There is a growing concern in the Korean medical device industry that the government’s new healthcare policy, dubbed “Moon Jae-in Care,” might forcefully kick out unviable medical device makers.
The nation’s medical device market was worth about 5.8 trillion won ($5.4 billion) as of 2016, taking up 1.7 percent of the global market. The sector’s total output reached 5.6 trillion won in 2016. Between 2012 and 2016, the industry grew 9.6 percent annually, on average.
Leading products are ultrasonic imaging devices, which have the largest share in the global obstetrics/gynecology market, medical image storage and transmission devices taking up 90 percent of the local market, and dental imaging devices which account for 80 percent of the domestic market and 10 percent of the global market.
However, experts have continually pointed out that the medical device sector has too many companies compared to the small size of the local market and lacks investment in research and development.
As of 2016, there were more than 3,000 firms in the medical device industry. Only 38 of them were listed on the stock market – one on KOSPI, 28 on KOSDAQ, and nine on KONEX. Some 90 companies, or 3.3 percent, recorded an annual output of 10 billion won or more. More than 2,300 companies, or 79.1 percent, are small businesses with a yearly output less than 1 billion won.
Twelve firms recorded more than 50 billion won in annual revenue, including Osstem Implant, Samsung Medison, GE Ultrasound Korea, and Siemens Healthcare. On average, a company in the medical device sector has 16 employees, 4.5 product items, and 1.7 billion won in sales a year.
The sector’s R&D investment is anemic, too. The combined R&D volume of the 38 listed firms is smaller than one-tenth of R&D by Johnson & Johnson.
Although the government has been nurturing the medical device sector since 2010, the state investment into the sector’s R&D increased only 13 percent a year on average, from 220.7 billion won in 2012 to 359.3 billion won in 2015.
Medical device makers’ “lagging technology” is a bigger problem. According to the Korea Trade-Investment Promotion Agency (KOTRA)'s report last year titled “Medical Device Industry Trends and Investment Initiative,” the sector is 13 years behind the U.S. in technology.
Specifically, biomedical measurement devices are lagging 2.3 years, the medical imaging equipment, 2.3 years, and medical information managing devices, 1.6 years, and treatment devices, two years.
Korean companies have the core technology for ultrasonic diagnostic devices and digital X-rays but are far behind those in advanced countries in “high-tech” devices for MRI (magnetic resonance imaging), CT (computed tomography), and stent. In the “mid- to low-tech” area, Korea is closely chased by China, which is aggressively supporting the medical device industry by including the sector in the “Manufacturing 2025 Project.”
Observers attribute the reason that the medical device sector is remaining in the doldrums to its small domestic market share of 40 percent. Large hospitals, which take up 8.2 percent of the market, are not very keen to use locally produced medical devices, they say.
Industry watchers also point out that delays in entering the market due to regulatory procedures, such as the new medical technology evaluation system and restrictions on patients' choice of new technologies, should be rectified.
As the Moon Jae-in government has been pushing for the “Mooncare” to turn all of the non-insured medical care to insured ones, the new policy is weighing on the medical device industry.
The government recently asked medical equipment makers to submit items that need reimbursement or that do not, among the devices categorized as non-reimbursed items now.
Last month, the Ministry of Health and Welfare held a briefing session for the medical device industry and asked for opinions on 600 items that are scheduled to be turned from non-reimbursed to reimbursed category this year, including neurocognitive tests and congenital metabolic abnormalities screenings.
In 2019, the ministry plans to turn more than 240 non-reimbursed devices to reimbursed ones. They include products for acute diseases such as Da Vinci Surgical System and liver fibrosis scan. In 2020, more than 1,200 items, such as high-frequency heat therapy in the intervertebral disk for diseases in the musculoskeletal system and pain disorders, will become reimbursed.
Also, 830 chronic diseases in 2021 and 270 diseases, including the ear and nose and throat disease in 2022, will be covered by the national health insurance. Given the high demand from the public, all of MRI and ultrasound will be covered by insurance between 2018 and 2020.
Among the 3,800 items going from non-insured to insured, the medical device industry is paying attention to 2,800 treatment materials.
The problem is there are several hundreds of treatment materials that are used for surgeries. Each product maker has different interests, depending on their products getting insurance coverage or not. Thus, it will not be easy for the government to set the right price for reimbursement. As intermediate suppliers are intervening in the supply from a manufacturer to a hospital, pricing gets more difficult.
Medical device makers are keenly watching the government’s move whether it will leave uninsured items, excluded from the “Mooncare” policy, as they are.
Under the government’s plan, if a non-reimbursed item fails to become a reimbursed one or a “preparatory reimbursement item (a limited reimbursement with patients paying 50-90 percent of the medical cost),” the manufacturer will have to withdraw from the market.
“The government is highly likely to make it impossible for hospitals to use non-reimbursed medical devices to push the sector’s restructuring,” an industry executive said. “Device makers are concerned their uninsured products may not be used if they fail to get insurance coverage.”
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