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January 25, 2011

PWC Medical Technology Innovation Scorecard: US Falling Behind in the Race for Global Leadership

Falling Behind 

Over the past 50 years, the United States has provided an ideal innovation ecosystem that has fostered significant advances in medical technology. US-based companies dominate the roughly $350 billion global device industry, with 32 of the 46 medical technology companies with more than $1 billion in annual revenue based in the US. In addition, the US accounts for approximately 40% of the world market for medical devices and instruments.

While the US has remained a world leader in medical technology innovation, a report released this week found that the US medical technology industry to global dominance may be slipping. The report entitled “Medical Technology Innovation Scorecard: The Race for Global Leadership,” predicts that China, India and Brazil will experience the strongest gains in developing next-generation lifesaving products, as capital, jobs and research gravitate toward these growing markets.

The study, which was published by PwC, formerly PricewaterhouseCoopers, explored the changing nature of healthcare innovation and noted that the “way we assess value in medical technology is changing radically.” For example, the report indicated that “companies today are recognizing that the old dynamic of the physician being the arbiter of value is giving way to a new one: Government and private insurers and “self-pay” consumers increasingly determine what sells and at what price.” These entities refuse to pay for incremental innovations that add bells and whistles but do not significantly improve health or reduce cost. As a result, the faster, better, smaller, cheaper advances “portend the future of medical technology.”

Consequently, the report shows that the gap between innovation leaders and emerging economies is rapidly narrowing and today’s innovation leaders will find their position slipping during the next decade. The report indicated three trends:

-       The innovation ecosystem for medical device technology, long centered in the U.S., is moving offshore. Increasingly, medical technology innovators are going outside the US to seek clinical data, new-product registration, and first revenue.

-       US Consumers are not always the first to benefit from advances in medical technology and may eventually be last in line. Innovators already are going first to market in Europe, and by 2020, likely will move into emerging countries next before entering the U.S.

-       The nature of innovation is changing, as developing nations become the leading markets for smaller, faster, more affordable devices that enable delivery of care anywhere and help bend the healthcare cost curve downward.


The Innovation Scorecard looked at nine countries—Brazil, China, France, Germany, India, Israel, Japan, United Kingdom, and the United States—over the past five years to gain a historical perspective. In addition, the scorecard made projections into the future to present the outlook for 2020.

To assess the capacity of these countries regarding their strong medical technology market potential to adapt to the changing nature of innovation, PwC used 86 metrics to calculate the current score and 56 metrics for the historical score. These metrics range from objective to subjective and help to identify trends in medical technology innovation. Additionally, the Scorecard identified five pillars that have supported medical technology innovation for the past several decades.

Powerful financial incentives: The US spent more per capita on healthcare than the other eight Scorecard countries. High levels of reimbursement for medical procedures and generous coverage fueled physician’s adoption of new innovations. Despite the US score for this pillar improving from 2005-2010, PwC predicts a downward direction for the US market size for market access and adoption of innovation.

The Chinese medical device market is predicted to expand about 15% annually during the next five years and India’s, about 23%. Business Monitor International (BMI) estimates that China’s medical device sales will reach $42.8 billion by 2019; and India’s, $10.7 billion. This shift in growth could draw the focus of multinational device manufacturers away from the US and toward emerging markets. Domestic manufacturers in emerging markets may be content with the potential for growth within their own borders and might not seek regulatory approval in the US and other developed countries. Citizens from China and India will benefit from domestically produced technology before people in the US.

PwC predicts that the US health care system will suffer the “innovator’s dilemma.” That is, the US has been so successful in medical technology innovation that it has created a legacy that the current system will continue to seek to defend, support, and protect. The powerful financial incentives that form the cornerstone of the US system will present a barrier to adopting faster, smaller, cheaper, and better technologies that would represent radical, disruptive innovations.

Such innovations are emerging more quickly in China, India, and Brazil. These developing nations are in many ways, starting without the “innovation handicap” of a comfortable level of performance and payment. A scarcity of financial resources is driving them to experiment with more efficient technologies, processes, distribution strategies, and business models.

Government pressure from the US to lower healthcare costs could eventually help offset the innovation handicap, forcing developed nations to turn to innovative technology to achieve better results at lower costs. The Affordable Care Act (ACA) calls for reduced annual payment updates for most Medicare services, substantial cuts to managed care plan payments, and the creation of the Independent Payment Advisory Board (IPAB). These are small steps in what will be a prolonged and complex effort by Western nations to reign in healthcare costs.

