Expansion of the EU to Impact European Medical Device Industry
May 13, 2004
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The accession of 10 more central and east European countries to the European Union (EU) in 2004 has created the largest market and trading zone for the healthcare industry with almost 500 million consumers. According to research firm Frost & Sullivan, total healthcare industry, comprising pharmaceuticals and drugs, medical devices and equipment, and health services, is expected to grow at a compound annual growth rate (CAGR) of 6.4 percent from 2003 to 2008.

With enlargement comes the concern of ensuring that products of uniform high quality are available throughout the EU. Acceding member states are expected to provide effective and innovative medicines to make this possible.

Apart from pharmaceuticals, the European market for medical devices is also thriving, having earned U.S. 41.2 billion in 2002. In fact, Frost & Sullivan report that Europe is the second-largest market for medical devices and equipment followed by the U.S. and Japan. This popularity could have something to do with the acknowledgement that prevention is just as important as therapy, the firm said.

"The growth of the pharmaceuticals and drugs as well as medical devices and equipment segments is directly linked to the health services segment," notes Research Analyst Lasya M. Narasimhachari from Frost & Sullivan. "An increase in the number of hospitals, nursing homes, home healthcare services, dental services, and laboratory services are given high priority in national healthcare expenditure, which could help in the growth of the three segments."

The factor that can affect all three segments –-- pharmaceuticals, devices, and services -- is the health policies in the EU. Public and private health insurance funds play a critical role in drafting drug reimbursement policies. The social protection structure is expected to undergo several changes and the resultant reforms could lead to increased out-of-pocket expenditure.

While framing policies, regulatory bodies are likely to address concerns of affordability and effectiveness of the healthcare system. High healthcare spending need not necessarily mean healthier citizens. Healthcare can be expensive due to use of sophisticated technology and the labor-intensive nature of the industry involving high costs of training.

Countries that finance and deliver health services through the public sector are more likely to have better control over the growth rate of costs. Countries that depend on only the government for basic coverage spend less on healthcare than do countries with multiple insurers.

To contain costs and spending on healthcare, governments have instituted policies to control prices, wages, number of hospital beds, and size of the healthcare workforce, and place caps on health spending as well as shifting costs to the private sector. While some countries impose wage controls on their public sector healthcare workers, some others determine prices for medical services after obtaining approval from purchasers and providers of healthcare.

While spending caps were originally intended for the hospital sector, which was considered the costliest aspect of the healthcare system, they are now used to contain overall public expenditure on health. Healthcare providers are likely to respond to these controls by increasing the volume of services or changing the service mix so as to include higher paid consultations.

"The process of economic integration has been a catalyst to the diffusion of health technology and opened national markets to competition, tending to equalize prices and reduce costs," observes Ms. Narasimhachari. "Technological progress is expected to become a key factor for economic growth and help meet the challenges posed by an ageing society."

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