which we can observe not only in Germany. It is true: our societies are getting older. We will refer to these developments in a moment again.

With regard to healthcare expenses, it is not only interesting to see how much is being spent - but also who is paying. This is the point where the Statutory Health Insurance (SHI) comes into play. The SHIs are most important to the German healthcare system because they pay for significantly more than one half (57 %) of all expenses in this field. Other important spenders are private households as well as the private health insurance.

The SHI system

I would like to take you on a little excursion into history at this point. I can imagine that it might be interesting for you to learn a little bit more about the origins and principles of the German Statutory Health Insurance system before we turn our eyes on its current crisis.

You might be surprised to hear that the German SHI is not an invention of the post-war policy of the social market economy. In fact, it traces back to the social policy of Otto von Bismarck, the chancellor of the German Reich, at the end of the 19th century. In other words, the foundation stone of the modern German welfare state was laid more than 100 years ago. As you can imagine, it were not altruistic ideas in the first place which inspired this policy at this time. It was in fact the desire to lower social tensions and to make the growing socialist labour movement loose momentum.

However, the principles themselves were certainly consistent. After all: they are basically still valid today. The main one of these principles is that of solidarity. It means that contributions to the system depend on the individual income whilst all members enjoy equal benefits.

Today, about 86 % of my more than 80 million Germans are members of the SHI and only 10 % have a private health insurance. About 4 % do not have such an insurance. Most of these people participate in special health insurance schemes of professional associations (for example soldiers) or they can afford to pay cash for their medical needs.

SHI membership is mandatory for employees, workers and pensioners with a monthly income below a certain amount. This income threshold has recently been risen again and is now a monthly gross salary of 3850 €. People with an income higher than this threshold have the right to opt for a private insurance. Those who could do this but don’t and remain in the SHI are so-called voluntary SHI members.

At this point the thing becomes political: The red/green government principally seeks to establish this threshold of income on a high level. This way, more members will be kept in the SHI system so that its solidary character is supposed to be strengthened. But back to the basic facts.

It furthermore needs to be mentioned that the contributions to the SHI are equally paid by employers and employees on a 50/50 basis. At the moment, the overall contribution rate amounts to some 14 % of the employees’ gross salary of which 7 % pays the employer. This leads to the question which benefits SHI members are entitled to.

Until recently, the common practice was as follows:

:: Patients would go to a doctor of his or her choice (the free choice of a doctor is considered a high good in Germany).

:: The doctor would treat and prescribe whatever he thinks is necessary (and at times following the patient’s wishes, too).

:: The billing and payment would take place only between the association of the SHI doctors or the hospital and the sickness fund - with hardly any transparency and without any involvement of the patient.

Due to the current financial crises of the SHI it is being increasingly considered and discussed to change this practice as well as some of the broadminded benefits. Additional direct payments on medication and certain dental treatments have already been introduced.

The SHI crisis

So, what exactly are the reasons of the crisis our German SHI system suffers from? Basically it is about an imbalance between expenses and revenues. Let’s have a look at the revenues of the system:

Our biggest problem is the system’s high dependence on economic performance and unemployment in particular:

:: In times of recession and high unemployment, contributions decrease immediately.

:: Also, the wages reflect the low economic performance. As contributions directly depend on salaries, they are kept down as well.

Another important reason for decreasing revenues is the demographic change, which I have already mentioned. Due to a higher life expectancy and a trend towards childlessness, the share of aged people in society is growing. This is not without consequences for the SHI:

:: An ever growing share of pensioners within the system contribute less to the SHI than active employees. Additionally, pensions do not rise as quick as wages.

:: At the same time, there are less and less active earners who are the backbone of the system.

On the part of the expenses, it is the demographic change again which is a major cause of concern:

:: A higher life expectancy results in a growing share of elderly people in our society, who naturally have higher medical needs.

:: Furthermore, the medical progress offers an ever growing range of opportunities for treatment.

:: And finally, more and more people practice a very health-conscious and quality-demanding life style.

