I. ORTHOPEDICS IN ASIA
Asia has a population of over 4 billion people, and represents about 60% of the world’s population. Annual economic growth rates in the Asian countries have been as high as 8 or 10% over the past decade, in comparison with some developed countries where growth has been 4% or lower. In many Asian countries, this rapid economic growth has led to increased personal incomes, improved public health care, and longer life expectancies. All of these factors have spurred increased demand for foreign advanced medical devices.
|Country||Medical Device Market Size|
|Hong Kong||$600 million|
The Asian market for orthopedic devices today is valued at about $1.5 billion, with average annual growth in recent years of over 5%. Hip implants have the largest share of the market, with over 40%; trauma devices account for about 35%, and knee implants account for about 25%. On a global scale, Asia accounts for about one-quarter of world demand for orthopedic products. The Asian orthopedic device market is forecasted to reach nearly $2 billion in 2009.
Japan continues to dominate the Asian orthopedics market, with over three-fourths of the Asian market. As an advanced industrialized country, medical spending patterns are more similar in Japan to other advanced countries such as the U.S. or European countries. In other Asian countries such as China or India, although wealth is increasing, there is still a great deal of poverty and governments are primarily more focused on providing basic health care. Only some people in these developing countries can afford more advanced orthopedic treatments. However, throughout Asia, more and more people are becoming aware of orthopedic surgery as an alternative treatment for such conditions as arthritis or other spinal or bone disorders. In general, Asian people also tend to have smaller bones than Americans or Europeans, and thus have higher incidences of osteoporosis.
Japan has a highly advanced medical and health care system that is on par with that of other industrialized countries, with a well-developed market for medical devices. The Japanese medical device market is worth about $25 billion and has experienced average annual growth of about 5% in recent years. Of the $25 billion device market, about $1.4 billion or so comes from orthopedic devices. Hip implants generate the most revenues and garner about 45% of the market, with trauma implants and knee implants coming in second and third.
Medical devices are highly regulated in Japan, and there can be delays in getting sophisticated products to the marketplace. Companies in Japan, like in other Asian countries with government sponsored health care, are dependent to some degree on the level of reimbursements they are able to negotiate with the Ministry of Health, Labor, and Welfare (MHLW). In the past, the Japanese government has reimbursed medical devices (and orthopedic products) at fairly high levels.
In March 2006, the MHLW issued a statement on its reduction of reimbursements for both medical devices and drugs. These measures were taken as part of the government’s efforts to cut medical spending, which has spiraled in recent years primarily due to Japan’s rapidly increasing elderly population. The reimbursement cuts went into effect on April 1, 2006 and resulted in an average reduction in reimbursements of about 2% for medical devices.
The orthopedic device industry, however, was subject to significantly higher reimbursement cuts than the average cuts on medical device products. The hip implant segment experienced an average cut of about 13%, while knee implants were cut by an average of about 7%. Trauma devices experienced cuts of about 13%, but some individual product segments were cut by about 20%. The spine segment experienced less impact, with only minor cuts of less than 5%.
Reimbursement cuts of less than 15% will go into effect immediately in April 2006, while cuts of more than 15% will be phased in over the next year.
China has the second largest and fastest growing medical device market in Asia, valued at about $4 billion. The State Food and Drug Administration (SFDA), which regulates drugs and medical devices, has made efforts to create a more transparent regulatory environment by simplifying the medical device application and review process and issuing new product registration requirements.
China’s orthopedic devices market is quite small in comparison to Japan’s, valued at less than $125 million. However, it has experienced rapid growth of 14 to 16% in the past several years. The majority of Chinese citizens still have very modest incomes and therefore the demand for more advanced care like orthopedic implants and procedures has not reached that of the more developed countries. However, demand in urban centers for sophisticated orthopedic devices is increasing rapidly.
In the orthopedic devices market, knee implants command the largest market share at about 50%, with trauma and hip devices sharing the remainder of the market. The Chinese market for orthopedic devices is forecasted to continue at a healthy growth rate of about 8%.
Korea has the third largest market for medical devices in Asia with revenues of over $2 billion. About a tenth of Korea’s demand for medical devices (or about $200 million) comes from orthopedic devices. Imports supply the bulk of orthopedic devices in Korea, valued at about $90 million in 2003. Hip and knee implants account for about 90% of orthopedic demand. Growing awareness of surgical orthopedic implant procedures, as well as an aging population, has contributed to a significant increase in demand for these types of devices. In addition, more and more clinics and centers specializing in orthopedic procedures have opened up to meet demand. However, Korea, like Japan, has reduced reimbursements for orthopedic products in the last few years.
