Medical Device Link.

Originally Published MX July/August 2001

In developing countries, the World Bank provides a stable source of funding for medtech purchases.

Nicholas H. Ludlow

Over the past two years, Mallinckrodt (Hazelwood, MO), now Tyco Industries, won a $126,040 contract to equip emergency medical centers in Bulgaria; Datex-Ohmeda (Helsinki, Finland), part of the Instrumentarium Group, won a $720,500 contract to install anesthesia apparatuses in Vietnam; Medtechnica (Petach Tikva, Israel) won two contracts amounting to $157,880 for supplying splints and instrument trays to Uzbekistan; and Philips Medical Systems (Amsterdam, The Netherlands) won two medical equipment contracts in Brazil worth $2.21 million.

What do these contracts have in common? They are among thousands financed by the World Bank (Washington, DC), a multilateral development bank (MDB) owned by 183 member countries, to provide financial support for economic activities in developing countries in Africa, Eastern Europe, Central and Southeast Asia, the Middle East, and Latin America. Each year, contracts totaling billions of dollars are signed on healthcare projects funded by the Asian Development Bank (Manila, Philippines), the African Development Bank (Abidjan, Ivory Coast), the Inter-American Development Bank Group (Washington, DC), and the World Bank in what is known as the MDB health-sector market. The majority of the MDB funds devoted to healthcare is provided by the World Bank, the single largest external funding source for healthcare in developing countries (see Figure 1).

According to IMS Health (Westport, CT), a global provider of information and decision-support services to the healthcare and pharmaceutical industries, developing nations, with the lion's share of the world's population, are the second-fastest-growing segment of the international market for pharmaceuticals after North America. The need for medical equipment is also rising in the growing development market, fueled in large part by the World Bank and other MDB healthcare project loans. Data from Development Bank Associates (DBA; Washington, DC) indicates that a greater number of MDB-financed healthcare projects allocate funds for medical equipment and healthcare information systems than they do for drugs. In fact, three out of five MDB-funded healthcare projects budget for medical equipment. And, according to DBA, well over half of the projects finance works such as construction or renovation of clinics and hospitals, which usually means that new equipment will be needed for those facilities.

Figure 1. The multilateral development bank (MDB) health-sector market broken down by bank. From 1997 to 1999, total lending for the MDB health sector amounted to $5.6 billion. Source: Development Bank Associates (Washington, DC). (click to enlarge)

Over the next three fiscal years, medical device manufacturers can expect approval of MDB health-sector loans to total more than $6 billion. Although the future outlook for the MDB health-sector market is strong, medical device companies will do well to focus on MDB activity in healthcare during the last three fiscal years, as these represent the source of today's business—that is, the current short-term bids and contracts financed by these banks. During the past three years, MDB commitments to healthcare averaged about $2 billion annually. At the beginning of this year, more than $5 billion remained to be paid on World Bank projects that had already been approved—some on projects dating back to the mid-1990s. Much of this amount represents business waiting to be won.

In recent years, Asia has been the region able to secure the greatest amount of MDB lending for healthcare projects, followed by Latin America, Africa, Europe and Central Asia, and the Middle East and North Africa regions.

The fact is that hundreds of medical device companies have been awarded contracts in the MDB market. But how, exactly, does a medical device manufacturer go about targeting specific opportunities in such a huge marketplace? This article offers medical device manufacturers a step-by-step approach to accessing the MDB market.

Understanding the Medical Equipment Requirements

All MDB-funded healthcare projects are strategy driven and multifaceted, and medical equipment makes up only one part of a typical project. Still, the medical equipment requirements driving the MDB health-sector market are extremely varied in nature and call for medical device companies to be familiar with what MDBs are and how they function.

Show Me the Money! MDBs are defined as multilateral because they are owned by member governments, but the money that they lend for projects is mostly raised on international capital markets and on-lent to borrowing governments at a small markup. However, some MDB funding is provided by member governments. This funding, available to the poorest countries and for many healthcare projects, is interest-free.

