U.S. International Trade Commission

Address all communications to

Secretary to the Commission

United States International Trade Commission

Washington, DC 20436

COMMISSIONERS

Irving A. Williamson

Deanna Tanner Okun

Robert A. Rogowsky

Director of Operations

Karen Laney-Cummings

Director, Office of Industries

Charlotte R. Lane

Daniel R. Pearson, Chairman

Dean A. Pinkert

Shara L. Aranoff, Vice Chairman

* Commissioner Irving A.Willliamson was sworn in on February 7, 2007, and Commissioner Dean A. Pinkert was sworn in on

February 26, 2007; they did not participate in this investigation. Commissioner Stephen Koplan, whose term ended on February 6, 2007,

and Commissioner Jennifer A. Hillman, whose term ended February 23, 2007, did participate in this investigation.

*

*
U.S. International Trade Commission

Washington, DC 20436

Publication 3909 March 2007

www.usitc.gov

Medical Devices and Equipment:

Competitive Conditions Affecting

U.S. Trade in Japan and Other Principal

Foreign Markets

Investigation No. 332--474
This report was prepared principally by

Co-Project Leaders

Christopher Johnson

christopher.johnson@usitc.gov

and

Heather Sykes

heather.sykes@usitc.gov

Principal Authors

Willliam Deese Cathy Jabara

Queena Fan Christopher Johnson

Teresa Finn Kate Linton

Eric Forden Elizabeth Nesbitt

Alexander Hammer Heather Sykes

Special Assistance From

Phyllis Boone, Barbara Bryan, Catherine DeFilippo, Kimberlie Freund,

Monica Reed, and Wanda Tolson

Under the direction of

Michael Anderson, Chief

Advanced Technology and Machinery Division
i

Abstract

This study examines competitive conditions, including regulatory conditions, affecting U.S.

sales and trade of medical devices in Japan and other principal foreign markets during

2001–5. An examination of regulatory cost and approval data by the U.S. International Trade

Commission suggests that average total approval times for new medical devices were higher

in Japan during the period than in other principal global markets, including the United States

and the European Union (EU). Despite Japan’s limited success in reducing these times in

2005 after reforms to Japan's Pharmaceutical Affairs Law took effect, significant challenges

remain. Innovative, advanced technology medical devices are the most adversely affected

by the Japanese regulatory process. U.S. medical device firms are the leading developers and

exporters of such products and may be disproportionately affected. Medical device firms

generally prefer the EU medical device approval system over the U.S. and Japanese approval

systems, due to its shorter approval times. Although medical device regulation in the United

States remains tightly controlled, it has become more predictable in recent years, and review

times have steadily declined. 

The United States, the EU, and Japan together account for about 90 percent of global

production and consumption of medical devices. The study finds that the U.S. medical

device industry is the most competitive in the world, recognized for its ability to continually

design, develop, and place innovative medical devices in U.S. and foreign markets. This can

be attributed in part to a higher level of research and development investment and greater

availability of venture capital, compared with the EU and Japanese industries. While both

U.S. and EU firms produce a broad variety of medical devices, ranging from general hospital

supplies to more advanced technology products, including advanced cardiovascular devices,

Japanese firms are more narrowly focused on medical imaging devices and commodity

hospital supplies. Government healthcare and regulatory policies appear to have inhibited

the growth of the Japanese medical device industry, and Japan's global share of related

manufacturing has declined throughout the past decade.

iii

CONTENTS

Page

Abstract ............................................................... i

Acronyms ............................................................. ix

Executive Summary ............................................... xi

Overview of Japan’s regulatory system and impact on U.S. industry . . . . . . . . . . . . . . xi

Comparison of the U.S., EU, and Japanese regulatory systems . . . . . . . . . . . . . . . . . . . xii

Global supply and demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Trade in medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Data sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Chapter 1. Introduction and Overview .................... 1-1

Chapter 2. Principal Competitive Factors ................. 2-1

Supply side factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1

Innovation, research and development, and intellectual property . . . . . . . . . . . . . . . . . . 2-1

Access to capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5

Consolidation and strategic alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6

Global marketing and distribution networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6

Highly skilled workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-6

Standards and regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7

Demand side factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8

Healthcare spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8

Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-9

Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10

Chapter 3. Profiles of U.S. and Foreign Industries

and Markets ..................................................... 3-1

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-3

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-3

Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5

Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8

Factors of competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-14

Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-14

Health insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16

Trade practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-19
iv

CONTENTS–Continued

Page

Chapter 3. Profiles of U.S. and Foreign Industries

and Markets—Continued

European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-19

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-20

Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-22

Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-24

Factors of competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-24

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-28

Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-28

Health insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-31

Trade practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-32

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-32

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-33

Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-34

Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-35

Factors of competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-35

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-41

Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-43

Health insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-43

Trade practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-44

Chapter 4. Trade in Medical Devices ........................ 4-1

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1

European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-8

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-12

Chapter 5. Relevant Multilateral and Bilateral 

Trade Agreements ............................................. 5-1

WTO Agreement on Technical Barriers to Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1

U.S.-Japan trade agreements related to medical devices and equipment . . . . . . . . . . . . . . . 5-3

U.S.-European Union Mutual Recognition Agreement–medical devices . . . . . . . . . . . . . . 5-4

U.S.-China JCCT medical devices and pharmaceuticals subgroup . . . . . . . . . . . . . . . . . . . 5-5

Global Harmonization Task Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
v

CONTENTS–Continued

Page

Chapter 6. Impact of Regulatory Approval Systems

on U.S. Industry ................................................ 6-1

Comparison of the U.S., EU, and Japanese regulatory systems . . . . . . . . . . . . . . . . . . . . . . 6-2

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4

European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-8

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-12

Qualitative assessment of the effects of the Japanese medical device regulatory

system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-18

Medical device approval costs in the United States and Japan . . . . . . . . . . . . . . . . . . . . 6-19

Medical device approval times in the United States and Japan . . . . . . . . . . . . . . . . . . . 6-21

Impact of Japanese regulatory approval on U.S. firms . . . . . . . . . . . . . . . . . . . . . . . . . . 6-29

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-31

Bibliography ....................................................... Bibl-1

Appendices

A. Request letter from the House Committee on Ways and Means . . . . . . . . . . . . . . . . . . . . A-1

B. Federal Register notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

C. Calendar of public hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

D. Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

Boxes

1-1. Data limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4

2-1. Medical devices: Balancing commerce and regulation . . . . . . . . . . . . . . . . . . . . . . . . 2-8

3-1. Merger and acquisition (M&A) activity in the U.S. market in 2001–6 . . . . . . . . . . . 3-14

3-2. The Irish medical device cluster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-21

4-1. Growing importance of China’s medical device market . . . . . . . . . . . . . . . . . . . . . . . 4-6

4-2. Outsourcing by the U.S. medical device industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7

6-1. Combination products: Questions and answers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-6

6-2. New regulatory challenges in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-12

6-3. Important Japanese terms for regulated medical devices . . . . . . . . . . . . . . . . . . . . . . 6-16

6-4. New market authorization holder (MAH) requirement in Japan . . . . . . . . . . . . . . . . 6-17

6-5. Research studies identified on medical device regulatory performance . . . . . . . . . . . 6-22
vi

CONTENTS–Continued

Page

Tables

ES-1. Summary of the U.S., EU, and Japanese medical device markets . . . . . . . . . . . . . . . . xiv

1-1. Examples of medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2

1-2. Top global manufacturers of medical devices, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-5

2-1. Approval tradeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8

3-1. Highlights of medical devices for the United States, EU and Japan . . . . . . . . . . . . . . . . 3-2

3-2. Medical device NAICS segments and U.S. shipments, 2005 . . . . . . . . . . . . . . . . . . . . . 3-4

3-3. U.S. shipments of medical devices, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6

3-4. U.S. manufactured output per employee, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8

3-5. Employment in the U.S. medical device industry, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . 3-9

3-6. U.S. medical device shipments, exports, imports, apparent consumption, and the

ratios of exports to shipments and imports to consumption, 2001–5 . . . . . . . . . . . . . 3-15