All these factors result in an increasing demand in healthcare services and consequently higher expenses, particularly of the SHI.But is it really fair to talk about a “cost explosion” which threatens the system?

According to the renowned German Institute of Economic Research (DIW), it is not the “explosion” of costs and expenses that really threatens the German SHI system. Over the last three decades, these experts say, health expenses have shown an increase not very much higher than the average economic growth. What is more bothering is the stagnation and possibly the future meltdown of the financial foundations of the system, namely its income in terms of contributions. Over the same period of time, contribution rates have risen by almost six percentage points.

So, what do the experts recommend? They say: “In order to avoid a further increase of the contribution rates (which would be poison for the economy), it is absolutely necessary to find additional financial resources for the SHI.”

The Healthcare Reform

As shown, the state of health of the German SHI system does not look very good at the moment. But to be fair: it is not in intensive care, as some say - not yet, at least. However, in order to avoid a collapse in the foreseeable future a profound corrective surgery is needed soon. In fact, 2003 will be THE year of a healthcare reform in our country. All major political players agree that this reform has the highest priority. Let me therefore draw a short outline of the situation in healthcare politics and the content of the reform debate.

Federal Ministry for Health (BMGS)

The Federal Ministry for Health is of course the first player to be mentioned here. Its current head, Ulla Schmidt, insists on her point of view that “there is sufficient money in the system”, as she puts it. Consequently, her main reform focus is on cost-efficiency and savings when it comes to the SHI expenses.

Generally, she can be described as a classical social-democrat politician who is determined to retain the social and solidary character of the system. She has strong ties with the trade unions. Nevertheless, since the conservative opposition became much stronger earlier this year, Mrs. Schmidt is now willing, if not forced, to co-operate and even compromise with them, too.

These are some of the actual reform proposals of the ministry:

:: to retain the equal contributions of employers and employees
:: to establish an institute for Quality Assurance
:: to reward prevention and healthy living through bonuses on contribution rates
:: to strengthen the position of General Practitioners (GP) as gate keepers of the system
:: to introduce patient receipts and chip cards carrying detailed patient data for more transparency
:: finally, integrated health centres for ambulant services may reduce costs, too.

But as already mentioned, the question of the SHI revenues is certainly the more important one. In this context, the ministry has set up a non-parliamentarian expert group.

The Rürup Commission

The so-called Rürup-Commission – named after its head Professor Bert Rürup - is to make reform suggestions regarding the whole social welfare system. Its working group on the SHI reform includes representatives of the business world, unions and other organisations as well as scientists and healthcare experts.

Together with the proposals of the ministry itself, both approaches are supposed to result in the draft of a reform bill by May this year. The final enactment of a reform bill is scheduled for January next year. However, as the commission’s proposals may turn out very radical and politically hard to sustain, the minister has already indicated that it probably will not implement them fully on a one-to-one basis.

Finally, there is a Council of Healthcare Advisors working for the ministry, too. These experts recently came up with their own expertise on the healthcare reform. It promises cuts and savings of 40 billion € and at the same time SHI contributions decreased by four percentage points.

This would however require to exclude the treatment of so-called “private” injuries (which for example happen during housework, sports or traffic) as well as dental care from the SHI reimbursement catalogue. The advisors furthermore suggest “practice fee” for every visit at a doctor.

Christian Democratic Union (Lower House opposition)

The other important political actor with regard to this healthcare reform is of course the opposition, which is the Christian Democratic Union (CDU/CSU) in the first place.

Its importance has recently even increased due to some election victories on the regional level in early February. The federal level, the 16 Länder, matter insofar as they make up the Upper House of Parliament, where the CDU now has a slight majority.
Since most aspects of the healthcare reform need approval by this body, this project cannot become reality without the opposition. But at the same time the opposition is obliged to behave in a co-operative manner as well because its political responsibility is all too obvious now. They have in fact signalled their willingness to engage in talks with the government but not before a concrete draft is on the table.