Unlike the aid of donor agencies, MDB loans must be repaid, and for the most part, their funds are highly targeted. That is, MDB funds are loaned for specific projects with specific components designed by borrowing agencies. Medical device companies must therefore deal directly with those borrowing agencies, and not with the MDBs.

MDB healthcare project loans range from a few million to several hundred million dollars and cover, among other things, HIV testing and AIDS treatment, primary care, maternity and pediatric care, healthcare system modernization and reform, sustainable health finance and insurance, and disease control and prevention.

On these projects, more than 90% of foreign-exchange budgets for medical equipment are greater than $500,000 where the budgets are split out. For example, the foreign-exchange budget for medical equipment on a health-sector support project in Zambia was $2.8 million, the World Bank Health project in Lithuania had a budget of $7.8 million, and the Immunization Strengthening project in India budgeted more than $33 million for medical equipment. There was even a case in which a World Bank project was given over entirely to medical equipment, with a budget of more than $200 million.

Just the Essentials, Please. The medical equipment requirements in a typical MDB-funded healthcare project are not easily defined, as medical needs vary from country to country—and from project to project. The following are some examples of current medical equipment requirements for MDB-funded projects.

• Laboratory equipment; equipment for clinical diagnostic and treatment centers, hospitals, and maternity homes; and equipment for ambulances. Foreign-exchange budget: $20.9 million.
• Essential equipment such as x-ray machines and microscopes, and ancillary supplies for microscopy- and radiography-based diagnostic services. Budget: to be determined; project scheduled for approval in fiscal year 2002.
• Equipment for district hospitals to provide reproductive care, including obstetric surgery, and to deal with emergency surgery, with laboratories for blood screening and transfusion; equipment for 41 new healthcare centers. Foreign-exchange budget: $2.6 million.

Details of specific product budgets are not always available to device manufacturers for approved projects and are usually not available for future projects. Allocations for specific goods may be included in another budget category or in many different hospital or clinic proposals, as they may not yet be known at the start of a project. They may also be demand based—that is, contingent on proposals for goods and services from hospitals, regions, or other end-users based on agreed-upon criteria.

In addition, MDBs primarily finance capital goods as opposed to consumables, although start-up sets of consumables may be included on projects. The kind of capital medical equipment budgeted usually consists of mechanical, electronic, diagnostic, and life-support products. MDBs encourage extended warranties for three to five years. The level of the facility involved—that is, primary, secondary, and tertiary hospitals or the several types of basic clinics or healthcare centers—usually also dictates the equipment requirements on MDB-funded projects.

From Sea to Shining Sea. Equipment requirements are also likely to differ from one nation to another. The World Bank therefore encourages country-based policies: "A national policy on medical equipment for the public sector can aim to ensure that scarce resources are utilized to obtain priority or essential equipment.... A well-designed policy can also help ensure that the equipment is compatible with expertise in the public sector, that servicing and maintenance is available, that the equipment is suitable for the facility environment, and that complementary equipment is available on-site."¹

The need for new medical equipment in developing countries is great. According to the World Health Organization (Geneva), more than 60% of the medical laboratory equipment in developing countries is outdated or not functioning, and more than 90% of laboratories are unfamiliar with quality control and quality assurance.

The World Bank emphasizes that selection of medical equipment "is particularly project driven and should reflect the needs of the level(s) of the health delivery system addressed in the project, since more-sophisticated equipment is generally needed at higher levels as the range of diagnostic and treatment services offered broadens.... The type of equipment to be procured is determined by the objectives of the project and the type or level of the healthcare facility being furnished."² Accordingly, there is no standardized list of recommended medical equipment for all MDB-funded projects.