3-7. U.S. medical device shipments, exports, imports, apparent consumption, and the

ratios of exports to shipments and imports to consumption, by segment, 2005 . . . . . 3-15

3-8. Major EU medical device product groupings and leading firms . . . . . . . . . . . . . . . . . . . 3-21

3-9. Selected EU-headquartered medical device companies . . . . . . . . . . . . . . . . . . . . . . . . . 3-23

3-10. EU production of medical devices, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-23

3-11. Employment in the EU medical device industry, by country, 2001–5 . . . . . . . . . . . . . . 3-25

3-12. EU manufactured output per employee, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-26

3-13. EU medical device production, exports, imports, apparent consumption, and the

ratios of exports to production and imports to consumption, 2001–5 . . . . . . . . . . . . . 3-29

3-14. Leading manufacturers of medical devices in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-34

3-15. Japanese shipments of medical devices, 2001–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-36

3-16. MHLW medical device categories and examples of their components . . . . . . . . . . . . . . 3-37

3-17. Japanese manufactured output per employee, 2001–4 . . . . . . . . . . . . . . . . . . . . . . . . . . 3-38

3-18. Japanese medical device shipments, exports, imports, apparent consumption, and 

 the ratios of exports to shipments and imports to consumption, 2001–4 . . . . . . . . . . . 3-44

4-1. U.S. medical device trade balance, by segment, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . 4-4

4-2. U.S. imports and exports of medical devices, by selected countries, 2001–5 . . . . . . . . . 4-5

4-3. EU medical device trade balance, by segment, 2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . 4-9

4-4. EU imports and exports of medical devices, by selected countries, 2001–5 . . . . . . . . . . 4-11

4-5. Japanese merchandise trade balance in medical devices, by segment, 2001–4 . . . . . . . . 4-14

4-6. Japanese imports and exports of medical devices, by selected countries, 2001–4 . . . . . 4-15
vii

CONTENTS–Continued

Page

Tables—Continued

5-1. Relevant medical device trade agreements and initiatives . . . . . . . . . . . . . . . . . . . . . . . 5-1

6-1. Medical device classification and regulation in the European Union, the United States, 

and Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-3

6-2. FDA medical device classification system and regulatory clearance requirements . . . . 6-5

6-3. European Union medical device classification system and regulatory clearance

requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-10

6-4. Japanese medical device classification system and regulatory clearance

requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-15

6-5. FDA 510(k) user fees, fiscal years 2006 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20

6-6. FDA PMA user fees, fiscal years 2006 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20

6-7. PMDA estimated approval costs for “new medical device” reviews, 2005 . . . . . . . . . . 6-20

6-8. PMDA new medical device approvals and median PMDA review processing time,

2002–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-27

6-9. Industry views on sources of Japanese regulatory delays and difficulties and

Japanese government responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-32

6-10. Number of cases approved in Japan using foreign and domestic clinical data, FY 2001-

FY 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-33

Figures

1-1. Global production in the medical device industry, by major producers, 2005 . . . . . . . . . 1-2

1-2. Global consumption in the medical device industry, by major markets, 2005 . . . . . . . . . 1-3

1-3. Global trade in the medical device industry, by major traders, 2005 . . . . . . . . . . . . . . . . 1-4

2-1. Medical devices: Factors of competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1

2-2. Innovation and new product introduction in the medical device industry . . . . . . . . . . . . 2-3

3-1. Shares of U.S. shipments by major segment, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-7

3-2. NIH bioengineering grant awards, 1997–2005, and estimated 2006–7 . . . . . . . . . . . . . . 3-11

3-3. Total expenditures on healthcare as a percentage of gross domestic product . . . . . . . . . . 3-17

3-4. Composition of the U.S. population (by age) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-18

3-5. Projected composition of the EU’s population (by age) . . . . . . . . . . . . . . . . . . . . . . . . . . 3-30

3-6. Japan’s distribution system for medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-39

3-7. Composition of Japan’s population (by age) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-42

4-1. U.S. exports, imports, and merchandise trade balance in medical devices, 2001–5 . . . . . 4-2

4-2. U.S. bilateral trade balance in medical devices with selected trading partners,

2001–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3

4-3. EU exports, imports, and merchandise trade balance in medical devices, 2001–5 . . . . . . 4-9

4-4. Trade balance, by segment, 2005: Germany, France, Italy, United Kingdom, 

and Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10

4-5. Japanese exports, imports, and merchandise trade balance in medical devices, 

2001–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-13
viii

CONTENTS–Continued

Page

Figures—Continued

6-1. European Union medical device regulatory approval system . . . . . . . . . . . . . . . . . . . . . . 6-9

6-2. Reform of Japanese medical device regulatory approval system . . . . . . . . . . . . . . . . . . . 6-14

6-3. Average total FDA review time for all original PMAs and PMA supplements, 

2001–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-23

6-4. Average total elapsed days from filing to FDA approval for all original PMAs and

PMA supplements, 2001–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-24

6-5. Average FDA time from receipt of 510(k) to final decision, 2001–5 . . . . . . . . . . . . . . . . 6-25

6-6. Average total time from receipt of 510(k) to final decision, 2001–5 . . . . . . . . . . . . . . . . 6-26

6-7. Comparison of reviewer times and total review times for new medical device

applications between Japan (median) and U.S. (mean), 2001–5 . . . . . . . . . . . . . . . . . . 6-28
ix

Acronyms

ABHI Association of British Healthcare Industries

ACCJ American Chamber of Commerce in Japan

AIMDD Active Implantable Medical Device Directive (EU)

BLA Biologics License Application

CABs conformity assessment bodies

CBERA Caribbean Basin Economic Recovery Act 

CDC Centers for Disease Control and Prevention

CDRH Center for Devices and Radiological Health

CE mark Conformite Europeene mark

CFDA China Food and Drug Administration 

CMS Centers for Medicare & Medicaid Services

CT computerized tomography

DRGs diagnosis-related groups

ECG electrocardiograph

EEG electroencephalogram

EMC electromagnetic compatibility

EU European Union

FDA Food and Drug Administration

FDAMA FDA Modernization Act of 1997 

GAO U.S. Government Accountability Office

GCP good clinical practices

GDP gross domestic product

GEMS General Electric Medical Systems 

GHTF Global Harmonization Task Force

GLPs good laboratory practices

GMPs good manufacturing practices

GPOs group purchasing organizations 

GSP Generalized System of Preferences

GVP good vigilance practice

HMOs health maintenance organizations

HTA health technology assessment

ICC in-country caretaker 

IDA Investment Development Agency (Ireland)

IPO initial public offering

IUDs intrauterine devices 

IVDs in vitro diagnostics

IVDD In Vitro Diagnostics Directive (EU)

JAAME Japan Association for the Advancement of Medical Equipment

JCCT U.S.-China Joint Commission on Commerce and Trade 

JETRO Japan External Trade Organization

M&A mergers and acquisitions

MAH market authorization holder 

MDD Medical Device Directive (EU)

MDDI Medical Device and Diagnostic Industry 

MDP Medical Devices and Pharmaceutical Subgroup

MDR medical device reporting 

MDUFMA Medical Device User Fee and Modernization Act 
x

Acronyms—Continued

MHLW Ministry of Health, Labour and Welfare (Japan)

MOSS market-oriented, sector-selective 

MRA Mutual Recognition Agreement 

MRI magnetic resonance imaging 

NAICS North American Industry Classification System

NAS National Academy of Sciences 

NASA National Aeronautics and Space Administration 

NBER National Bureau of Economic Research 

NIBIB National Institute of Biomedical Imaging and Bioengineering

NICE National Institute for Health and Clinical Excellence

NIH National Institutes of Health

NRC National Research Council 

OECD Organisation for Economic Co-operation and Development

OPSR Organization for Pharmaceutical Safety and Research (Japan)

PAL Pharmaceutical Affairs Law (Japan)

PDP Product Development Protocol

PMA premarket approval

PMDA Pharmaceuticals and Medical Devices Agency (Japan)

PMDEC Pharmaceutical and Medical Devices Evaluation Center (Japan)