India’s medical device market is valued at around $1.5 billion, and has been experiencing healthy growth. More than half of the market is supplied through imports. However, recent regulatory changes could have significant impact on the industry. While drugs and cosmetics have been regulated in India since the passage of the Drug and Cosmetic Act in 1940, medical devices (until recently) were largely unregulated. Problems with faulty imported stents prompted the Drug Controller General of India (DCGI) to issue a notification in October 2005 reclassifying 10 types of medical devices as drugs so that they could also be regulated under the Drug and Cosmetic Act.
In March 2006, the DCGI issued new guidelines regulating the import and manufacture of those 10 medical devices mentioned in the October notification. Under the new medical device regulations, importers of the affected medical devices are responsible for applying for import licenses and filing product registrations with the DCGI, as a pharmaceutical importer would normally do. In response to the new regulations, Indian companies have expressed concern that the cost of obtaining all of the required documentation for these regulatory submissions will be prohibitively high. Orthopedic devices were singled out as one of the 10 selected types of medical devices to be regulated. It remains to be seen how the new device regulations will impact market growth.
A counteracting trend to the increased medical device regulations just implemented is the increasing popularity of India as a destination for so-called “medical tourists.” Basically, medical tourists are international patients who travel overseas to obtain medical treatments or surgical procedures at a much lower cost than in their home countries. Orthopedic or arthroscopic surgeries are some of the most popular procedures that medical tourists travel to India for. The costs of having these procedures done in India can be a fraction (anywhere from one-tenth to one-fourth) of the cost in the U.S. or Europe. While some may still be hesitant to leave their home countries, it is a cost-saving option that many will not be able to ignore. The numbers of American or European citizens traveling to India for medical treatments is projected to increase in the next few years. In turn, demand for orthopedic devices in India will also increase.
In addition, the Indian government has made recent efforts to improve its public health care and facilities. As India develops and its citizens become wealthier, awareness of the need for more advanced medical care will also increase.
In Taiwan, the market for medical devices is valued at almost $1.5 billion. Sales of orthopedic devices were about $80 million in 2004. Over half of the market is supplied through imports, particularly the advanced orthopedic equipment. Foreign supply originates from the U.S., which holds the highest share of imports, followed by Japan and Europe. Domestic manufacturers are able to supply some of the market demand, but this is limited mostly to disposable appliances and other low-end devices or accessories like orthopedic screws, nails, and plates.
Demand for orthopedic devices in Taiwan has grown substantially due to the rapidly increasing wealth and longer age expectancy of the Taiwanese population. There is a greater occurrence of chronic ailments as opposed to acute illnesses, which is consistent with a mature, affluent society that already has the resources to provide basic health care. A mature society will also have greater demand for rehabilitation and/or physical therapy services and facilities; and in turn, an increasing need for orthopedic devices.
However, the demand for orthopedic devices has been affected by the National Health Insurance program, which has become more financially strapped in recent years. The Taiwanese government implemented a global budgeting scheme in 2002 that aimed to cut medical costs and capped reimbursement payments to hospitals. In the past, reimbursements for orthopedic equipment were healthy enough to generate strong demand for these products, but smaller reimbursement payments may have a dampening effect on market demand.
The Asian market will likely see continued growth in the orthopedic device area. Lower reimbursements throughout Asia will make the sales of orthopedic products slightly less profitable. However, this issue will not negate the strong growth in demand for orthopedic products throughout the region as the Asian countries become more affluent.
Ames Gross – President and founder, Pacific Bridge Medical. Mr. Gross is recognized nationally and internationally as a leader in the Asian medical markets. Mr. Gross founded Pacific Bridge Medical (www.pacificbridgemedical.com) in 1988 and has helped over 200 medical companies with business development and regulatory issues in Asia. Mr. Gross is a frequent contributor of articles on Asian medical issues for Clinica, Medical Device and Diagnostic Industry, and other medically oriented journals. Mr. Gross has been a featured speaker on the Asian medical markets at the Medical Design and Manufacturing shows, the Medtrade Home Health Care Exhibition, and at the Regulatory Affairs Professional Society’s annual and regional meetings.
Nancy Loh – Senior Associate, Pacific Bridge Medical. Ms. Loh works on research, writing, and consulting projects. She graduated cum laude with a B.S. in Economics from the Wharton School of the University of Pennsylvania, and has an M.A. in International Relations from the Johns Hopkins University School of Advanced International Studies (SAIS). Ms. Loh has traveled throughout Asia and has studied Mandarin Chinese in Beijing.