Medical Device Link.

Originally Published MX July/August 2004

MARKET ANALYSIS

Executives planning a global launch strategy must first understand the target market's healthcare system and payment structure.

Ron Marrocco

Not long ago, medical device firms believed that cultural differences should be the primary focus of a multinational launch strategy to bring medical innovations to western European markets. Although certain cultural issues—including language, attitude, and philosophy toward medical care—will always deserve thoughtful consideration in the medical device executive's decision-making process, these issues no longer deserve to be the central or defining focus of a European launch strategy. A variety of factors, ranging from administrative and government regulations to healthcare systems and patient engagement, have surfaced as more-significant issues in the development of an effective international launch strategy.

This article explores some of the factors that can make the difference between success and disappointment in bringing medical device innovations to market in Europe. Although some principles apply generically to any medical technology international product launch, this article will highlight important market distinctions within the European Union (EU), with particular emphasis on Germany and Italy—two nations with clearly differentiated healthcare systems.

European Healthcare Ideology

Figure 1. Sources of healthcare funding in social insurance and national healthcare systems. (click to enlarge)

Acknowledging the importance of cultural differences in a multinational medtech launch strategy, it should be noted that Europe has a rather homogeneous philosophy with respect to the delivery of healthcare. For the most part, Europeans have a strong sense of social responsibility that is apparent on both national and community levels, where the "social contract" between citizens and government assumes an ethical responsibility for the delivery of broad-scale healthcare coverage (see Table I). Consistent with this philosophy, European healthcare systems are largely publicly funded social insurance or national healthcare systems supported by tax and employer contributions aimed at elevating the health status of a nation's population (see Figure 1). This is somewhat of a contrast to the United States' healthcare ideology, which has a greater philosophical and political commitment to individual autonomy and choice.

Italy's national healthcare system uses taxation as the primary source of funding, while in Germany (and France) payroll taxes contribute a greater share of healthcare funds. In the case of Germany, employed German workers help to pay for the healthcare benefits of the unemployed and retired. Yet, in a nation where the growth rate of the aging population outpaces overall population growth, this type of publicly funded social insurance system places an increasing burden on younger workers. Consequently, much attention is paid to how healthcare funds are allocated and specifically to the technologies and disease management programs that are adopted.

Device manufacturers with high expectations for European market penetration are often frustrated by their underachievement with regard to market development objectives. Medtech innovations—including implantable technologies such as drug-eluting stents, new methods of birth control, spinal surgery implants, and minimally invasive devices that manage gastroesophageal reflux disease (GERD)—can experience slower-than-anticipated adoption rates. This is not a reflection of the clinical value these products deliver, but of the challenges associated with influencing the decision-making audience. European markets have been stifled by national and regional politics that accompany evolving healthcare systems. As a result, manufacturers are often challenged with addressing multiple administrative decision makers and inadequate systems of compensation and reimbursement.

Perhaps one of the more consistent obstacles with respect to planning a thoughtful launch strategy in Europe is change itself. In an effort to maintain or improve healthcare coverage and manage costs, healthcare systems throughout Europe have been in a state of flux for several years. This holds true perhaps more for Germany than any other European nation. There, the government's desire to be more responsive to its citizens' needs reduced the healthcare system to a state of seeming paralysis while authorities sought to develop a consensus on the structure and implementation of new systems.

As Germany's healthcare providers and institutions begin to embrace new healthcare financing systems during the upcoming year, device manufacturers can expect more-efficient decision making that will help clear the path for the development and implementation of effective marketing and distribution strategies.

Italian Local Healthcare Agencies

Unlike Germany, where policy decisions regarding healthcare reimbursement and medical technology are made at the national level, Italy offers a more regional approach that empowers local healthcare agencies (LHAs) to determine what is in the best interest of their regional populations. Although Italy employs a basic diagnosis-related grouping (DRG) structure for managing diagnosis, care, and payment, it has also implemented a system in which 20 LHAs throughout the country have the authority to establish guidelines for managing healthcare issues that are of particular local interest.

For example, if statistics in the Lombardy region demonstrate a higher prevalence of cardiovascular disease, the Lombardy-based LHA could invest more in diagnostic imaging equipment and technologies associated with the management of cardiovascular diseases. Likewise, if a concentration of spinal disorders is discovered in Calabria, the Calabria-based LHA may explore innovations in spine surgery, such as bone morphogenic proteins, spinal arthroscopy, or disk replacement technology.

In this system, if patients become dissatisfied with the level of care their LHA offers, they are at liberty to travel to another LHA. This kind of regional competition ensures a basic level of competency in all medical specialties, particularly since healthcare dollars travel with individual patients from home-based LHAs to treating LHAs, much like a voucher program would operate in an educational system.

Germany's Proposed Financing Model

The German Medical Technology Association (BVMed; Berlin) is a powerful lobbying group that works with the Federal Ministry of Health and Social Security and key political groups to influence policy with respect to medtech innovation. Although recent changes in the country have introduced a new DRG-type system, they do not account for the utilization of medtech innovations. BVMed is now working to establish a system that will support the introduction of innovative medical technologies that fall outside the established reimbursement policy codes.

The proposal, referred to as the "Delta financing model," calls for a mechanism whereby incremental costs associated with nonmainstream therapies can be borne by healthcare consumers. This gives patients another option in managing their healthcare needs while allowing the social healthcare system to contain costs. Further, the Delta financing model may enable German healthcare administrators to monitor the benefits of medtech innovations without having to prematurely adopt broad-scale medical technology policies. Regional technology pilot programs may also offer low-risk approaches to technology adoption.