PMOA primary mode of action 

PMR premarket report

R&D research and development

RAPS Regulatory Affairs Professionals Society 

RFD requests for designation

STED Summary Technical Documentation for Demonstrating Conformity to the Essential 

Principles of Safety and Performance of Medical Devices 

TBT Technical Barriers to Trade (WTO)

U.K. United Kingdom

UN United Nations

USPTO United States Patent and Trademark Office

WHO World Health Organization

WTO World Trade Organization
 1

 On March 9, 2006, the Commission received a request from the Committee on Ways and Means of the

U.S. House of Representatives and instituted investigation No. 332-474, Medical Devices and Equipment:

Competitive Conditions Affecting U.S. Trade in Japan and Other Principal Foreign Markets, under section

332(g) of the Tariff Act of 1930. 

xi

Executive Summary

This report examines competitive conditions affecting U.S. sales and trade of medical

devices and equipment in Japan and other principal foreign markets, for 2001–5, with a focus

on comparing the regulatory conditions in the Japanese market with those of the other major

foreign markets for U.S.-made medical devices.1

 The United States, the European Union

(EU), and Japan together account for about 90 percent of global production and consumption

of medical devices. Medical devices range from relatively homogeneous, commodity-type

items — such as tongue depressors, syringes, intravenous and blood administration

apparatus, and other general hospital supplies — to more advanced products, including

cardiac pacemakers, defibrillators, and stents; electromedical therapeutic, monitoring, and

imaging devices and apparatus; in vitro diagnostics; and implantable orthopedic and

prosthetic devices and appliances.

Overview of Japan’s Regulatory System and Impact on U.S.

Industry

U.S. medical device firms are the world's leading developers and exporters of

high-technology products and may be disproportionately affected compared to other major

producers by Japan’s regulatory approval system. Although the Japanese approval system

does not discriminate in its treatment of domestic and foreign-made medical devices, medical

device firms that specialize in innovative products are more adversely affected by the

regulatory delays and other unique costs of the Japanese approval system because of the

shorter product life cycles (as short as 18 months) and more rigorous regulatory scrutiny of

such products compared to less advanced medical technologies.

Specifically, U.S. firms incur three types of unique costs in Japan: opportunity costs

associated with much longer product approval times; requirements for conducting additional

clinical trials to acquire safety data equivalent to that obtained in previous trials and accepted

by regulators in other markets; and new requirements for firms to separate marketing and

safety operations from production functions, thereby requiring expensive organizational

changes and associated ongoing maintenance costs not required in other principal markets.

U.S. industry officials estimate that complying with recent changes in Japan's regulatory

system has cost U.S. companies $350 million and that U.S. firms will incur an additional

$1.2 billion in compliance costs over the next five years. 

The Japanese government enacted major amendments to its Pharmaceutical Affairs Law

(PAL) in 2002 to reform its medical device regulatory approval system. These new changes

to Japan’s regulatory system came in response to pressures both from within and outside of

Japan, including the U.S. government. The most significant goals of the reform were to

improve efficiency and shorten product approval times. Despite some limited success in

reducing product approval times in 2005 after these reforms took effect, significant

challenges remain.
xii

Average total approval times for new medical devices during 2001–5 were much lengthier

in Japan than in other major markets, including the United States and the EU. In 2004 (the

most recent year for which comparable data are available), the average total review time for

approval of a new medical device was 1,083 days in Japan compared with 356 days in the

United States for similarly regulated devices. While average total approval times in Japan

declined by 60 percent to 678 days in 2005, they remained higher than their average level

prior to the reform (176 days in 2002, 565 days in 2003).

Two major reasons for the longer medical device approval times in Japan are (1) too few

experienced reviewers to handle approval applications, and (2) a backlog of applications

inherited from the previous system. With a review staff of 28 compared to about 300 at the

U.S. regulatory agency, the Food and Drug Administration, the Japanese staffing level is

well below that of the United States with minimal planned increases.

However, Japanese government data indicate that while the new approval agency did not

meet its own performance target of processing 90 percent of its medical device approval

applications within 12 months of administrative time, the figure improved from 50 percent

in 2004 to 82 percent in 2005. The Japanese government also reported that 100 percent of

applications filed in or after 2004 were approved within the 12 month target time; however,

this figure does not include those applications filed before the reform that are part of the

backlog.

Despite the improvement in Japanese approval times in 2005, total new medical device

applications from U.S. companies submitted for review in Japan reportedly decreased from

132 in 2003 to only 8 applications in 2005. U.S. medical device industry officials cited

burdensome applications and an unpredictable approval process as reasons for the decline.

Comparison of the U.S., EU, and Japanese Regulatory

Systems

Medical device firms generally prefer the EU medical device approval system over the U.S.

and Japanese approval systems, due to its shorter approval times. Although medical device

regulation in the United States remains tightly controlled, it has become more predictable in

recent years, and review times have steadily declined. Meanwhile, despite improvements in

2005, Japan maintains the slowest, least transparent, and most difficult regulatory system of

the major markets for medical devices. 

Because of the potential health and safety risks intrinsic to medical technology, medical

device firms have faced strict regulatory measures in the United States, the EU, and Japan

for several decades. These three markets all classify medical devices according to risk, and

require approval of riskier devices before they can be marketed. The most important

differences among the three systems are those pertaining to the role of government. In the

United States and Japan, the government retains final authority for approval of medical

devices. In contrast, premarket review and approval in the EU is principally conducted by

independent third-party testing laboratories accredited by member state health ministries to

review and approve medical devices for the EU market. Although both U.S. and Japanese

regulatory bodies use third parties for the preliminary assessment of low- and medium-risk

devices, they retain final authority over device approval. 
xiii

Global Supply and Demand

Worldwide sales of medical devices reached $180 billion in 2005, with U.S. producers

accounting for an estimated 51 percent, EU firms 30 percent, and Japanese producers

10 percent. The U.S. medical device industry is the most competitive in the world,

recognized for its ability to continually design, develop, and place innovative medical

devices in U.S. and foreign markets. This can be attributed in part to a higher level of R&D

investment and greater availability of venture capital, compared with the EU and Japanese

industries. While both U.S. and EU firms produce a broad variety of medical devices,

ranging from general hospital supplies to more advanced technology products, including

advanced cardiovascular devices, Japanese firms are more narrowly focused on medical

imaging devices and commodity hospital supplies. Government healthcare and regulatory

policies appear to have inhibited the growth of the Japanese medical device industry, and

Japan's global share of medical device manufacturing has declined throughout the past

decade.

The most significant supply and demand factors for the medical device industry were

identified and used to analyze the markets of the United States, the EU, and Japan. Table ES1 provides a summary of these factors with respect to the medical device markets of the

United States, the EU, and Japan. 

Trade in Medical Devices

The U.S. medical device trade surplus declined steadily, from $5.9 billion in 2001 to $957

million in 2004, before rebounding modestly in 2005 to $1.8 billion. Despite steady growth

in U.S. exports (which reached $25.5 billion in 2005), uninterrupted growth in U.S. demand

and increased foreign outsourcing by U.S. firms contributed to the decline. Japan continued

its historical trend of running a trade deficit in medical devices, while the EU maintained a

trade surplus.

Several multilateral and bilateral trade agreements have facilitated U.S. trade in medical

devices, as they focus on issues of concern to the medical device industry, including the

harmonization of medical device regulatory systems. These agreements and initiatives

include the World Trade Organization Agreement on Technical Barriers to Trade (TBT), the

market-oriented sector-specific (MOSS) talks and the Regulatory Reform and Competition

Policy Initiative with Japan, the medical devices annex of the U.S.-European Union Mutual

Recognition Agreement (MRA), the U.S.-China Joint Commission on Commerce and Trade

(JCCT) Medical Devices and Pharmaceuticals Subgroup, and the Global Harmonization

Task Force (GHTF).
xiv

Table ES-1 Summary of the U.S., EU, and Japanese medical device markets

United States European Union Japan

General information Products Produces a wide variety of medical

devices

Produces a wide variety of medicaldevices

Limited devicesimaging 

Share of global production(estimated)

51 percent 30 percent 10 perce

Industry 6,000-7,000 small, medium, and

large companies

8,500-10,000 companies. Most aresmall and medium size.