While there is no standardized list of equipment, MDBs emphasize the benefit of using standard nomenclature, citing the Universal Medical Device Nomenclature System used in the European Union as an example. In this regard, the new Global Medical Device Nomenclature (GMDN) established by the European Committee for Standardization is likely to be adopted on MDB projects. According to an article issued by the British Standards Institution (London), the GMDN project was designed to "create a comprehensive nomenclature for all medical devices suitable for use by all interested parties globally."³

A Common Thread. As stated earlier, the details of medical equipment requirements on any given MDB-funded project are often not available or finalized by the time the project is approved, and the final requirements will differ from case to case, and with the level of the facility. There are, however, certain specific assumptions that can be made.

Equipment is needed on MDB-funded health projects for anesthetics, cardiology, clinical and diagnostic laboratories, emergency medicine, general family services, gynecology, intensive care, obstetrics, ophthalmology, pediatrics, pulmonary medicine, radiology, and surgery. When a project description indicates, for example, that public healthcare clinics will be equipped in 110 locations, the kind of equipment that may be sought for the clinics will likely include a limited range of equipment and instruments for each of these needs—perhaps just a few or several dozen items for each location. If, on the other hand, a major hospital is being modernized or refurbished, the range of equipment and instruments being sought for the same needs will be much broader, and may run into hundreds of separate items. In one World Bank–financed bid for refurbishing equipment and supplies in an African hospital, for example, more than 500 items were listed.

Identifying and Prioritizing Projects

For some, the MDB health-sector marketplace is almost too large to comprehend or too difficult to figure out. Medical marketers may hear about various scattered projects, but to identify opportunities before they arise, they need to be able to make sense of the global MDB health-sector market.

Developing countries should be a key part of any medical device company's international business development strategy, and any marketing person assessing directions for future growth should start with this dictum: follow the money. Ask the question, "In what regions are MDBs lending and for what?" With MDBs providing a significant portion of available healthcare funds, market share in many developing countries effectively translates into MDB market share.

This being the case, medical equipment marketers have two ways to expand their share in middle- and lower-income countries—reactively or actively.

Many medical device executives spend the majority of their time reacting to day-to-day opportunities, giving little consideration to prioritizing among countries, projects, and potential future opportunities. They respond to bid notices issued by governments in developing countries that are passed on by local agents, government trade organizations, or through the Web sites of MDBs or the United Nations. However, less than 20% of bid notices on World Bank projects are advertised internationally.

Additionally, many device companies rely on in-country agents for local sales if they have local distributors. Datex-Ohmeda, the device company that won the World Bank contract in Vietnam, for example, has a network of independent distributors in more than 100 countries. Smaller, more-specialized companies may have fewer local agents in selected regions.

In general, distributors react only to bid notices placed locally for equipment needed on a specific MDB project—say, in Brazil or Uganda. Benchmarking how effective the distributors and agents are in winning MDB business is difficult. Medical device manufacturers may only hear about what business such distributors and agents have won, and not about the opportunities they've lost or those they knew nothing about.

The best approach, therefore, is to combine local and reactive marketing with a more active approach. Rather than waiting for development business to present itself, an active strategy involves determining what is planned by MDBs, what is being funded, and what equipment will be needed, and then taking steps necessary to win the deal. This approach can be very cost-effective and is highly recommended to make a real cut into the market.

Marketing to the Project

If $100 million is to be provided for modernizing hospitals in a planned World Bank–healthcare project in a given country in 2002, or if $30 million remains unspent on an existing healthcare project in another country, medical device manufacturers can plan a number of marketing activities.

First, however, they need to find out more about specific requirements. Where detailed product or budget information is not yet available, which is the case in three out of five approved MDB-funded healthcare projects, device manufacturers should be sure to check the project description and the overall component budget allocations and read between the lines.

If there is any indication that there may be a need for particular types of equipment, device manufacturers should check directly with the project implementation unit and other contacts in the given country. Questions to ask of such contacts are, "What's required?" and "When will bidding take place?"

