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European Hospital Financing Reform - Developments and Business Implications for the Medical Device Industry

  • ID: 28611
  • Report
  • June 2006
  • Region: Europe
  • 113 Pages
  • HBS Medical Limited
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A review of healthcare spending in the countries of the developed world over the last two decades shows continued upward trends.

According to an analysis of projected healthcare spending in 18 countries (not including the USA) the Oecd estimates that, as a direct result of population aging, total healthcare spending will increase by an average of nearly 2 percent of GDP over the period 2000 - 2050 in the countries studied.

In response to the historic and forecast upward trends in health spending, most Oecd countries have sought to rein in growth in public sector spending and have utilised a number of health reforms to this end.

Decentralization of planning, decision-making and operating management is taking place to tackle inefficiencies in health systems (efficiency of healthcare systems is defined as the achievement of maximum outputs for a given level of spending or achievement of comparable outputs at lower cost).

Cost containment measures can be reasonably summarised as relying upon three types of policies: (1) regulation of prices (especially relevant to pharmaceuticals), input resources, and health care service volumes (2) shifts of costs onto the private sector and (3) caps on health spending, either overall or by sector.

Budgetary caps or controls have been especially directed at the hospital sector which is the most costly element of the healthcare system. What has been seen in Europe since the early 1990s is a discernible shift from the use of global budgets in hospital financing to activity based methods of payment such as diagnosis-related group (DRG) schemes.

With DRG systems, fixing reimbursement tariffs to specific diagnosis and treatment is seen as restrictive to the growth of medical device markets. Industry players in Europe see the expanded implementation of Drg-based payment systems as negatively impacting on technology diffusion, and thus growth of the medical device industry.

Industry players voice concerns about knock-on effects for the device industry but most are unsure of the extent to which the changes will influence uptake levels, growth rates, reimbursement and, essentially, the future of the medical technology industry.

Especial concern is being directed to developments in Germany, the largest medical device market in Europe. Companies in Germany are now increasingly concerned about the impact that the implementation of the German Diagnostic Related Group system will have on revenues of existing products on the market. Additionally, concerns are raised as to the impact that the DRGs might have on adoption and reimbursement of new products entering the market.

The general belief amongst medical device companies in Europe is that the path to reimbursement is much more rocky and uncertain within the region. The disparity in healthcare structures and the lack of a common European reimbursement policy is the main sticking point. The favourable environment in the USA in terms of diffusion of innovative technology into medical practice is a well-known and well-established phenomenon and is seen as a positive environment within which medical device companies operate. Although the use of DRGs in the USA has not had an overall negative impact on the medical device industry in that country, the fear is that in Germany what seems to be an over-riding concern to drastically cut healthcare costs will damage the medical device industry there.

Given the recent introduction of the DRG system in Germany it is extremely difficult, at this point in time to confidently gauge the direction that the industry will take. However, it is interesting to attempt to determine a degree of understanding on the direction in which the market will progress by looking at the effects of DRG implementation and policy reform in other European countries, the USA and Australia. Competitive intelligence is also a key undertaking which companies need to address in larger measure in order to learn from both competitor mistakes and successes.

Since hospital funding varies across countries it is increasingly important for international market players to be aware of the differences in order to devise appropriate product and marketing strategies. Companies need not only to be aware of these differences, but more importantly they need to stay abreast of policy reform affecting the hospital sector in each European country. It is of vital importance that they map their marketing strategies in line with the anticipated impact of health reform policy.

A number of other factors are anticipated to have a greater influence on health policy and the funding and regulation of medical devices in Europe. There has been increased interest in introducing to the health sector more of the elements found in normal economic markets, such as competition among health care providers or insurance funds.

The Stockholm model in Sweden is a prime example of this movement and has attracted much international attention. Sweden has seen a shift from a healthcare system characterised by public service monopoly, hierarchy, and top-down attitudes to one having diverse providers, networks, and increasing consumer power. The introduction and use of a DRG system in Stockholm had the effect of increasing productivity and reducing waiting lists. Reducing waiting lists is a chief concern for the British government which has stressed the continued development of the UK’s own version of DRGs, the Healthcare Resource Groups (HRGs) which cover ambulatory care as well as in-patient treatment.

