2010-11: The German Medtech Industry Continues to Thrive

Showing remarkable resilience, Germany’s medical manufacturing industry continues to innovate, create high-value jobs and capture market share. By: Joachim M. Schmitt and Manfred Beeres, BVMed, Berlin, Germany

Healthy outlook

The healthcare sector in Germany continues to post stellar results: the industry has tremendous growth potential, it produces numerous job opportunities for qualified skilled employees and is an export power-house, even during periods of economic crisis. A total of 4.4 million people work in this sector—one out of 10 jobs in Germany depends on the healthcare economy. In 2007, a total of €252.8 billion was spent on healthcare. This represents 10.4% of gross domestic product (GDP), surpassing even the automotive industry’s share of GDP.

The employment picture

The medical technology industry employs 95,000 people in nearly 1250 companies with more than 20 employees. The industry also includes roughly 10,000 small businesses employing a total of 75,000 employees. That adds up to 11,000 companies employing approximately 170,000 people in Germany. Another 29,000 people work in the retail trade for medical and orthopaedic products. Approximately 15% of the 95,000 working in the medtech sector are employed in R&D, a percentage that is trending upwards. Apart from a few large companies, the industry is dominated by medium-sized firms: 95% of companies employ fewer than 250 people.
The medical industry offers excellent job prospects for engineers and qualified professionals. More than nine out of 10 companies report vacant positions, and it is becoming increasingly difficult for these companies to recruit adequately qualified staff, according to a recent survey of BVMed member companies.

Ninety-four percent of member companies participated in the online survey, and 94% of them said job prospects for engineers were “good to very good.” For qualified professionals, this number climbed to 98%. Vacant positions primarily are found in sales (66 of 94 companies), marketing and communications (35), key account management (27) and R&D (24). Only 4% of companies said they did not have job openings at the moment.

However, 91% of companies are finding it increasingly difficult to fill those vacancies, especially in sales but also in key account management and R&D. An education deficit, especially in foreign language skills and math and science knowledge, is widely blamed for this.

Almost two-thirds of companies responding to the survey believe that the medical industry’s professional qualification system urgently requires modernisation to keep up with the pace of innovation. Training and qualification should favour an interdisciplinary approach, incorporating disciplines such as medical technology, IT and hospital processes, according to 79% of survey participants. Knowledge of economics and marketing strategies also should play a bigger role.

Spending by the numbers

Expenditures in the medical device sector (not counting capital equipment) amounts to about €25 billion. Of this amount, approximately €12.8 billion goes towards medical technical aid, €11 billion are spent on other medical supplies and €1 billion go into medical dressings, which are classified in the pharmaceuticals category. The total share of statutory health insurance amounts to some €14 billion.

The total business volume of medtech manufacturers in Germany increased by 2.5% to €17.8 billion in 2008, a significant slowdown compared with 2007, which recorded 6.9% growth. The positive results in 2008 are primarily based on a 3.5% increase in exports, which are valued at €11.5 billion. Growth in domestic demand was minimal, reaching €6.3 billion in 2008.

Germany is the world’s second largest exporter of medical technology with a 14.6% share, behind the United States (30.9%) but well ahead of Japan (5.5%).

The world market for medical technologies is valued at approximately €220 billion. The US market is the largest, accounting for €90 billion, with the European Union coming in second at €65 billion. When comparing individual countries, Germany is the third largest market worldwide (€23 billion), just behind Japan (€25 billion). Germany is by far the largest medtech market in Europe: it is twice the size of the French market and three times as large as the Italian and British markets.

Inspiring innovation

The medical technology industry is dynamic and highly innovative. German medtech manufacturers achieve approximately one-third of their business volume with products that are less than three years old. Companies in the medtech sector invest an average of 9% of revenue in R&D. Germany’s tradition of innovation and research meshes well with the demands of medical technology companies. More proof of industry innovation: according to the European Patent Office in Munich, medical technology heads the list of registered inventions with more than 16,700 patents filed in 2008. Electronic telecommunications engineering and data processing ranked second and third.

The medical industry has successfully weathered the financial and economic crisis, but it is vulnerable to the outstanding receivables in some EU member states and a surge in the cost of some commodities.

According to our own data, the late payment problem, with receivables outstanding for months or even years, has gotten worse in some European countries. Due diligence is advisable. According to industry sources, late payments also apply to some regional service providers in Germany.