CDU/CSU health policy benchmarks:

The German Conservatives are naturally more ready to transfer healthcare responsibility to the individual level and to disburden employers and companies. Consequently, their reform proposals look a bit different as the following examples show:

:: patients should bear a higher share of the costs of treatments and medication
:: a separate private insurance system should be introduced for dental treatment
:: the employers’ contribution to the SHI should be frozen and limited
:: Furthermore, the opposition insists that the SHI expenses should reflect what is medically necessary, not budgets
:: Finally, aspects of cost efficiency AND SHI financing should be reviewed at the same time

Likely political compromise

Summarising the political reform debate, we can establish that government an opposition are however not that far away from each other in many points.

Considering the debate as it has developed up to date we at BVMed assess that the likely political compromise and therefore the future German healthcare policy may include the following points:

:: the political goal to lower the contribution rates

:: as the creation of new jobs is considered the most important political task, there is a tendency to limit the employers’ share of the SHI contributions

:: there will be more direct payments by patients on treatment and medication

:: there will also be more competition between and among sickness funds and healthcare providers

:: a system of bonuses on patients’ contributions may reward cost-efficient behaviour

:: social benefits such as maternity allowance and funeral benefit are very likely to be excluded from the SHI system (and then financed with tax money)

:: finally, there is a clear tendency in the reimbursement policy towards flat-rates in both the hospital sector and the ambulatory sector

The Medical Technology Industry

This is the framework and general future outlook in which we, the manufacturers and providers of medical technologies and services, work in Germany. But let us now turn our eyes on to the industry itself.

The world market

The world market for medical devices has a volume of some 170 billion €. Europe is the second biggest market in the world. There, as a single country, the German market alone has a turnover of 18 billion Euro. It is in fact among the top three markets in the world, ranking behind the US and Japan.

Our industry employs more than 100,000 people.

Within this biggest European market BVMed represents 200 medical technology companies. In fact, we have been growing strongly continuously over the past years.

General economic state of the MT industry in Germany

Our member companies could increase their turnover in 2002 by 6,5% which is a rate only slightly below the world market growth rate of some 7 %. These increases are largely a result of higher case-related sales. However, the potential profit situation is not as positive as these figure may suggest. Despite generally increasing quantities we have to face a continued pressure on prices as well as rising costs of raw materials.

Nevertheless, the situation differs from sector to sector: Our member companies of the implants sector experienced quite a positive year. This was due to rising hospital cases and the general demographic development. The same applies to the incontinence and ostomy care sector. The sector of medical devices for intensive and nursing care had only an average rise. In contrast, the sector of bandaging remained stagnating. Some subsectors even showed decreases.

For the year 2003, we expect more or less similar developments. The pressure on prices can be expected to increase even further this year. This is mainly due to the introduction of a flat-rate reimbursement system (DRGs) in German hospitals but also due to the ongoing concentration processes among providers and producers as well as among customers.

Furthermore, there are nevertheless still limits on expenditures in the hospital sector which probably will be lifted only gradually over the next years.

For us, this is too slow and we have made clear the in-avoidable consequences of this policy: If this budgeting policy continues, then there is a danger that companies are forced to bill their customers for services they currently offer, but which are not reimbursable.

BVMed on the political stage

This is the point where the political aspect of BVMed’s work comes into play. In order to improve the general conditions for our member companies, BVMed acts in various ways on the political stage. We can rightly claim that we have been able to increase our influence since the association moved to the capital Berlin some two years ago. Let me give some examples:

:: BVMed has been invited by the ministry to participate in round table expert talks on healthcare policy strategies and particular policy issues.

:: Furthermore, we are member of the Health Technology Assessment committee (HTA) of the so-called DIMDI, the institution which is responsible for the documentation and assessment of medical technology.

:: BVMed is involved in the further development of the DRG system, which at the moment is one of the major reform projects which directly affects the industry.

:: We are regular participant in the DRG hearings of the ministry.

:: And additionally, we are one of only five “co-ordinating” partners of the InEK, the German DRG institute.