Fortunately for medical device firms with minimally invasive technologies, the new DRG system in Germany allows for greater flexibility in the management of patients than did the prereform system, which included legally binding cash limits managed by the federal association of sickness funds (Krankenkassen). As long as a CE marked device can be used to treat a particular problem that falls within an existing DRG (and is more cost-effective), it can anticipate a higher degree of acceptance. The DRG system, however, will do little to advance the acceptance of those innovations that are considered to support elective procedures under the current guidelines.

Innovation versus Efficiency

With a better understanding of the financial structure that supports European healthcare systems, it becomes easier to explore the challenges in bringing innovations to market.

For the most part, public healthcare systems emphasize efficiency. The diagnostic or therapeutic modalities that best serve the interests of a broad population continue to gain the attention of national and regional healthcare administrators and, ultimately, local clinicians. It is unlikely that healthcare providers or institutions within such systems will be receptive to innovations that are highly specialized, time-consuming to learn, or costly to implement, regardless of the long-term benefits they may offer the patient or the institution.

If an innovation can create a point of differentiation among healthcare centers within a region where healthcare funds are transportable, however, products or services that distinguish one center from another (in terms of outcome or efficiency) will be of greater interest. Still, most European healthcare centers are unlikely to invest in technology without corresponding economic studies—and they will look to the manufacturers of medical innovations for existing data based on populations that parallel their local experiences. Thus, when short-term evaluations are able to demonstrate improved efficiency, manufacturers may wish to consider using such data in their local marketing campaigns.

For technology advances that may lead to improved quality of life but don't immediately improve institutional efficiency, the scenario is less promising. For example, technologies such as advanced arrhythmia management devices, neurostimulators that control pain or manage brain function, minimally invasive surgical procedures, and a variety of minimally invasive orthopedic and urology procedures can greatly enhance a patient's quality of life. When quality-of-life-improving interventions do not demonstrate immediate short-term cost benefits, public institutions are likely to avoid embracing them, particularly if the technologies serve what is perceived to be small, "niche" populations.

However, there are still several paths that manufacturers may consider to bring such technologies to market, including the following. In each case, the specific path should be tailored to the structure and needs of the local market.

• Contrast device and procedure costs with the costs of long-term pharmaceutical management.
• Demonstrate the ability to move treatment from an inpatient setting to an ambulatory care setting.
• Educate primary-care decision makers on the merits of an alternative approach.
• Establish regions of expertise within the private sector; build links to public institutions.
• Where possible, educate consumers who stand to benefit from the medical advance.
• Lobby governing bodies to alter standards of care in carve-out populations.

Role of Physicians

Through their experiences with managed-care systems in the United States, device firms have learned that physicians play an important role in advancing medtech innovation but are seldom the exclusive decision makers. This also holds true in Europe, where there is perhaps a greater emphasis on the role of local or national healthcare policy administrators.

In public healthcare systems, physicians are often salaried employees with compensation plans that may act as disincentives for innovation. A more conservative adoption curve is prudent when plans involve entering a predominantly fixed provider payment system, which is typically seen in public healthcare systems. At the same time, it is important to note that Europe's healthcare institutions are approximately 75% public and 25% private. With this in mind, it makes sense that manufacturers seek out and engage private institutions that are able to evaluate innovations without raising the concerns of public healthcare budget managers.

The patient is an increasingly important audience in the diffusion of medical technologies that result in an improved quality of life (see Table II). In Europe, however, the guidelines that have been established for communications between manufacturer and patient are more restrictive than in the United States. Restrictions on direct-to-consumer advertising and promotion continue to inhibit the ability of device firms to reach consumers, although a pilot program now under evaluation has created opportunities for manufacturers of devices designed for the treatment of diabetes, asthma, and AIDS.

Conclusion

Although there are clear obstacles regarding how and to whom a device manufacturer can direct its technology message, having an appreciation for the target market's healthcare system and payment structure should guide the development of a launch strategy and minimize frustration. Knowing that Germany reviews technology on a national level while Italy delegates this responsibility to the regional level can serve as an important guide in the development of a market-specific launch strategy. The role of the clinical gatekeeper cannot be overlooked as a source of patient information—particularly in the following circumstances.

• If Germany adopts the proposed Delta financing system.
• For elective procedures in which patients can pay out of pocket.
• When new cost-effective technologies can be utilized within an established DRG.
• When competition can be exploited among LHAs in Italy (or among institutions in other areas of Europe).

A final point should be made with respect to cultural influences on the adoption of medical technology. Although the medical device industry is a global business, there are important, well-entrenched regional influences to consider. National pride can affect the adoption of medical innovation and it has been documented in many medical device arenas (e.g., Germany's adoption of ventricular-assist devices from German firms versus similar offerings from other manufacturers). It is important, therefore, for a device firm to consider the relationship that its local product champions have among their peers in the target market. It should be anticipated that physicians might use their stature within their area of expertise to stifle the success of a technology from an inventor who is from a rival country. Pride and nationalism are strong motivators that need to be managed diplomatically.

In largely public healthcare systems, funding will generally be available for medical conditions that affect broad-scale populations. It is not surprising, therefore, that cardiovascular innovations are embraced with less resistance than are those advances or innovations that do not have as profound an effect on length of life, such as cosmetic surgery or other patient-preference or quality-of-life advances. Since national funding sources will continue to be a significant contributor to European healthcare systems, it is important to uncover the subtleties that support the administration of healthcare services on a national and local basis.

Ron Marrocco is principal of Ron Marrocco LLC (Boston), an independent consulting firm dedicated to market development issues within the medical device and technology industries.

Illustration by CORBIS IMAGES

Copyright ©2004 MX