Health Reform

THE FIVE FACTORS OF PRICE – APPLES & ORANGES

Last week PulseLine explored the private health insurance (PHI) industry’s blame game approach to justifying the increasing cost of private health insurance for Australians. This week we wanted to pull back the curtain to look at some of the real-world factors influencing the price of medical devices in Australia.

Like any product or service, the price for medical devices will vary from one country to another. For example, the price of a Toyota Sedan in Australia is going to be different from the price for the same Toyota Sedan in the United States or Europe due to a range of factors.

So why is this so for medical devices? Well let’s look at the top five factors influencing price:

  1. DIFFERENT HEALTHCARE SYSTEMS

The differences between healthcare systems from country to country, including different political, policy and economic drivers, has a significant impact on the price of devices. Countries, such the UK and Canada, that appear to have comparable healthcare systems to Australia are, when analysed in greater depth, actually quite different.

Let’s take Canada for example. Based on the OECD health expenditure statics (including PHI as a percentage of total healthcare expenditure and the proportion of population covered by PHI), Canada appears to have a similar healthcare structure to Australia’s. However, unlike in Australia, Canada does not have a private market for prostheses due to the fact it does not allow private health insurers to cover services provided by Canada’s public healthcare system, including hospital procedures that include prostheses.

In contrast, Australia’s healthcare system does allow for this, meaning there is a private and a public market for prostheses.

 PURCHASING ARRANGEMENTS AND MARKET SEGMENTATION DIFFERENCES

Purchasing arrangements for medical devices also vary from country to country. The greater a country’s level of market integration, the greater the capacity they will have to purchase devices at lower prices through improved economies of scale and market volume guarantees for MedTech companies.

For example, in Sweden, there is negligible PHI coverage of the population due to the fact Sweden’s healthcare system is integrated to a high degree with county councils being responsible for both the financing and organisation of healthcare services. Counties also own and operate most of the country’s hospitals. With a healthcare system that is essentially 100% publicly owned and operated, Sweden is able to centrally purchase prostheses through a small number of entities.

  1. DIFFERENCES IN VOLUME, MEDICAL PRACTICE AND PATIENT NEED

Some countries undertake certain procedures using medical devices more frequently than others. For example, according to the OECD Health at a Glance 2013, Germany conducts almost twice as many coronary angioplasty procedures per 100,000 compared to Australia – not to mention Germany’s population is four times that of Australia’s. This means the significantly greater volume of devices associated with coronary angioplasty procedures being required in Germany, compared to here in Australia, results in lower prices of those prostheses for Germans.

  1. DIFFERENCES IN ECONOMIES & GEOGRAPHY

Local economic costs can also add to the price difference for medical devices from country to country. Local costs in Australia such as wages, transportation costs (petrol, airfares), facility costs (coupled with the higher need for warehousing in Australia), currency fluctuation and exchange rates can all influence the price of devices.

Geographical considerations can also influence the price of medical devices. Australia’s isolated location, its low population density and vast land mass have a significant impact on the cost of importing devices and distributing them across Australia.

  1. LEVEL OF INDUSTRY SUPPORT SERVICES

The level of service required from a MedTech company can vary from country to country, and from one prosthesis category to the next. This can impact on the price attributed to a particular prosthesis.

For example, in some European countries, companies do not provide post-procedure follow-up technical support services for certain device types. Funding for these services is allocated to clinicians in the hospital with support from highly trained staff. Therefore, these services are provided with little support from MedTech companies. This is also the case in the Australian public healthcare system.

In contrast, the private markets in Australia, United States and in Japan for example, have a high demand for MedTech companies to provide support services. In Australia, the cost of this support over the life-time of a device is factored into the prosthesis’ benefit.

Share this...
Share on LinkedInShare on FacebookTweet about this on TwitterEmail this to someone

Leave a Comment

Your email address will not be published.

You may also like

Newsletter Signup