750 larg

Trade balance Maintains a trade surplus 

($1.8 billion - 2005)

Maintains a trade surplus($4.5 billion - 2005)

Maintain(-$4.9 b

Supply factors Innovation, research and

development (R&D), andintellectual property

High R&D spending leads to muchinnovation (10-13 percent of sales)

Lower R&D spending leads to lessinnovation (6 percent of sales)

Lower Rinnovati(6 perce

Access to capital Wide availability of venture capital Limited access to capital Limited 

Industry structure andconsolidation

Recent merger and acquisition(M&A) activity has somewhatconsolidated the industry

Recent global consolidation hasaffected the industry, but there arerelatively lower levels of intra-EUM&As

Lower le

Global marketing anddistribution networks

Direct distribution system Direct distribution system Comple

Skilled workforce Highly skilled workforce

High productivity($297, 938 per worker - 2005)

Highly skilled workforceRelatively lower productivity($98, 149 per worker - 2005)

Good teModera($173, 4

Standards and regulations Transparent regulatory system Transparent, efficient regulatory

system

Complepolicies growth

Demand factors Healthcare spending Large and growing healthcare

expenditures(15% of gross domestic product(GDP))

Constrained healthcareexpenditures(7-8% of GDP)

Constraexpendi(8% of G

Cost containment policies Government and private insurers try

to contain costs

Government tries to contain costs Governm

to conta

Demographics Population is 298.4 million. 

12% of population age 65 or older in 2005. This is expected to reach18% by 2025.

Population is 457.0 million. 17% of population age 65 or older in 2004. This is expected to reach23% by 2025.

Populat20% of in 2004. 30% by 
xv

Data Sources

Industry definitions and product coverage for the medical device industry vary between

countries. The information used in preparing this report was obtained through interviews

with industry associations, government regulators, companies, market analysts, venture

capital firms, economists, and hospital purchasing officials throughout the United States, the

EU, and Japan. In addition to fieldwork and telephone interviews, information was gathered

through published sources, testimony at the Commission’s July 11, 2006 public hearing, and

written submissions from interested parties. The Commission’s review of the literature

identified few studies, with the exception of a comprehensive study completed in 2005 for

the European Commission, with direct relevance to assessing the effects of regulation and

other conditions of competition on the U.S. medical device industry. This report provides,

to the extent possible, an in-depth examination of the role and impact of regulatory approval

systems in principal markets on trade and competitiveness in the medical device industry.

It also presents and analyzes production and trade information for the United States and its

principal foreign competitors at a more detailed product and segment level than previous

studies. 

 1

 On March 9, 2006, the Committee on Ways and Means (Committee) requested that the U.S.

International Trade Commission (Commission) prepare a report under section 332(g) of the Tariff Act of

1930 (19 U.S.C. 1332(g)) that examines the competitive conditions affecting U.S. sales and trade of medical

devices and equipment in Japan, and other principal foreign markets, for the most recent 5-year period. The

Committee requested that the Commission submit its report no later than March 9, 2007. A copy of the

request letter is included in app. A, and the Commission’s notice of investigation, published in the Federal

Register of April 6, 2006 (71 FR 17496), is in app. B.

 2

 The United States, European Union (EU), and Japan define the medical device industry differently.

These categories, although used for U.S. data and EU trade data, cannot be utilized for EU production data or

for Japan trade and production data. The definitional differences are explained, where necessary, throughout

the report.

 3

 Ludwig, hearing transcript, 7.

 4

 Estimated by Commission staff based on official data of the U.S. Department of Commerce, the

European Union (Eurostat), and the Japanese Ministry of Health, Labour and Welfare (MHLW); U.S., EU,

and Japanese medical device trade associations; and other sources.

1-1

CHAPTER 1

Introduction and Overview

This report examines the competitive conditions affecting U.S. sales and trade of medical

devices and equipment (medical devices) in Japan and other principal foreign markets

throughout the most recent 5-year period. The report focuses on those medical devices that

accounted for the largest shares of U.S. exports to these markets throughout this period, and

compares the competitive conditions in the Japanese market with those of other major

foreign markets for U.S.-made medical devices, paying particular attention to regulatory

conditions. The report was prepared in response to a request from the Committee on Ways

and Means.1

For purposes of this study, medical devices include in vitro diagnostics (IVDs);

electromedical equipment; surgical and medical instruments; orthopedic devices and hospital

supplies; and dental equipment.2

 These devices are all used in professional medical practice

for the prevention, diagnosis, and treatment of diseases and injuries, and the correction of

physical deformities of the body. Such medical devices range from relatively homogeneous,

commodity-type items — such as tongue depressors, syringes, intravenous and blood

administration apparatus, and other general hospital supplies — to more advanced products,

including cardiac pacemakers, defibrillators, and stents; electromedical therapeutic,

monitoring, and imaging devices and apparatus; and implantable orthopedic and prosthetic

devices and appliances.3

 Table 1-1 provides examples of specific medical devices.

The United States, the European Union (EU), and Japan are the three largest producers and

consumers of medical devices in the world. Together, they account for almost 90 percent of

both total global production and global consumption (valued at an estimated $180 billion in

2005) of such equipment (figures 1-1 and 1-2).4
1-2

Source: Estimated by Commission staff based on official data of the U.S. Department

of Commerce, the European Union (Eurostat), and the Japanese Ministry of Health,

Labour and Welfare; U.S., EU, and Japanese medical device trade associations; and

other sources.

Note.—Because of regional differences in industry definitions and product coverage,

these estimates are not directly comparable to the official statistics presented in chapter

3.

Total = $180 billion

Figure 1-1 Global production in the medical device industry, by major producers, 2005

Table 1-1 Examples of medical devices

Abdominal stent grafts Dental instruments Arthroscopic instruments

Anesthesia machines Denture adhesive cream Pacemakers

Ankle braces Disposable needles Patient monitoring systems

Artificial heart valves Drug-eluting stents Prostheses

Bandages Endoscopes Splints

Blood gas monitors Forceps Surgical clamps

Blood glucose meters Hearing aids Surgical gloves

Blood transfusion apparatus Implantable infusion pumps Syringes

Bone screws In-vitro diagnostics Ultrasound equipment

Catheters Knee braces Urinary catheters

Chisels Liquid disinfectors Ventilators

Coils to treat aneurysm Magnetic resonance imaging

(MRI) equipment

X-rays

Computed tomography (CT) equipment Medical lasers

Defibrillators Neuromuscular stimulators

Dental chairs Orthopedic implants (hip, knee, 

 spinal, etc.)

Source: Compiled by Commission staff from various sources.

Japan

10%

Other

9%

United States

51%

European Union

30%
 5

 Global Trade Information Services, World Trade Atlas 2006. World Trade Atlas statistics likely

underestimate trade in medical devices. See chapter 4 for more information on trade in this industry. Global

production is less than total trade as a result of different data sources.

 6

 “The Top 30 Global Medical Device Companies,” Medical Product Outsourcing, 1-2; company annual

reports and forms 10-K, and other sources.

1-3

Source: Estimated by Commission staff based on official data of the U.S. Department of

Commerce, the European Union (Eurostat), and the Japanese Ministry of Health,

Labour and Welfare; U.S., EU, and Japanese medical device trade associations; and

other sources.

Note.—Because of regional differences in industry definitions and product coverage,

these estimates are not directly comparable to the official statistics presented in chapter

3.

Total = $180 billion

Figure 1-2 Global consumption in the medical device industry, by major markets, 2005

Total trade in medical devices was valued at nearly $190 billion in 2005 (figure 1-3).5 The

largest producers are also the largest traders of medical devices with the EU, United States,

and Japan accounting for 68 percent of total trade in 2005. Switzerland and China are other

large traders of medical devices, with more than $8 billion each. These estimates may not

match official national data that appear in other parts of this report, as industry definitions

and product coverage for the medical device industry vary amongst countries; data

limitations are discussed in box 1-1.

