A Complicated Calculus in Canada

An Exploration of the Canadian Climate for Reimbursement
and Funding of Medical Devices

Stephen Dibert
MEDEC

Stephen Dibert

As the medical device market in Canada continues to evolve, manufacturers both large and small continuously must focus on the two key principles that lead to profitable market access: regulatory authorization and reimbursement, the “two ‘R’s” of market access. 

Receiving regulatory authorization to sell in Canada is only the first step. Working through the complicated decision processes leading to market access in each of the country’s myriad device market segments is the real challenge to unlocking reimbursement opportunities in Canada.

At the end of the day, reimbursement is how device manufacturers generate revenues that, ultimately, allow them to attract new capital and reinvest in research, innovation and product development to bring new lifesaving technologies to market to benefit all Canadians. 

The lifecycle of any medical device largely is predictable. Costs of developing, proving and gaining authorization for and marketing new technologies are heavily front-end loaded, with reimbursement possible only after successful efforts in each of these areas. At the back end of the lifecycle curve, every new technology eventually will be supplanted by a newer one, producing a predictable tailing off in potential revenues.

The faster a manufacturer can move its product through regulatory authorization to reach the profitable distribution and reimbursement stage, the longer its device can generate revenues, and the more capital can be reinvested in continuous product development and distributed to shareholders.

The challenge, of course, is that the process leading to reimbursement in Canada varies from province to province, from region to region, from facility to facility and from consumer to consumer.

Four Categories of Purchasers in Canada

Unlike many international markets, reimbursement for healthcare products and services in Canada generally falls into four categories:

• Government—paid for by provincial health plans such as Ontario’s Health Insurance Plan
• Hospitals—paid for by the hospital as part of its yearly budget
• Third party—paid for by a third-party (private) insurer
• Patient—paid for by the individual patient

Among these categories, many manufacturers may overlook the opportunities represented by the third-party purchasers. Most private insurers that offer drug benefit programs also reimburse some types of medical devices through procedures and policies that are separate from the way they manage drug or dental plan claims. To facilitate adjudication of these claims, insurers require device manufacturers to file information on new devices. 

Smart manufacturers incorporate these third-party reimbursement channels as a discrete segment within their strategic marketing plans. Each class of insurer and each market segment may warrant a unique approach, with dedicated resources allocated against specific market-segment reimbursement objectives.

Jurisdictions Demand Customized Strategies

Critically important to successful reimbursement in Canada is the recognition that the marketplace is significantly fragmented—and the same product may require entirely different strategies, objectives, approaches and resources in each jurisdiction in which market access is sought.

The same device will be managed—and, therefore, reimbursed—differently in each different jurisdiction. For example, drug-eluting stents are paid for by Regional Health Authorities in Alberta, and by the Ministries of Health in Ontario and Quebec. In Saskatchewan, the same products are purchased by specialized programs funded as province-wide services, while in Manitoba they are bought directly by St. Boniface Hospital.

Most provinces have special programs that provide grants or adjudicate claims specifically for certain medical devices. Two examples of these programs are the Alberta Aids to Daily Living program and Ontario’s Assistive Devices Program. In each province, there is a requirement that patients apply for benefits—so patients and their healthcare practitioners must understand what products and services may benefit them, what provincial benefits may be available to them and how to apply. Patient and practitioner education may form a critical component of marketing strategies in these markets.

The ultimate consumer of 90% of medical devices in Canada is the healthcare facility—in some cases, individual hospitals purchase directly; in other cases, they work collectively to purchase in groups or through regional health authorities. Although physicians may have collective input into device selection, they rarely are in total control of the purchase decision.

For manufacturers, this means that purchasing decisions are not made simply based on clinical efficacy. It’s not enough to demonstrate that a product or service will improve patient outcomes. Purchase decisions increasingly are being made based on quantitative evidence that new technologies also will deliver an economic benefit—either by reducing short-term costs or by mitigating long-term chronic care costs associated with existing clinical approaches to care. 
The introduction of health technology assessment agencies in many provinces also is driving a more evidence-based approach to decision making, which may provide an advantage to manufacturers that can develop stronger economic and clinical benefit models.

Another source of competitive advantage for some manufacturers comes from developing sophisticated distribution, inventory and lifecycle management options that make their products and services more economically attractive to purchasers.

Commoditization Challenges

Competitive tendering is now commonplace for commodity products, and device purchases must be carved out of “global” healthcare budgets—leaving devices to compete with labor and facilities costs. This system provides little or no incentive to decision makers for early adoption of new technologies and creates a systemic push to drive down device prices while expecting greater innovations.

Savvy manufacturers recognize early signs that their products or services are likely to become commoditized—and actively maneuver to mitigate the potential issues that may arise from this. For some, this means proactively looking for ways to prevent having their products become a commodity item by stressing unique, high-value features. For others, this means accepting commoditization as inevitable and re-engineering their business model to seize an advantage in a commodity marketplace by optimizing their internal processes for rigorous cost and quality control and high-volume, low-margin sales. And for others, it means packaging the device as part of a larger offering.

Complex Strategies Are Required

Ultimately, purchasers make their decisions based on the answers to three key questions. They want to know if the device works—as evidenced by clinical data in the device license application. They want to know if it provides value for money—as demonstrated by a health economics analysis. Finally, they want to know if they can afford to purchase the device—as evidenced by a budget impact assessment.

Specific key performance indicators, criteria for approval and systemic needs and other issues may vary significantly from region to region and from one category of purchaser to another within the same region. This variety of issues and interests creates a complex marketplace for healthcare products and services that requires a sophisticated approach and multi-segmented marketing strategies.  The same product may require entirely different strategies from segment to segment. 

This level of complexity creates opportunities for those manufacturers who are best able to develop sophisticated, multi-segment reimbursement strategies. Complex strategies can take the form of process maps that outline the process steps, inputs required, process links and decision points.
Because different market segments have different potential values, as well as different barriers to entry and processes leading to reimbursement, manufacturers must take a strategic approach to market access. Some segments will take longer to access than others.  Some segments ultimately are more valuable than others. A thorough analysis will identify which segments should be approached first, and how. 

Canada’s highly diversified and multi-segmented market for healthcare products and services makes this country an ideal market for savvy, sophisticated manufacturers regardless of size. The challenge for manufacturers is to successfully orchestrate their approach to Canada’s myriad market segments.

Stephen Dibert is president and CEO of MEDEC, the national association created by and for the Canadian medical device industry. MEDEC is the primary source for advocacy, information and education on the medical device industry for members, the greater healthcare community, industry partners and the general public. The medical device industry in Canada employs more than 35,000 Canadians in close to 1,500 corporate facilities, and contributes nearly $6 billion in national sales per annum. MEDEC’s focus is on ensuring access to proven, safe technology and new, innovative medical technology developed by member companies. For more information, visit www.medec.org.