In 2003 six specialties have been identified, General surgery, Urology, Trauma and Orthopaedics, ENT, Ophthalmology, and Cardiothoracic Surgery for which 15 HRGs have been assigned.

The focus on activity targets directed at these specialties and the subsequent targeted reduction in waiting lists in these areas will benefit companies which supply products into these areas.

In 2004-2005 the UK government plans to increase the HRG listing to 30-45 specialty areas. HBS Consulting anticipates that the establishment of these lists are likely to follow government policy aimed at providing better healthcare in therapeutic areas targeted under the UK National Service Frameworks. An important point of note is that the criteria for the set of designated procedures chosen for the HRGs in 2003/2004 includes an assessment of clinical effectiveness. Procedures where the evidence of clinical effectiveness is poor were excluded. This highlights the fact that devices, which can be shown to increase or improve cost and clinical effectiveness, are likely to fare much more favourably in both a changing reimbursement and regulatory climate.

The need to provide data from health technology assessments (HTA) and evidence based medicine (EBM) and their expanding use in domestic health policy is an example of a trend which marketing personnel should bear in mind at a much earlier stage of medical device development.

Well-designed HTAs should be used mainly to influence health policy, since HTA is impacted by high health care expenditures, visibility of new technologies, and the necessity to begin to rationalise health care technology.

Company HTAs should include discussion of issues broader than pure cost-effectiveness studies e.g. ethics, psychosocial matters and organisational implications. Companies need to monitor the development of HTA programmes in European countries in order to understand where their own activities might best fit such that the use of HTA might best support reimbursement decision-making.

Within Europe, domestic HTA programmes are developing at differing pace and the impact on reimbursement decisions is also non-uniform. The best developed HTA programmes in Europe are those in the UK and Sweden. On-going or revised consideration of HTA and EBM impact on medical device market potential is just part of a wider competitive intelligence assessment that companies need to make as health policy reform in general develops in Europe.

The current HBS Consulting report on European Hospital Financing Reform - Developments and Business Implications strives to provide a detailed overview of the shifts in health policy which are anticipated to have an impact on growth in certain key European medical device markets.

The report aims to keep business development, regulatory and marketing personnel abreast of up-to-date health policy reform and to highlight strategies which are considered important for the gain of competitive advantage.
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1. Executive Summary

2. Introduction

3. Healthcare Structures in Europe
3.1 Belgium and the Netherlands
3.2 France
3.3 Germany
3.4 Italy
3.5 United Kingdom
3.6 Scandinavia
3.7 Spain

4. Hospital Financing and the shift to DRG-based reimbursement for services
4.1 Benelux
Legislative reform and business implications
4.2 France
Legislative reform and business implications
4.3 Germany
Legislative reform and business implications
4.4 Italy
Legislative reform and business implications
4.5 United Kingdom
Legislative reform and business implications
4.6 Sweden
Legislative reform and business implications

5. The impact of DRGs on reimbursement in selected disease/treatment areas
5.1 Implantable cardioverter defibrillators
5.1.1 ICD therapy in the treatment of arrhythmia and complications
5.1.2 The role of ICDs in prophylaxis of SCD
5.1.3. Cost-effectiveness assessments
5.1.4 DRG and reimbursement impact on ICD
implantation rates-US Recommendations
5.1.5. European ICD Implant Rates
5.2 Drug-Eluting Stents
5.2.1 Creation of new DRGs to cover stent
reimbursement and encourage utilization
5.3 End stage renal disease (ESRD)
5.3.1 Prevalence and socio-economic aspects of chronic kidney disease
5.3.2 Home vs Hospital Haemodialysis – an assessment of UK guidelines

6. Health Technology Assessment (HTA) – its expanding role in medical device diffusion.
6.1 HTA activity in Europe
6.1.1 Benelux
6.1.2 France
6.1.3 Germany
6.1.4 Italy
6.1.5 Spain
6.1.6 United Kingdom
6.1.7 Scandinavia
6.2 Relevant case studies – The NICE approach and impact

7. The anticipated impact of DRG implementation in Germany
7.1 DRGs in the USA and Australia – Any lessons to be learnt for device manufacturers?

8. Corporate Strategies – Positioning in an era of increasing reform
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