U.S.-based companies dominate global sales of medical devices. As shown in table 1-2, 15

of the leading 20 global firms in terms of medical device revenue in 2005 were U.S.-

headquartered firms, while the remaining 5 companies were EU-based.6

 Terumo, the leading

Japanese-based firm in terms of medical device revenue in 2005, ranked 24th worldwide.

The U.S. industry is responsible for more than one-half of world production and

manufactures a wide variety of medical devices, ranging from commodity hospital supplies

and general medical and surgical instruments and apparatus, to advanced medical imaging

Other

10%

Japan

10%

United States

50%

European Union

30%
1-4

Figure 1-3 Global trade in the medical device industry, by major traders, 2005

Source: Global Trade Information Services, Inc., World Trade Atlas Database 2006.

European Union

30%

 Sw itzerland

4%

 China

4%

 Other traders

24%

 United States

29% Japan

9%

Total = $190 billion

Box 1-1 Data limitations

Industry definition and product coverage for the medical device industry vary among countries. Although

the Commission was able to improve upon past industry reports and provide global estimates, data for

this industry and across the three major markets are not directly comparable. Specifically, EU production

data are understated for at least two reasons. First, production data from Eurostat, the official data

source, does not include missing values (where individual countries have failed to report) or suppressed

values (where data are not publicly reported to protect confidential business information). Second,

Eurostat reports production totals for the category NACE 33.1, medical and surgical equipment and

orthopedic appliances. This category does not include chemical and biochemical devices, such as in vitro

diagnostics, which are classified under "chemicals," and medicine-impregnated products, such as gauzes,

which are classified as "pharmaceutical preparations." Moreover, these particular types of medical

devices are extremely difficult to separate out from chemical and pharmaceutical preparation

classifications in the Eurostat database, while the United States and Japan were able to include them in

their statistics. EU trade data, gathered using Global Trade Atlas, were available only at the 6-digit HS

level, and, therefore, may underestimate EU trade in medical devices. While there are fewer concerns

with the Japanese production and trade data, they are also understated to some extent compared with

the U.S. data, as Japan’s industry definition and product coverage are not identical to those of the United

States.

In addition to collecting official government regulatory and other data for use in this report, U.S.

International Trade Commission (Commission) staff met with industry associations, government

regulators, companies, market analysts, venture capital firms, economists, and hospital purchasing

officials in the United States, the European Union, and Japan to gain their perspective on the issues

addressed in the request. In addition to fieldwork and telephone interviews, information was gathered

through published sources, a July 11, 2006 public hearing, and written submissions from interested
 7

 Diller and Gold, “Healthcare: Products and Supplies,” February 2006, 1-17; and U.S. industry official,

interviews by Commission staff, United States, June 5-16, 2006. 

 8

 Diller and Gold, “Healthcare: Products and Supplies,” February 2006, 1-17; Hanna, et al., eds.,

Innovation and Invention in Medical Devices, 1-60; and Pammolli et al. in Medical Devices, Competitiveness

and Impact on Public Health Expenditures, 116-159.

 9

 OECD, “How Does the United States Compare,” 1; OECD, “Total Expenditures on Health-% of Gross

Domestic Products”; and OECD, “Special Report: America’s Health-Care Crisis, Spending on Health as %

of GDP” (table), 25. 

1-5

Table 1-2 Top global manufacturers of medical devices, 2005a

Rank Company 2005 medical device revenues Headquarters

1 Johnson and Johnson $17.7 billion United States

2 GE Healthcare $12.1 billion United States

3 Medtronic $10.1 billion United States

4 Baxter International $9.8 billion United States

5 Cardinal Health $9.8 billion United States

6 Tyco Healthcare $9.5 billion United States

7 Siemens Medical Solutions $9.2 billion Germany

8 Philips Medical Systems $7.5 billion Netherlands

9 Boston Scientificb $6.3 billion United States

10 Stryker $4.9 billion United States

11 B. Braun $3.9 billion Germany

12 Guidant Corp.b $3.6 billion United States

13 3M Healthcare $3.5 billion United States

14 Zimmer Holdings $3.3 billion United States

15 Becton Dickinson & Co. $3.0 billion United States

16 St. Jude Medical $2.9 billion United States

17 Kodak Health Group $2.7 billion United States

18 Hospira $2.6 billion United States

19 Fresenius $2.5 billion Germany

20 Smith & Nephew $2.4 billion United Kingdom

Source: Medical Product Outsourcing.

a In vitro device companies are not included in this list. 

b Boston Scientific and Guidant merged in 2006.

and therapeutic devices, including computed tomographic (CT) equipment; digital

ultrasound, nuclear, and magnetic resonance imaging (MRI) equipment; coronary

pacemakers; defibrillators; and stents.7

 The U.S. industry distinguishes itself from its EU and

Japanese competitors through its ability to continually design, innovate, and place leadingedge, high-technology medical devices in U.S. and foreign markets.8

 Notwithstanding these

strengths, a longstanding U.S. trade surplus in medical devices declined steadily throughout

2001–4, before modestly rebounding in 2005, as demand growth in the U.S. market for

medical devices outpaced growth in principal foreign markets, causing U.S. imports to

increase more than U.S. exports.9

 
 10 IDA Ireland, “Industry Profile-Medical Devices,” 1; Irish industry and government officials and

experts, interviews by Commission staff, European Union, September 28-29, 2006; and annual reports and

forms 10-K, of Abbott Laboratories, Baxter International, Boston Scientific, Johnson & Johnson (DePuy),

and Medtronic Inc. See textbox 4-2 for further information on Ireland as a production location and on

outsourcing in the medical device industry.

 11 Some public sources continue to estimate Japan at 11-15 percent of global production. Commission

staff estimates, which are low in comparison, are based on official Japanese data. 

 12 JETRO, Japanese Market Report No. 69: Medical Equipment, 6-11; Hanawa, “Medical Devices,” 1-4; 

Hanawa, US&FCS Market Research Report, 1-10; and Pammolli et al., “Competitiveness, Productivity and

Industry Structure” and “R&D and Innovation,” chs. in Medical Devices, Competitiveness and Impact on

Public Health Expenditure, 90-115 and 116-159.

 13 Based on statistics of the U.S. Department of Commerce.

 14 See textbox 4-1 for further information.

 15 Pammoli, et al., Medical Devices Competitiveness and Impact on Public Health Expenditure, 17.

 16 Diller and Gold, “Healthcare: Products and Supplies,” August 31, 2006, 10.

 17 Pammoli, et al., Medical Devices Competitiveness and Impact on Public Health Expenditure, 17.

 18 Diller and Gold, “Healthcare: Products and Supplies," August 31, 2006, 3.

1-6

The EU, which accounts for almost one-third of global production and world consumption,

also produces a broad scope of medical goods and generally has maintained global surpluses

in medical device trade. Germany, by far the largest EU producer, excels in the production

of high quality precision medical and surgical instruments and electromedical equipment.

Ireland has become an increasingly important producer of advanced medical devices in the

past 5 years because of tax incentives and a low-cost labor pool, attracting substantial

investment in manufacturing operations by leading U.S.-based producers of implantable

cardiac pacemakers and defibrillators, drug eluting stents, and orthopedic implants.10

Japan, whose share of total global medical device manufacturing declined from

approximately 13 to 15 percent in the mid 1990s to about 10 percent in 2005,11 is highly

specialized in the production of medical imaging and optical medical devices. The country

imports a significant portion of its other medical device needs from the United States and the

EU, including high-technology medical devices.12 Japan has historically run a trade deficit

in medical devices, including a deficit of approximately $1.3 billion with the United States

in 2005.13

In recent years, there has been an increase in advanced medical goods manufacturing and

assembly in countries such as Switzerland and Ireland, as well as an increase in final

assembly of commodity hospital supplies by developing-country affiliates of U.S. firms. In

addition, China’s rapidly expanding economy and large population are drawing increasing

investment from medical device manufacturers.14

Demographics (such as an aging population), income growth, and an increased range of

health conditions that utilize medical devices are the main drivers of medical device

demand.15 New technologies resulting from investment in research and development (R&D),

and increased outsourcing have further contributed to industry growth.16 However, in recent

years, cost-containment strategies by U.S. and overseas healthcare providers have

constrained medical device markets.17 For example, rising healthcare expenditures, coupled

with government and private budget constraints, have led insurers to control pricing more

tightly.18

The report includes, to the extent possible, for 2001–5, (1) an overview of the global market

for medical devices, including production, consumption, and trade; (2) profiles of the

medical device industries in the United States and principal foreign producer countries;
1-7

(3) an analysis of U.S. trade in medical devices with major competitor countries, including

a description of trade practices, regulatory measures such as those regarding product

approvals, and government and private expenditures on medical research; (4) an examination

of bilateral and multilateral trade agreements that address regulatory issues in major foreign

markets, and their implications for the U.S. medical device industry; and 

(5) a comparison of regulatory conditions in Japan with those in other major foreign markets.

