Medical devices are a crucial part of healthcare. The Authority for Consumers and Markets ("ACM') has commissioned exploratory research into the medical devices market. The ACM identifies competition risks in several submarkets such as prosthetics and implants for heart and lungs and suture materials. ln this blog, we list the ACM's main findings.
ACM has been focusing on medical services for some time
The ACM states that there is a lot going on in the medical device sector. Therefore, the ACM considers it important to have up-to-date knowledge of the various medical device markets. That market knowledge then contributes to i) assessing risks to proper market functioning and ii) assessing mergers and/or collaborations in the medical devices market. The ACM's interest in the medical devices industry does not come out of the blue. ln 2021, the ACM investigated suppliers of electronic health records (EHRs). Very recently, the ACM published the Guideline Properly Functioning Markets for Healthcare ICT. ln 2021, the ACM also blocked Mediq's acquisition of Eurocept. The ACM was concerned that Mediq and Eurocept would gain a very strong position in the market for ambulatory infusion pumps. ln 2010, the Netherlands Competition Authority ("NMa") approved Nordic Capital's acquisition of Handicare only subject to conditions. The NMa believed that as a result of this acquisition, a lack of competition in the market for new electric power wheelchairs would follow. ln order to receive approval for the acquisition from the NMa, Handicare had to sell a substantial part of its production, distribution and sales of power wheelchairs in the Netherlands to an independent third party.
Lack of entry and switching costs key risk factors for market failure
The ACM has commissioned consultancy firm SiRM to conduct a market study. The study describes an exploration of market failure in the Dutch medical device markets. Market failure involves paying too high prices, delivering too low quality and/or a lack of choice or innovation. SiRM functionally classified medical devices into 63 submarkets.
- Out of these 63 submarkets, 31 submarkets were not investigated further as they were at low risk of market failure. This was because homogeneous and/or low-complex products were involved, or because the submarket was less relevant considering numbers, turnover or social impact. For example, few consumables were investigated.
- For the remaining 32 submarkets, SiRM does expect a risk of market failure. SiRM examined these markets using an assessment framework. Only the EHR market was not investigated further by SiRM, as the ACM had previously investigated it. The assessment framework formulates risk factors for supply-side and demand-side market failures. According to SiRM, a key risk of market failure on the supply-side (medical device manufacturers) relates to a lack of threat of entry. Indeed, many medical devices have strict certification requirements attached to them. Moreover, since the European Medical Device Regulation ('MDR') came into force in 2021, there are additional safety requirements for medical devices. According to SiRM, the MDR could lead to higher costs, the elimination of niche products and a slower pace of innovation in the short term. Furthermore, the Dutch market is small and divided. This could potentially lead to an increase in market concentration, SiRM said. Moreover, many medical device manufacturers are active in multiple submarkets, so they may be able to use their position in one submarket to strengthen their position in another.
The main risks of market failure on the demand-side of the market (users and buyers) see first of all switching costs. Because patient care must not be compromised, medical equipment often remains in maintenance or use until the last moment, or deployed materials have to remain in stock for a long time. Also, the fact that on the demand-side of the market, a distinction must be made between users of devices (patients), prescribers of devices (such as medical specialists) and payers of devices (such as the hospital's procurement department) poses a risk of market failure. lf a hospital procures bulk products (such as bandage aids), the procurement process lies entirely with the hospital's procurement department. The focus in purchasing the products is then on price. For other devices, on the contrary, knowledge of the medical specialist is required for procurement (such as prostheses and implants). ln those cases, the medical specialist has more say in the procurement. The focus of device procurement may then be less on price.
Risks of market failure in submarkets (i) prosthetics and implants heart and lung and (ii) suture materials
SiRM concludes that there are two submarkets with high risk scores on both the supply and demand-sides. These are (i) prosthetics and implants heart and lungs and (ii) sutures. ln addition, there are several submarkets where the risks mainly see either the demand-side or the supply-side of the market. SiRM then selected three submarkets with the ACM for additional investigation: i) radiotherapy equipment, ii) pacemakers and implantable defibrillators (lCDs) and iii) dialysis and plasmapheresis materials. The main competitive risk for radiotherapy equipment relates to the high switching costs and market concentration; there are now two major manufacturers operating in the Netherlands. For prostheses and implants for the heart, product differentiation is a major risk. Producers can adapt their pacemakers or lCDs to suit specific requirements for a patient group. As this allows manufacturers to differentiate themselves from their competitors, SiRM believes this creates market power. For dialysis and plasmapheresis devices, tying poses the biggest competitive risk. Dialysis devices can sometimes only be used in combination with dialysis materials from the same manufacturer. The ACM is now giving market players the opportunity to respond to the results of the investigation. lt is obvious that with the results of the investigation, the ACM will critically review mergers, acquisitions and other collaborations of device manufacturers where SiRM identifies risks.