This problem is aggravated by sharp price increases for commodities within the last 12 months. The cost for cellulose, cotton, nonwoven fabrics and medical granules for synthetic materials has risen between 30 and 65%. This affects a range of medical devices from incontinence products to plastic disposable devices.

The price for fluff/cellulose is driven by an increased demand for paper and wood, a harsh winter in Scandinavia, strikes in Finland and the earthquake in Chile. A strong US dollar further fuels price increases. The price for cellulose has increased by about 35% compared with July 2009.

Granulated polypropylene and polyethylene have also experienced extreme price hikes. These materials are used for the production of nonwoven fabrics and foils. The driving force behind these prices is crude oil: prices for polypropylene, for example, increased by 65% in a single year between April 2009 and April 2010.

All market players are affected by developments in the commodities market. There are no alternative materials and the possibilities for process optimisation are limited. This constitutes a big challenge for the industry—price adjustments cannot be excluded.

Healthcare reform

The coalition agreement of the new CDU/CSU-FDP federal government provides for a government commission to prepare an extensive healthcare reform. BVMed has put forward a “10-point-plan for providing patients with advanced medical technology.” The following aspects are important for BVMed:

Optimise support, reduce bureaucracy. The research promotion activities that began with the Medical Technology Action Plan should be systematically continued and further developed. Emphasis shall be put on telemedicine. Systematic further development and integration of telemedicine into the statutory health insurance system will result in safer and more cost-efficient healthcare. Unimpeded development of the healthcare economy currently is restricted by numerous regulations. Bureaucratic, opaque and centralised solutions must be carefully examined and removed.

Differentiate between medical devices and drugs. Regulatory controls should treat medical devices differently from pharmaceutical products. This includes the systematic implementation and further development of the “New Approach” for medical devices. Mandatory testing and approvals should be limited to what is necessary to ensure the safety, efficiency or quality of medical devices.

Strengthen innovation. A strong domestic market is important for companies in the healthcare economy. This includes statutory health insurance with functioning competition and the rapid introduction of medical innovations. Innovative products and processes must be provided quickly to all patients who need them, whether in a hospital setting or as outpatients. More flexible and rapid access to innovation requires simpler examination and treatment methods and a less bureaucratic process. In addition to existing coverage, reimbursement by the health insurance funds must be ensured. Concepts like the introduction of an innovation savings scheme to participate in medical advances or an innovation pool should be examined by the end of 2010 and, subsequently, implemented.

Building confidence

Health is one of our greatest assets. The economic and financial crisis has no effect on this basic truth. Patients need care, wounds must be treated and operations must be performed. Medical devices play a vital role in these activities.

We need an innovation-friendly environment for the future, as well as more effective competitive elements and less regulation. A look at the coalition agreement of the new German Federal Government shows us that competition and freedom of choice for the insured are to be strengthened. This gives us confidence.

The healthcare economy offers tremendous growth potential and numerous job opportunities to qualified, skilled employees. It is also an astonishingly stable export factor, even in times of crisis! We expect the new federal government to implement the positive approaches outlined by the coalition agreement. Here are five examples:

The coalition agreement states that high-quality, innovative medical care is to be ensured in the inpatient sector. This means that the principle of “permission with the reservation of prohibition” should be preserved. This principle should be expanded to the outpatient sector, retaining the same personnel and structural conditions.

The new government has stated it opposes an elaborate bureaucracy. In our sector, it is important to reduce bureaucracy when adding “new examination and treatment methods” within the diagnosis-related group (DRG) system.

The coalition advocates strengthening patients’ rights and increasing freedom of choice. In practice, this should mean that patients must regain the liberty of freely choosing their technical aid suppliers.
The government wants competition for quality, prices and the best medical care. But we need to get away from pure price competition and move towards high-quality care with modern medical technologies.
The government intends to examine fixed refund guarantees when they make sense and are suitable. In practice, such a scheme would be ideal, for instance, for the care of patients with multifocal intraocular lenses.
Enhancing health is a joint undertaking. We can do it better by working together. Then the healthcare sector will remain an engine of medical progress on behalf of patients and the economy as a whole.

Joachim M. Schmitt
is Director General and
Manfred Beeres
is Communications Director
at BVMed - German Medical Technology Association,
Reinhardstrasse 29b, D-10117 Berlin, Germany
tel. +49 3024 625 520

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