Chapter 2 of this report identifies the principal competitive factors affecting the medical

device market. Profiles of the U.S., EU, and Japanese medical device industries can be found

in chapter 3. Chapter 4 analyzes trade in medical devices, focusing on key markets and

products. Chapter 5 describes trade agreements that address issues related to medical devices

and the implications of those agreements for U.S. exports. Chapter 6 describes Japan’s

regulatory approval system for medical devices and compares that system with those of the

United States and the EU. Appendices A through D contain copies of the request letter from

the Committee on Ways and Means, the Commission’s Federal Register notice, a list of

participants at the Commission’s July 11, 2006 hearing, and a glossary, respectively.

 1

 These factors were identified through a literature review; interviews with U.S.-, Japan-, and EU-based

companies, associations, and market analysts; a public hearing; and written submissions by interested parties. 

 2

 U.S., EU, and Japanese industry officials and market analysts, interviews by Commission staff, United

States, European Union, and Japan, June–September 2006. 

 3

 AdvaMed, The Medical Technology Industry at a Glance; and U.S. industry officials, interview by

Commission staff, United States, April 19, 2006. 

2-1

CHAPTER 2

Principal Competitive Factors

This chapter identifies the principal competitive factors in the global medical device market.1

On the supply (production) side, the competitiveness of the medical device industry is tied

most closely to the innovation, development, and protection of new and existing

technologies. Access to capital, through both private financing and government support;

industry structure and consolidation; and the delicate regulatory balance between protecting

health and safety and allowing new products to enter the market are also important supply

side factors. Important demand (consumption) factors include levels of healthcare spending,

reimbursement policies, and demographics (figure 2-1).

Supply Side Factors

Innovation, research and development, and intellectual property

Innovation and a strong commitment to R&D are principal competitive factors for this

industry and were the factors most frequently cited as critical to firm success.2

 The medical

device industry is R&D-intensive, driven by constant innovation and short product life

cycles.3

 According to the National Academy of Sciences (NAS), most advanced medical

devices tend to undergo continual product improvements that eventually render the products

Figure 2-1 Medical devices: Factors of competitiveness

Source: Compiled by Commission staff based on information gathered from a literature review, interviews with

U.S.-, Japan-, and EU-based companies and associations, a public hearing, and written submissions of interested

parties. 

Supply factors:

• Innovation, research and development, and

intellectual property

• Access to capital

• Consolidation and strategic alliances

• Global marketing and distribution networks

• Highly skilled workforce

• Standards and regulations

Demand factors:

• Healthcare spending

• Reimbursement policies

• Demographics
 4

 This contrasts with pharmaceuticals whose basic formulations usually remain unchanged for the

commercial lifetime of the product, which can be as long as 5 to 50 years. Gelijns and Halm, eds., The

Changing Economics of Medical Technology, 93; and Hanna, et al., eds., Innovation and Invention in

Medical Devices, 4.

 5

 Pammolli, et al., Medical Device Competitiveness and Impact on Public Health Expenditure, 116–135;

Gold and Diller, "Healthcare: Products and Supplies," February 2006, 19 and 25; and Hanna, et al., eds.,

Innovation and Invention in Medical Devices, 31–46 and 49–60. 

 6

 Roberts, “Technological Innovation and Medical Devices,” 4–13.

 7

 See, for example, Aspden, ed., Medical Innovation in the Changing Healthcare Marketplace:

Conference Summary; Hanna, et. al., eds., Innovation and Invention in Medical Devices; and Gelijns and

Halm, eds., The Changing Economics of Medical Technology. 

 8

 Hanna, et. al., eds., Innovation and Invention in Medical Devices, 56. 

 9

 “Me-too” devices refer to those that are comparable to already approved medical devices, or predicate

devices. In most instances, the process for gaining approval of a me-too medical device is much less lengthy

than that for new medical devices. It usually only requires a manufacturer to provide information

demonstrating equivalence to already approved products that pose no special safety concerns. PMDA Annual

Report, 2005; and Japanese government officials, interview with Commission staff, Japan, August 8, 2006.

 10 U.S. and Japanese industry and government officials, interviews by Commission staff, United States,

June 5–16, 2006, and Japan, July 31–August 9, 2006.

 11 According to data cited at a 2001 NAS workshop, of the 6,000 companies and 3,000 product lines

covered by the medical device industry, only 1,000 companies had revenues over $100 million and only 64

product groups had revenues over $150 million. Hanna, et. al., eds., Innovation and Invention in Medical

Devices, 54.

2-2

obsolete, often within 2 years or less.4 The U.S. medical device industry is particularly R&Dintensive; U.S. firms spend more than 10 percent of their total revenues on R&D,

approximately twice the average of those in the EU and Japan.5

The technological innovation process in the medical device industry is often based on

applied research and product engineering problem-solving by firms (many of them small),

university and hospital doctors, and other medical workers, all of whom contribute to the

modification, upgrading, and incremental improvement of existing medical devices.6

 Much

innovation, in fact, occurs after products have been used in clinical settings; medical

professionals can then interact closely with producers to refine, improve, and develop new

applications for medical devices (figure 2-2).

Many studies have examined the determinants of innovation in the health technology

industries.7

 According to the NAS, for example, innovation requires both a strong

commitment to science and significant financial resources. Long development times,

burdensome regulations, and uncertainty about reimbursement may hinder access to

necessary capital.8

 Thus, regulatory procedures and reimbursement affect not only whether

a medical device is marketed and becomes accessible to patients, but also the process of

innovation in the industry. If the regulatory process is perceived as being slow and expensive

for innovative devices, then incentives shift to producing more “me-too”9

 or derivative

devices, which are usually subject to a less rigorous and less lengthy review process and

generally have much lower profit margins than the newer devices.10

The medical device industry includes both large global firms and a large number of small

entrepreneurial companies and startups.11 Small, innovative companies may be particularly

sensitive to regulatory and other requirements that can divert their limited resources and cash

flow. The risk profiles of these small companies often are closely tied to the success of one

or a few products. Providing opportunities for earlier revenue streams through 
2-3

Figure 2-2 Innovation and new product introduction in the medical device industry

DIFFUSION

INTO

ULTIMATE

USE

MEDICAL NEED R&D OPPORTUNITY

INNOVATION

DEVELOPMENT

PREMARKET

EVALUATION

MARKET

INTRODUCTION

DIFFUSION

INTO

ULTIMATE

USE

MEDICAL NEED R&D OPPORTUNITY

INNOVATION

DEVELOPMENT

PREMARKET

EVALUATION

MARKET

INTRODUCTION

MEDICAL NEED R&D OPPORTUNITY

INNOVATION

DEVELOPMENT

PREMARKET

EVALUATION

MARKET

INTRODUCTION

Source: William W. Lowrance, New Medical Devices (Washington, DC: 

National Academy Press, 1988).
 12 Hanna, et. al., eds., Innovation and Invention in Medical Devices, 49; and Gelijns and Halm, eds., The

Changing Economics of Medical Technology, 91.

 13 Real options analysis uses techniques adapted from financial options to generalize traditional capital

budgeting or cash flow analysis. Real options can incorporate uncertainty, investor flexibility, and the limited

ability to expand or reverse previous decisions. Recent books on real options analysis include Dixit and

Pindyck, Trigeorgis, and Copeland and Antikarov.