Leading resources for innovation: The US established itself as a world leader in academic medical centers. Annual National Institutes of Health (NIH) grant funding exceeding $25 billion per year supported the advancement of medicine. Despite the US having a high level of R&D spending, strong labor productivity, and high-quality academic medical centers (AMCs), and a high average of patent applications per pcapita, the Scorecard data indicate that the US score will decline in the future as other countries improve their educational and research facilities and become more productive in patient applications.

While the US invests more in R&D than any other country in terms of dollar amount, in terms of percentage of GDP, the US investment in R&D is declining, which PwC predicts will lower its score in this pillar. Moreover, as the quality of non-US educational and research institutions improves, R&D funding outside the US increases, and other developing nations’ innovative output matches that of the developed countries, the US will face increasing competition for innovative talent, resources, and output. China’s innovative output will grow at a much faster rate than the US.

Supportive regulatory system: The FDA has been a global leader in setting standards and guidelines for the safety and efficacy of medical technologies. Other countries would often wait to see FDA’s position before acting upon medical technology applications, and often model their own regulatory approach to FDA’s. US success in medical technology during recent decades stems partially from the global leadership of FDA.

FDA’s standards and guidelines have instilled confidence in the industry’s products worldwide. However, FDA has faced growing responsibilities along with heightened public demand for drug and device safety over the past decade. PwC surveyed 50 life science companies (19 making medical devices or diagnostic products), and found that respondents experience frequent problems in gaining product approvals, even to the point of FDA changing its position during the application review process. 40% of survey participants agreed that FDA denied some product approvals primarily because of inadequate review resources.

New market entrants are going to Europe for approval in half the time it takes to obtain FDA approval, but the same devices eventually gain approval in both markets. Companies said it takes twice as long in the US to approve the same technology as it does in Europe and Israel (6 months vs. 3 months). Companies said US regulatory approval most uncertain of all countries.

PwC expects that US innovation will decrease primarily because European countries will continue to provide more supportive regulatory processes that encourage innovation yet ensure safety and effectiveness on a timely basis. They predicted that France, Germany, and the UK will rank higher than the US. The report also noted that citizens of countries with more efficient and less uncertain, capricious, and  complex regulatory approval processes will gain earlier access to innovative medical technology, and providers in those countries will benefit from more experience using devices. Countries with long, complex, arbitrary, nontransparent, costly approval pathways will discourage entrepreneurs and investors, causing them to launch new products elsewhere.

Several industry executives surveyed by PwC said that medical technology innovators are going outside the US to seek clinical data, new product registration, and first revenue because of a challenging US regulatory environment. When you have excessive delays, you have to come up with more money just to allow the enterprise to survive. This increases the cost of innovation and makes it more difficult for small companies to survive to the end of the approval process.

Demanding and price-insensitive patients: Americans seemed to have a higher demand for healthcare services as measured by their frequency of doctor visits. During the past 50 years, the proportion of healthcare costs paid by US patients has declined from 47% to 12%.

Companies surveyed expect that obtaining reimbursement in the US will become much more difficult in the future, while it will become easier to obtain reimbursement for technologies in China, India, and Brazil. Additionally, employers as well as government and private payers in the US will push more financial risks to healthcare consumers and providers. They will hold providers more accountable for health outcomes, penalizing them for poor quality and high cost. These actions will tend to drive reimbursement for medical technology lower. By 2020, PwC predicts that process innovation based on novel use of information technology to achieve better outcomes at lower cost will make China, India, and Brazil stand out as innovators.

Supportive investment community: Medical technologies ranked as the second- or third- largest category among venture capital and angel investors. US venture capital funding averaged approximately $2.5 billion annually during the last decade, enabling commercialization of innovations from academia and elsewhere.

However, US venture capital investment has dropped since 2007, and the developing nations are spending nearly as large a proportion of their GDP on venture investing as the US. Governments of India and China are aggressively promoting venture funding and providing capital to early-stage firms within their borders. Because most innovation in medical technology occurs in start-ups and is later acquired by larger companies, multinational medical technology companies will increasingly look to these emerging markets for acquisitions to fill their product pipelines.

US medical technology firms will not hesitate to invest where growth is most promising. Global venture capital firms increasingly will see developing nations as more attractive. They will see the US market as less attractive because of the difficult regulatory environment, uncertain payment structure, and relatively weak rate of growth in R&D and resources for innovation. Venture capital will seek out countries where the growth opportunity is stronger and the approval process is less costly in time and money.

