GAELLE MARINONI, senior analyst at international information company, IHS Global Insight, and colleague, CAMERON LOCKWOOD, explore the challenges of medical device and diagnostic launches in developed markets
ESTIMATED to be worth £227billion in 2010, the global market for medical devices and diagnostics is notable for the sheer number and type of different products falling within its domain1.
On the devices side, products range from commodity goods such as elastic bandages, to high-value technologies such as stents and pacemakers. Devices may provide therapeutic benefit in illness, correct injury, compensate for disability, or serve a cosmetic function.
Health technology assessment efforts where devices and diagnostics are concerned are still in their infancy, providing manufacturers with the opportunity to influence and help shape their direction
For those types of medical equipment requiring capital investment, constrained budgets have translated into delayed purchasing
Diagnostics range from in-vitro reagents and tests to sophisticated systems and equipment such as MRI scans and computer-assisted detection devices. Often characterised by emerging, complex and even controversial science, diagnostics have utility across care settings and represent diverse functionality:
This product breadth in terms of type and functionality means the devices and diagnostics sector captures the full range of care settings. It is positioned to benefit from growth in specialist care as the world’s major markets continue to age. At the same time, as governments and policymakers look to shift care into more cost-effective settings, the sector will benefit from growth in the home health and consumer markets.
Given the range and complexity of devices and diagnostics, it perhaps comes as little surprise that the regulatory environment for these technologies is fast evolving
Given the range and complexity of devices and diagnostics, it perhaps comes as little surprise that the regulatory environment for these technologies is fast evolving. While the major markets have all implemented risk-based classification systems that underlie regulatory controls, they differ in terms of pre-market approval processes and the evidence requirements that fall on manufacturers. Pre-market approval processes are nowhere near as stringent as those for pharmaceuticals and, in many cases, these controls have proven controversial and, in certain markets, are undergoing review.
In terms of the reimbursement landscape for devices and diagnostics, the broad utility of this product class means that, within each market, systems for different care settings will often apply. Within a given market, the same technology may be used in varied settings and associated with markedly different reimbursement rates, sometimes depending not only on the setting, but also the structure and the type of provider institution.
As governments and policymakers look to shift care into more cost-effective settings, the sector will benefit from growth in the home health and consumer markets
Major markets vary considerably in the actual payment frameworks they have established. These range from prospective in nature (i.e. relying on a DRG system) to those based on fee-for-service or capitated budgeting. There is also variation as to whether devices and diagnostics are reimbursed as part of a procedure or associated with their own tariffs. In turn, systems for rewarding innovation with payment ‘top-ups’ vary by market. As such, incentives for clinical adoption of new technology differ considerably not only across, but within markets. As a general rule, incentives for innovation uptake are cumbersome, slow and broadly inadequate.
Hospitals remain the largest purchasers of devices across the major markets. Within each market, procurement tends to be fragmented. Certain countries with national healthcare systems organise public tenders but, depending on the type of device, these may be national, regional or even local in scope. There has been a move, especially in markets where private care providers are predominant, toward group purchasing, leading to significant price discounting. Given past and continued economic uncertainty, this discounting has intensified in recent years. For those types of medical equipment requiring capital investment, constrained budgets have translated into delayed purchasing.
The hospital funding framework leaves the medical device and diagnostic industry vulnerable to cost-containment action, notably in case of tariff cuts or increase in activity, which under global budgets could lead providers to scrutinise resource allocation. Given the size of the devices and diagnostics market, it is ironic, however, that it has not come under greater scrutiny for usage rationalisation. This is in marked contrast to the pharmaceutical arena, where tools such as Health Technology Assessment (HTA) – when linked to reimbursement decision-making – have been used to control expenditure. With cost-containment now a number-one priority in most major markets, there are signs that policymakers are playing catch-up. Certain markets are taking the lead, with bodies such as NICE in the UK having established dedicated device committees in recent years. Generally speaking, however, HTA efforts where devices and diagnostics are concerned are still in their infancy, providing manufacturers with the opportunity to influence and help shape their direction.
The hospital funding framework leaves the medical device and diagnostic industry vulnerable to cost-containment action, notably in case of tariff cuts or increase in activity, which under global budgets could lead providers to scrutinise resource allocation
If the reimbursement landscape is becoming more challenging, similar trends are afoot in the regulatory environment. High-profile product recalls in major markets have led to calls for more stringent regulatory oversight of devices and diagnostics in recent years.
Given the size of the devices and diagnostics market, it is ironic that it has not come under greater scrutiny for usage rationalisation
As mused by one European official, the CE Mark underlying EU market approval is the same one applying to children’s toys. Meanwhile, the US FDA is currently in the midst of a major review of its premarket approval process for devices. A number of major markets are re-assessing their approaches to in-vitro diagnostics, especially in the case of the so-called ‘home brew’ tests that continue to fall outside the scope of most regulatory frameworks. As such the commercial landscape for medical devices and diagnostics could soon increase in complexity, fragmentation and stringency.
1 Johnson & Johnson press release, June 3 2010, (Accessed on 26 September 2011).