 14 Hahn, ed., Intellectual Property Rights in Frontier Industries, 11.

 15 Ludwig, hearing transcript, 116–117; Agress, hearing transcript, 117; Italian industry officials,

interviews by Commission staff, Italy, September 28, 2006; and Gold and Diller, "Healthcare: Products and

Supplies," August 2006, 26. Moreover, in the in vitro diagnostics (IVD) segment, where discoveries may be

used for further research, there are legal and practical limitations to the availability of patent protection. U.S.

industry officials, interviews by Commission staff, United States, June 9, 2006; and Truong and Levy, “U.S.

Patents on Medical Diagnostics: Valid...For Now,” June 2006.

 16 U.S. Patent and Trademark Office (USPTO), Technology Profile Report.

 17 Kratzer, “Medtech’s Patent Strongholds.”

 18 U.S. industry officials, interviews by Commission staff, United States, June 6 and 7, 2006; and German

industry officials, interviews by Commission staff, Germany, September 22, 2006.

2-4

efficient and predictable regulatory and reimbursement requirements may play an important

role in improving the innovation outlook for these small companies.12

The development and marketing of medical devices involve complex sequential decision

making, which can be conceptualized through “real options analysis.”13 Each new product

creation incurs development costs, takes time, and has a projected net cash flow over its

product life. If demand conditions or production cost estimates change after the onset of the

initial R&D effort, the firm may elect to minimize losses and discontinue the process. Longer

approval times will lower the value of the effort because they prolong the period of costs and

delay the beginning of the revenue stream.

Medical device innovation is risky and replete with regulatory hurdles; intellectual property

protection can offset some of these downside risks. Intellectual property protection provides

an incentive to invest in research by providing property rights to the inventor. By granting

a limited monopoly, a patent may enable a better return on successful research and provide

the incentive to invest when payoffs are uncertain.14 However, the utility of medical device

patents is somewhat limited by the nature of innovation in the field. According to industry

officials, because devices often can be designed in a number of different ways, competitors

can more easily “build around” patents for medical devices as compared to

pharmaceuticals.15

Notwithstanding these limitations, there is substantial medical device patent activity in the

United States, the country where medical device firms are most likely to seek patent

protection. Approximately 140,000 medical device patents were filed with the U.S. Patent

and Trademark Office (USPTO) from 1977 to 2004. Of these, 71 percent were of U.S.

origin; Japan ranked a distant second, with 7 percent of all patents granted; and Germany

third, with 5 percent.16 Leading firms, such as Medtronic, Boston Scientific, and Johnson &

Johnson, each received more than 250 U.S. patents in 2005.17 Thus, despite the challenges

presented by the relative ease of “build arounds,” patent protection remains critical to

industry leaders. Patents are often extremely important to smaller firms, whose most valuable

assets may be inventions in the early stages of development. Venture capitalists consider

well-protected intellectual property a necessary, although not sufficient, condition for

funding.18
 19 U.S., EU, and Japanese industry officials and market analysts, interviews by Commission staff, United

States, European Union, and Japan, June-September 2006.

 20 Loftus, “Medical Device Venture-Capital Funding on the Rise.”

 21 These totals include investments by venture capital firms, venture arms of corporations, institutions,

investment banks and entities whose primary activity is financial investing. Where there are other

participants in a verified financing round, such as wealthy individuals or “angel investors,” their

contributions are included. PricewaterhouseCoopers, “Money Tree Report, Historical Trend Data: Medical

Devices and Equipment” and “Report Definitions and Methodology.”

 22 Navarro, “The Changing Landscape of the Medical Technology Industry.”

 23 Pammolli, et al., “R&D and Innovation,” 116–159; Nelson, M.D., “Innovation and Invention in Medical

Devices: Implantable Defibrillators,” 21–25; Hanna, et al., eds., Innovation and Invention in Medical

Devices, 31–38; National Academy of Science, Institute of Medicine official, telephone interview by

Commission staff, May 17, 2006; and U.S. industry officials, personal and telephone interviews by

Commission staff, United States, June 5–26, 2006.

 24 For further information on NIH and NASA funding related to their support for basic and applied R&D

with relevance to medical technology, see their annual reports at http://www.nih.gov and

http://www.nasa.gov, respectively. For background and history of U.S. government research and

expenditures strengthening the medical technology industry, see Thomas, Jr., “Federal Support of Medical

Device Innovation,” 51–57; and Hanna, et al., Innovation and Invention in Medical Devices, 31–38. 

 25 U.S., EU, and Japanese industry officials and market analysts, interviews by Commission staff, United

States, European Union, and Japan, June–September 2006.

2-5

 Access to capital

Adequate funding for R&D, through both private and government expenditures, is critical

to the development and commercialization of new medical technology. A robust venture

capital industry, combined with strong government support of medical research, provides

U.S. medical device firms with important competitive advantages over those in Europe and

Japan.19 The aging population’s growing demand for medical device products, among other

factors, has increased the attractiveness of the medical device industry for venture capital

funds.20 Venture capital funding to U.S. medical device firms totaled approximately

$1.7 billion in 2004, climbed to $2.1 billion in 2005, and is on track to exceed these levels

in 2006.21 Many companies also obtain funding through initial public offerings (IPOs).

Nineteen U.S. medical technology firms undertook IPOs in 2004 and 12 in 2005; the median

amount raised per IPO was $60 million.22 Venture capital and equity financing may be used

to fund R&D, to facilitate mergers and acquisitions (M&A), and to create and maintain the

distribution channels needed to market medical devices domestically and overseas.

A strength of the U.S. medical device industry is the significant amount of research

conducted by its national government.23 The National Institutes of Health (NIH) and the

National Aeronautics and Space Administration (NASA) contribute significantly to the

development of U.S. medical technology.24 The EU’s framework programmes for research

and technological development are the main vehicle for government funding of medical

device firms in Europe. Japan’s National Institute of Health Science conducts its own

medical research and provides its research results to the medical and scientific community.

However, it does not provide the same sort of university and private sector grants that exist

in the United States and the EU. Government-financed medical research allows industry to

devote less revenue toward R&D while maintaining the level and extent of research

necessary to improve medical technology and place new products on the market.25
 26 An example of a strategic alliance in medical devices is the May 2006 collaboration agreement between

GE Healthcare and St. Jude Medical to develop a cardiovascular ultrasound imaging system. Wireless News,

“GE Healthcare and St. Jude Medical Join to Help Fight Heart Disease and Stroke”; and U.S. industry

official, interview by Commission staff, United States, June 12, 2006. 

 27 Burkhardt and Tardio, “Converging Trends Drive Industry Consolidation,” December 2006.

 28 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006; and Mergent,

The North America Medical Instruments & Equipment Sectors: A Company and Industry Analysis, 5. 

 29 Diller, “Healthcare: Products and Supplies: Asia,” 28. 

 30 Ibid. 

 31 Japanese dealers tend to be regional or product-specific rather than national and broad-based, so

manufacturers have to build multiregional networks. Diller, “Healthcare: Products and Supplies: Asia,” 25;

and U.S. industry official, interview by Commission staff, United States, June 12, 2006.

 32 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 33 U.S. and EU industry officials, interviews by Commission staff, United States and Europe, June 5–16,

2006 and September 18–29, 2006.