Despite its current scores, the Innovation Scorecard showed that while the U.S. will hold its lead, the country will continue to lose ground during the next decade. The report also projects declines for Japan, Israel, France, UK, and Germany. On the other hand, China, India, and Brazil will experience the strongest gains during the next 10 years. Specifically, China, which has shown the strongest improvement in innovative capacity during the past five years, is expected to continue to outpace other countries and reach near parity with developed nations of Europe by 2020.

PwC believes that the Innovation Scorecard could help industry work with regulatory and political leaders in making decisions and setting policies that will determine medical technology leadership. More informed decisions could enable further advances within the new value-based paradigm in medicine.

Five New Pillars of Innovation

Although the U.S. currently demonstrates the strongest capacity for innovation in the medical technology market, to develop the type of medical technology ecosystem required for 2020, PwC asserts that countries and companies will have to adapt to five new pillars of innovation.

System-oriented and value-based incentives: Fiscal and financial needs compelling payers to press providers for greater value, exemplified by value-based reimbursement models. Focus shifting from silo-based to integrated healthcare systems. If companies can demonstrate the efficacy of new technologies in developing markets, they can present them to US and European regulators and payers as proven alternatives.

Global networks of academic medical centers: Academic leadership that helped enable innovative research in the West is migrating to Asia and South America. Some US schools have responded by creating partnerships abroad.

Competing regulatory systems: Medical technology companies will continue to move into markets where they can obtain regulatory approval more quickly, generate revenues faster, and engage patients and providers in the cycle of innovation to advance their products and services. The FDA will come under greater pressure to improve and streamline how they review new products. Regulators in some developing nations, such as China, are reluctant to grant regulatory approval unless a company already has it in its home country. This gives US companies additional reason to operate in Europe because they can obtain approval there faster, opening the door to Asia.

Individualized solutions and price-sensitive customers: Providers who become more responsible for health outcomes, will look to companies worldwide for technology solutions that offer more integrated, holistic, cost-effective devices combined with wellness and disease management services. Companies must rethink their business models to align with personalized medicine and wireless technology.

Global financial networks: As investment opportunities shift offshore, more US-based venture capitalists will open local offices overseas, partner with counterparts outside the country, seek co-investment opportunities, and identify target investee companies abroad. Countries abroad are adopting national innovation strategies. These efforts show increasing willingness on the part of policymakers, regulators, and companies in the historic and emerging technology powers to adapt to create the kinds of reform, efficiencies and partnerships needed to maintain their position in innovation.


The Innovation Scorecard shows clearly that the developed nations are slipping in their capacity and capability for innovation, while the emerging markets are rapidly gaining ground. Accordingly, the report asserts that long-term US dominance in medical technology innovation is no longer assured.

The supportive ecosystem that fostered the US dominance now creates inherent limits to change, encourages an incremental and less radical path to innovation, and discourages innovations that could transform healthcare’s cost structure and deliver greater value. Radical innovations that have a greater chance to bend the cost curve are more likely to emerge from developing countries such as China, India, and Brazil.

Companies are already tailoring new products to the specific needs of developing countries, making use of digital technology to extend care to large populations with little income or access to hospitals and physicians. Brazil, China and India most likely will move far ahead of the US and Europe in digital healthcare delivery because this type of technology addresses their acute access shortages in cost-effective and valuable new ways.

In the next decade, the report predicts that China, India, and Brazil will experience the strongest gains in developing next-generation lifesaving products, as capital, jobs and research gravitate toward these growing markets. "The key finding is that the U.S. is declining when compared with other countries across the globe," said Tracy Lefteroff, a Global Managing Partner of PwC's venture capital practice. "And we're in real jeopardy of losing our lead." Even a slight erosion in U.S. leadership status can siphon off good-paying med-tech jobs, Lefteroff added.


Each medical technology job generates an additional 1.5 jobs; each medical technology payroll dollar generates an additional $0.90 in earnings; and each dollar of medical technology industry earnings generates an additional $0.90 in earnings elsewhere in the economy. Those countries that can adapt quickly to the changing drivers of healthcare innovation and channel tensions into creative output will reap the greatest benefits from medical technology.

In the end, “people will have to decide whether they are willing to accept yesterday’s therapies rather than taking a risk on new technologies.” Americans “will have to find a way to embrace the fact that innovation always comes with some risk,” otherwise, the US will lose its dominance in medical technology and device innovation. Would you rather have open-heart surgery with the devices from 50 years ago or today?

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