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An MD&DI  January 1998 Column

W. S. Vallance, CEO of the Medical Industry Association of Australia, explains the state of the Australian medical device industry and how Australia plans to increase its role in the global marketplace.

Chances are that when one of Australia's 18 million citizens visits a doctor, he or she will be treated with a medical device imported from the United States. According to information from the World Medical Market Fact File 1996, U.S. companies supply 49% of Australia's imports. However, Australia's recent efforts at harmonizing regulatory standards and approval processes with the European Union and neighbor New Zealand may threaten the United States' half share of its market. In an interview with MD&DI associate editor Daphne Allen, W. S. Vallance, CEO of the Medical Industry Association of Australia (MIAA) and chair of the organizing committee of the Seventh Global Medical Device Conference, explains some of Australia's moves toward global harmonization as well as the changes the country is making to its medical product supply chain and its device approval process to better serve the needs of its citizens.

Q.What is the health-care system like in Australia?

A.Australia's health-care system serves a mix of publicly funded and privately insured patients. The number of privately insured patients has been decreasing quite dramatically during the last few years to the extent that currently only about 30% of the population are covered by private health insurance. This is a great strain on the public system.

Q.How is the public system funded?

A.Most doctor and hospital care is funded under a Medicare system. For example, if a patient visits his or her general practitioner, it generally costs nothing. The practitioner will directly bill the government for the cost of that consultation. Similarly, treatment at our public hospitals for uninsured patients is free. As I mentioned, this presents a great strain on the public health-care system, and cost containment, as in many other countries in the world, is a primary concern. Australia currently spends about 8.5% of its GDP on health, which is substantially less than the amounts the United States and many European countries spend, but even with this lower-percentage GDP expenditure on health care, Australia is achieving outcomes equal to any other country. I believe Australia delivers quality health at a reasonable price.

Q.How is Australia able to do so?

A.The government has many programs in place that look at the costs of health care, restrict access in some areas, and—this is a current move—practice evidence-based medicine. Evidence-based medicine involves evaluating the cost-effectiveness of new technologies and procedures before they are listed on the Medicare benefit schedule and are eligible for reimbursement by the government.

Q.How do manufacturers feel about evidence-based medicine?

A.I certainly support appropriate use of new medical technologies, and I am not bothered by relevant and effective cost- decision studies. And I think that is generally the view of this industry. So, although we do encourage the use of technology, we don't encourage the overuse or abuse of our products in the clinical setting, and I think that is very important. I think it's the overuse of technology rather than the technology per se that tends to drive up the costs of health care.

Q.Is managed care a reality in Australia?

A.There is a lot of noise being heard, but essentially we're getting the message that managed care, such as that in operation in the United States, will not be introduced in Australia. I think the government recognizes the negatives as well as the positives of such a system. A patient's access to specialists and new technologies is often restricted, and this can have a negative impact on technological innovation and on the patient. There are also problems related to reimbursement.

Q.What issues face the supply system in Australia?

A.Supply chain management has recently received a lot of attention. The goal is to figure out how to get products to their point of use in hospitals in the most efficient and cost-effective manner. MIAA has embarked on quite a major program by looking at efficient product movement, efficient order management, and information-sharing techniques such as electronic data interchange (EDI). We're currently developing an industry EDI platform and looking at the Efficient Healthcare Consumer Response study to assess the relevance of some of its findings to Australia's situation. We will be working in cooperation and consultation with hospitals and various government agencies.

Q.What is the medical device approval system like in Australia?

A.Australia's Therapeutic Goods Administration (TGA) tends to be a little bit more efficient, less data-intensive, and less rigid than the U.S. FDA. We certainly haven't had the problems in Australia that the United States has had in recent years with long product approval times, which has caused industry a lot of concern and a lot of harm. But that doesn't mean we are satisfied with TGA's performance. We're working with the administration to pinpoint its inefficiencies and to achieve better outcomes for TGA, industry, and patients. We have set up joint working parties to address specific issues and problems, and generally the outcomes are acceptable to both parties.

Q.What could the U.S. industry learn from the Australian industry?

A.Industry needs to keep its doors open, to enter into dialogue, and to develop respect for the objectives and goals of the administration, and the administration will then understand and respect industry's objectives. Both have the same objective—to provide patients with the technologies and products necessary for cost-effective diagnosis or treatment.

Q.Is TGA responsible for performing evidence-based evaluations?

A.Such evaluations are performed by the Commonwealth Department of Health and Family Services, a different government agency. The government is setting up an independent advisory committee for this program.

Q.Will industry members participate on that committee?

A.We're working on that at the moment, and I think our request for participation will be favorably received. So I anticipate that we will get a seat at the table.

Q.What other regulatory concerns does industry have?

A.Australia is quickly moving forward on the mutual recognition agreement (MRA) with Europe, and we expect to implement it this year. We look forward to the day when products developed and manufactured in Australia can be assessed in Australia against the European requirements so there won't be any duplication of assessments.

