The European debt crisis, or eurozone crisis, has hit several states that use the euro as currency since the end of 2009. These countries ran out of money to repay or refinance their government debt or to bail out their banks. Spain, Portugal, Greece and Cyprus all needed to be rescued by sovereign bailout programs, delivered jointly by the International Monetary Fund, European Commission and European Central Bank.
Of course health care didn’t create the crisis, but neither did it help. Our U.S. colleagues are still shocked that our government-funded health-care systems have not crumbled under the weight of competing demands, let alone survived in times of economic crisis. In the United States, although the rate of growth slowed in the past few years, it was still growth—and now health-care spending is on the rise again.1. At the same time, most countries in the eurozone have managed to shrink their spending as a percentage of GDP.2 To Americans, this may be unthinkable, but Europe has proven that harsh economic realities can go against even the strongest demographic forces.
So for medtech in Europe, what have we learned?
- National and regional tenders can work, and manufacturers do have room to move on price. As people continue to get older and sicker, it’s common to see market volume grow but market value flatten. Cost containment can be sudden and severe: Prices of orthopaedic implants in the most aggressive countries (Italy and Spain) have been slashed by 30% to 50%.
- Low-cost competition is now accepted as “good enough” in many categories and is here to stay. There is absolutely no reason why economics can’t transcend borders. We see low-cost surgical equipment from China or India being broadly adopted in the U.K., wound-care products bought in Hungary and Czech Republic crossing the border to Germany, and Greek and Turkish distributors undercutting manufacturers in their direct markets.
- Only Germany can be counted on for innovation; it has the most robust mechanism to pay for new product innovation (NUB, or Neue Untersuchungs- und Behandlungsmethoden), but approvals have slowed dramatically in the past few years. In the good old days, the highly regionalized and localized systems in Italy and Spain could provide a way in for innovative products. Today, tenders in these markets are often weighted more heavily on cost than on efficacy or quality: Where once it might have been 50:50, now it can be 70% cost and 30% quality.
- Capital acquisition models are becoming more common and more creative. The severe financial position of countries like Spain and Italy has forced capital equipment companies to overcome years of caution and push innovative lending or leasing programs onto cash-strapped customers. The result is a significant acceleration of financial innovation.
- Direct sales forces may just be a cost too far. The expense of maintaining a direct sales force in smaller markets, such as Greece or Scandinavia, is prompting some companies to exit the market altogether. Others choose to sell only via distributors, giving away margin but reducing SG&A (selling, general and administrative expense). Having spent years expanding their direct sales footprint, companies are considering their position in Portugal, Central Europe and beyond.
It’s not all doom and gloom. Premium segments do still exist in Europe, but the market has moved on. Every medtech company needs to have a defined low-cost strategy, as well—at least for some countries but increasingly for all.