Device companies that can provide what's needed should prepare to market to the project, set up supplies or domestic manufacturing in time for the bids, and arrange the most competitive pricing. They should also make sure that their distributors or agents in that country know about the upcoming project. Perhaps most importantly, device manufacturers must ensure that their equipment is not excluded by the requirements. They need to educate those drawing up the bidding documents about their specific technology, which is permissible under MDB rules. The World Bank bidding documents state: "The specifications should require that all goods and materials to be incorporated in the goods be new, unused, and of the most recent or current models, and that they incorporate all recent improvements in design and materials."⁴ The party drawing up the bid documents should therefore know about the device manufacturer's most recent models and technology and be comfortable in their knowledge of it.

Understanding MDB Procurement

Since nearly all MDB-funded contracts are won via international bidding, knowing how the MDB procurement process works is important for device manufacturers.

MDB-financed contracts are signed with borrowing agencies—not with MDBs—so that marketing must be directed at such agencies as Ministries of Health that draw up bidding documents, carry out the bidding process, and select the winning bidders. MDB contracts have several things in common:

• Any company from almost any country can bid for them.
• They are predictable because they use uniform, MDB-mandated bidding documents in every country. All borrowing agencies must use these standard documents and follow policies mandated by the MDBs to protect bidders in a predictable and level procurement environment.
• They are protected by the procurement guidelines of the MDBs that promote level playing fields, transparency in bidding, anticorruption, and the opportunity for all eligible bidders to compete.

Medical marketing executives should get to know some of the key aspects of the MDB procurement process, such as:

• How MDB projects originate and develop.
• The bidding timelines relating to individual projects and bids.
• The role of the borrower and MDB officials.
• The types of MDB-financed bids and how to address them.
• The importance of compliance on MDB-financed bids.
• The rights of bidders.

Whichever party a medical device manufacturer chooses as a local representative in this market should have a fairly advanced understanding of how MDB-financed procurement works, since they will play a crucial role in the bidding process, whatever the type of bid involved. What they learn and do about the MDB bidding process will make the difference in whether a bid is won or lost.

How to Win Bids

The MDB health-sector market is large enough, significant enough, and long-term oriented enough that any medical equipment supplier should consider it seriously. There is nothing mysterious about it. It has set rules and features. There is no substitute for getting involved. The following are some pointers to start the process of winning MDB bids.

• Establish specific selection criteria—for example, which regions or countries your company wants to target.
• Work out how to select target MDB countries and opportunities on the most cost-effective basis.
• Check available resources on the MDB marketplace, including training courses to sharpen your MDB bidding skills.
• Check whether your company's agents or distributors are located where the MDB action is, and if not, prepare to address the mismatch.
• Bid only on those opportunities for which your company is best suited and most competitive in any given country.
• Consider setting up a specific MDB program within the company that will focus attention and activity on winning the business.

The companies listed at the beginning of this article have already learned how to win in the MDB marketplace. With billions of dollars at stake, there's no reason why more medical device companies shouldn't win MDB-financed contracts as well.

REFERENCES

1. "Standard Bidding Documents and Technical Note: Procurement of Health-Sector Goods," technical note 3.3.7, rev. ed. (Washington, DC: World Bank, 2001).

2. "Standard Bidding Documents and Technical Note: Procurement of Health-Sector Goods," technical notes 4.1.5.1 and 4.2.6.1, rev. ed. (Washington, DC: World Bank, 2001).

3. J Nordan, R Moore, and M Naito, "The Global Medical Device Nomenclature: The Advantage Gained by Using a Common Classification and Nomenclature for Medical Devices" (London: British Standards Institute, 2001).

4."Standard Bidding Documents: Procurement of Goods," rev. ed., section VII (Washington, DC: World Bank, 2001).

Nicholas H. Ludlow is managing director of Development Bank Associates (Washington, DC), a firm specializing in the MDB health-sector market.

Copyright ©2001 MX