Q.Who will be doing the assessments?

A.Initially TGA will act as a notified body. But further down the track, third-party product assessment bodies will be able to participate.

Q.How does the device industry feel about the MRA?

A.This is something we've been pushing for for a number of years, and we worked very closely with TGA on the program. The next step is for the Australian regulatory system to align itself with the European regulatory system. This will require some legislative changes, which are currently being looked at very closely by our legal team. We expect that draft legislation will be prepared early this year, with a bill being presented to parliament during the 1998 winter parliamentary session. The government is committed to such alignment, and we support it very strongly. As the industry becomes more global, many countries, from Japan and others in Asia to Canada and those in South America, are basing their regulatory systems on the European model. I think the United States is the odd man out of the bunch.

Q.Is the Australian government establishing systems to place the European CE mark on products manufactured by Australian companies?

A.We are currently modifying our approval system to resemble the European model. When that's in place early this year, we will develop a system for CE marking in Australia without going through European notified bodies.

Q.According to information from the World Medical Market Fact File, 22% of Australian medical exports went to the United States in 1993. Is the United States one of Australia's biggest markets for medical products? What special concerns do Australian medical device manufacturers have about the U.S. market?

A.The Pacific islands, Papua New Guinea, and New Zealand are the largest export markets for Australian-produced products. After that come the United States, Asia, and Europe. One of the primary barriers Australian manufacturers encounter when trying to access the United States is the product approval process. That doesn't mean to say that the U.S. FDA isn't trying to address some of the problems with its system—for instance, its approval times have been reduced substantially in recent months.

Q.How do Australian manufacturers feel about FDA's pilot program for the third-party review of medical devices?

A.Well, I think FDA has to develop a reasonable degree of confidence in the third parties to conduct the evaluations in the manner it expects, and I trust this takes time. A similar situation will exist in adopting the conformity assessments of the MRA between Europe and Australia. Initially, Class III devices will not be part of the MRA because of the need for each party to develop confidence in the ability of the other.

Q.What types of health-care trends are driving the market in Australia? Are there moves toward minimally invasive surgical (MIS) products and home-health-care products?

A.MIS products are used for many procedures, although some procedures have perhaps not reaped the benefits that were initially expected. The home-health-care market is growing. Some of the Australian states, particularly Victoria, have developed effective home-health-care programs, and industry sees this as a growing opportunity. MIAA has established a specific group for our member companies that have an interest in these areas and that will work closely with government in looking at some of the major issues surrounding home health care. The experience in the state of Victoria at the moment shows that it is cost neutral to the government. Right now, the home is certainly a much lower cost health-care setting, although the cost of logistics is higher than when care is based in the hospital setting. I think improvements in the supply chain will help reduce costs.

Q.What percentage of medical products used in Australia are imported?

A.Well, we are an importing country—approximately 80% of health-care products are imported. The market is about $1.6 billion—slightly more than 1% of the global market—and serves a population of only 18 million. Australian manufacturers tend to serve niche markets rather than produce large volumes of low-cost commodity items. For example, one Australian company has made a global name for itself because of its cochlear implant and holds some 80% of the world market. Other products Australian manufacturers are successfully exporting include diagnostic technologies such as tumor markers. Local manufacturers produce product totaling about $500 million, and more than half of these products will be exported.

Q.What is MIAA's involvement with the Seventh Global Medical Device Conference to be held in Sydney in February?

A.MIAA was interested in getting involved in some way with the conference, and our colleagues in the United States and Europe urged us to sponsor and organize it. The conference is intended to address many of the key issues facing the global device industry. We should have good representation from around the world both from industry and government. Representatives from the U.S. FDA are scheduled to speak at the conference. The Global Harmonization Task Force is scheduled to meet. We are also setting up a meeting on industry cooperation between Europe and Australia for the day following the conference.

Q.Will that meeting deal primarily with medical device—related issues?

A.Yes. This will be the first meeting on industry cooperation, and we see it as perhaps the beginning of ongoing cooperation between European and Australian companies. We need to recognize one another's strengths and appreciate the technology and the innovation carried out in each domain. We need to facilitate our exchange in research and development, innovation, and business. This first meeting will hopefully lay the foundation for better things to come.

Q.Are there any meetings scheduled with other countries in an effort to reach MRAs with them?

A.There are preliminary discussions being held between Australia and Japan as well as between Australia and the United States. Hopefully, the discussions between Australia and the United States will proceed. We are also developing an MRA with Australia and New Zealand called the TransTasman Mutual Recognition Agreement, part of a larger economic program. We are aiming to develop a single regulatory system two to three years down the road. Other countries are just as active—Europe and Canada are even talking about an MRA. It's important that industry and government from around the world stay informed on the progress being made by the Global Harmonization Task Force, which is working to reach standards harmonization around the world.

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