German DRG system

As already mentioned, the introduction of DRGs in the German hospital sector is - at the moment - the healthcare political project with the biggest impact on our industry. BVMed was in favour of it from the beginning on and we are determined to accompany the process of its introduction in a constructive manner and in partnership with all institutions involved. We are convinced that the increased transparency of procedures and costs in hospitals will help in improving and sustaining the healthcare quality and efficiency.

The new German system has been largely inspired by the Australian DRG system. Our major institutions, like the associations of sickness funds and the German Hospital Association have undertaken a world-wide benchmarking in order to find a suitable model. They came to the conclusion that the “Australian Refined Diagnosis Related Groups”, as the system is called, is the one which is most able to summarise sicknesses, indications and treatment methods in specific groups and to reflect their costs in an appropriate way.

Furthermore, this model is the only one with an “all inclusive” cost calculation. This means that a DRG of a certain procedure will reflect all costs, including for example auxiliary staff, maintenance and so on. We are now at the starting point of the introduction of this DRG system. From this year on, there is the option for hospitals to reimburse on the basis of these new DRGs.

At the moment, 520 hospitals are already participating in this new reimbursement scheme, which is about one fourth of all hospitals.

From the year 2004 on, the system will be mandatory for all 2200 German hospitals – although with the condition that expenses remain within the budget of the year before.

2005 and 2006 are supposed to be the period of convergence, where federal state-wide flat-rates are to be established and refined. If all this works well, these DRGs may be routinely applied in Germany from 2007 on.

At that point we will probably have about 800 Diagnosis Related Groups which will cover approximately 80 % of all reimbursable hospital expenses. The remaining 20 % will be reimbursed on the basis of day-rates further on.

This applies mainly to highly specialised procedures and indications with a very individual character, as for example in the field of dermatology, epilepsy, HIV, accident surgery and psychiatry.

We at BVMed are optimistic and positive about these reforms. Our industry has good prospects, particularly due to the increasing number of cases. Nevertheless, the system needs to be continuously refined and further developed. It must be made sure that it will remain a “learning system” that is able to consider new experiences of those partaking in the system and which can be adapted to suit the actual needs of the healthcare situation in Germany.

There is one particular issue which is still a challenge for us as representatives of medical technologies. The problem is, that at the moment many innovative, high-tech and high-value technologies and procedures are either significantly under-evaluated in the existing DRG catalogues, or they are not considered at all. This applies particularly to the field of cardiology and endoprosthetics.

Many hospitals are forced to take economic losses if they apply these advanced medical technologies. But what is the value of a new reimbursement system which does not reflect the real life healthcare costs, or - even worse – which denies patients the access to state-of-the-art treatment. Therefore, BVMed will continue to advocate innovative and quality of life-improving medical technology:

The calculation data need to be reviewed, new DRGs are required and existing ones need to be differentiated. We made a number of suggestions to the DRG institute in May 2003.

Furthermore, BVMed has presented seven major political demands, which are aimed at creating a more innovation-friendly climate in Germany:

1. All partners in the health service, particularly the industry and business, require planning security through continuity. We need a long-term, broad-based reform concept.

2. In the case of the prospective health reform, the question of finance must no longer be ignored.

3. Sectoral budgeting must be dispensed with. It hinders innovation and leads to a rationing of healthcare procedures.

4. The new DRG reimbursement system for hospitals must remain accessible to medical technology.

5. The relative weights in the DRG catalogue must be increased for innovative medical technological procedures. In the existing DRG catalogue, numerous relative weights for DRGs involving high-cost equipment are seriously undervalued.

6. The decision-making process of the federal committees concerning new diagnosis and treatment methods (technology evaluation – Health Technology Assessment, HTA) must be more transparent and faster.

7. Bureaucracy within the procedure required to adopt innovative products into the medical technical aids register must be reduced and the process must be speeded up.

At the end of the day, we are optimistic that we can help to improve the general conditions for medical technologies. This is in the interest of the patients, too.

State: May 2003
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