 34 Diller and Gold, “Healthcare: Products and Supplies,” August 2006, 22.

2-6

Consolidation and strategic alliances

M&A and strategic alliances26 are important tools that affect both large and small companies

in the medical device industry. The industry has undergone significant consolidation in the

past 10 years. Key acquisitions in the global medical device industry totaled approximately

$37 billion in 2006 (including Boston Scientific’s $25 billion acquisition of Guidant),

compared with approximately $10 billion in 2005.27 A principal driving force behind M&A

activity has been market expansion, as many large medical device firms seek to complement

their product mix by acquiring smaller firms producing new, innovative medical devices or

serving niche markets.28 Smaller companies benefit from M&A activity by gaining access

to funding for the development and marketing of their products, in addition to the regulatory

expertise necessary to place their product on the market.29 Brand recognition and the wider

product and service selection offered by more established firms also provide competitive

advantages over smaller and less well-known firms. Further, by producing medical devices

in high volumes, large firms are able to achieve manufacturing cost efficiencies that are

unavailable to small and medium size firms.30

Global marketing and distribution networks

Effective marketing and distribution networks are important determinants of medical device

industry competitiveness. Companies with strong marketing networks are able to establish

long-term supply contracts with their customers, enabling future sales. In Japan, which is

characterized by a highly complex medical device distribution system, an effective network

requires a relationship with experienced and well-connected dealers who maintain effective

distribution networks and access to hospitals and who may assist manufacturers to develop

long-term supply relationships.31 Nearly all industry analysts and distributors interviewed

by Commission staff in Japan noted that Japan’s relatively complex distribution system has

increased both supply inefficiencies and prices.32

Highly skilled workforce

A highly skilled workforce, which includes researchers, engineers, and staff with regulatory

expertise, is an important competitive factor in the medical device industry.33 Medical device

companies continually seek the latest skills in engineering, electronics, and materials science,

among other disciplines.34 Expertise in regulatory affairs and reimbursement is critical to the
 35 U.S. industry official, interview by Commission staff, United States, June 7, 2006.

 36 Chapter 6 contains further information on the impact of regulatory measures on sales. U.S. industry

officials, personal and telephone interviews by Commission staff, United States, June 5–26, 2006.

 37 U.S. industry officials, interviews by Commission staff, United States, June 5–26, 2006.

 38 Cookson and Hutton, “Regulating the Economic Evaluation of Pharmaceuticals and Medical Devices,”

175.

2-7

medical device industry, as each new and improved product must be approved in every

country in which it is to be sold and the requirements for approval are constantly evolving.

Large numbers of staff often are devoted to regulatory affairs. Reimbursement experience

can help a firm boosts its returns. Expertise in other regulatory areas, such as environmental,

import/export, and transportation policies, are also important for competitive success.35

However, the need to devote substantial resources to regulatory matters often reduces

resources that would otherwise be available to support product development and

commercialization.36

Standards and regulations

Understanding a country's standards and regulations and its regulatory process is pivotal in

securing approval to sell medical devices in that market. Complex standards and regulatory

requirements add to the cost of bringing products to market and delay product approval, and

thus, may impede the success of medical device firms in that market. At the same time,

standards and regulations are designed to ensure health and safety and serve critical

consumer protection functions (box 2-1).

One aspect of product regulation is the amount of premarket testing and clinical trials that

a regulatory agency requires, given that full information is often infeasible. Premarket testing

reduces health costs in the event that the device may be unsafe or ineffective but raises

approval costs and opportunity costs resulting from missed chances to sell the device. The

expected return on a device limits the amount of testing that a firm is willing to perform

because the costs of testing are high. Clinical trials increase fixed costs and may make it

infeasible to develop devices for small markets. The FDA has special procedures that apply

to medical devices whose estimated market is less than 4,000 individuals per year. To date,

EU regulators have not routinely required clinical trials for most medical devices. Japan, on

the other hand, reportedly requires extensive domestic clinical trials even when these trials

have already been conducted abroad.37 Larger firms often perform clinical trials on new

products with safety concerns and for expensive items, but small and medium size firms

rarely perform clinical trials on medical devices that they develop. If clinical trials were

required for all launches of medical devices, the cost structure of small and medium size

firms could change and make them targets for takeovers.38
 39 This includes medical and surgical equipment and orthopedic appliances, but not other devices such as

chemical and biochemical devices that are classified under “chemicals” and medical-impregnated products

that are classified under “pharmaceutical preparations.” The EU national accounting framework does not

provide a clean breakout of medical devices.

2-8

Demand Side Factors

Healthcare spending

In recent years, expenditures for healthcare as a share of gross domestic product (GDP) in

the EU, Japan, and the United States have risen and are projected to continue to increase,

although at a declining rate. In the EU, medical devices account for an estimated 6 percent

of total health expenditures, and health expenditures account for 8 percent of GDP.39 The

United States and Japan are estimated to spend about 5 percent of health expenditures on

Box 2-1 Medical devices: Balancing commerce and regulation

The economic criterion for establishing the appropriate regulatory level is to equate the marginal costs of regulation

with its marginal benefits. To estimate benefits, a value must be placed on what the regulation produces, which in this

case is better health and improvements in the quality, and possibly the length of life because of medical devices.

Uncertainty over the future and the complexity of multiple influences on health and life expectancy make the costs and

benefits of regulation difficult to measure. Analysis of costs and benefits typically requires estimating the statistical

value of life. Estimates of the statistical value of life are also employed in risk-risk analyses that make explicit how

policy changes affect the different types of risks.

A stringent approval process not only prevents the use of some medical devices that may have adverse effects, but

also deprives society of devices with potentially beneficial effects; the tradeoffs are depicted in table 2-1. Although

some claim that regulatory agencies are too lenient, others, such as Campbell, argue that the marketing of safe and

effective devices has been delayed or prevented (type I error) because so much emphasis is placed on preventing

the marketing of unsafe and ineffective devices (type II errors).a

 One reason for this situation is that potential

beneficiaries of new devices cannot generally be identified ex ante, but specific people will be linked to error where

a product was unsafe and ineffective, but accepted.

Table 2-1 Approval tradeoffs

State of the World

Device safe and effective Device unsafe and ineffective

Regulatory

policy

decision

Accept Correct policy decision

Type II error - Device unsafe and

ineffective, but accepted

Reject

Type 1 error - Device safe and

effective, but rejected Correct policy decision

Source: Adapted by Commission staff from Viscusi and Aldy, “The Value of a Statistical Life,” and Viscusi, Vernon,

and Harrington, Economics of Regulation and Antitrust, 757.

Note.—Placing a statistical value on death and injury has a long history in economics. Viscusi and Aldy review

more than 60 studies of mortality risk and 40 studies of injury risk premiums. They find that the income elasticity of

the value of a statistical life is in the range of 0.5 to 0.6. 

a Campbell, “Exploring Free Market Certification of Medical Devices,” 313–344.
 40 Diller, “Healthcare: Products and Supplies: Asia,” 28.

 41 Aspden, ed., Medical Innovation in the Changing Healthcare Marketplace, 16.

 42 EU industry officials, interviews by Commission staff, European Union, September 17–29, 2006; and

Walterskirchen, The U.S. Market for Medical Devices: Opportunities and Challenges for Swiss Companies,

17.

 43 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006; and Gold,

“Healthcare: Products and Supplies,” 23.

 44 Prospective payment systems, including diagnosis related groups (DRGs), are in place in varying forms

in the United States, Japan, and many European countries. Depending on how technologies are classified,

and the payment rates associated with the classification, the systems may either encourage or discourage the

uptake of a particular device. OECD Health Project, Health Technologies and Decision Making, 33.

 45 U.S. and U.K. industry officials, interviews by Commission staff, United States and United Kingdom,

June and September 25–27, 2006.

2-9

medical devices, and their health expenditures account for 14 and 8 percent of GDP,

respectively. The amount of money a country spends on healthcare is a key factor affecting

the market for medical devices. National levels of healthcare expenditures are a strong

indicator of potential success for the industry.40

Technological advances lead to the development of more innovative medical devices, which,

in turn, enables a number of medical problems to be treated, thereby increasing demand and

expenditures on medical devices. Technical change has been the largest driver of growth in

healthcare spending over the past 50 years; it has resulted in annual increases in per capita

spending on healthcare of approximately 2 percent, which is about half of the total real

growth in healthcare spending from 1950–2000.41

Reimbursement

Adequate reimbursement rates and transparent reimbursement policies are important demand

factors in the medical device market.42 Reimbursement rates are determined by government

and private payers after a medical device has been approved for use in a particular market.

If medical devices are not reimbursed at a rate that enables the medical device consumer to

recoup its cost or if rates are not predictable or transparent, the consumer then may not

purchase the device.43 Cost containment policies being adopted by healthcare systems that

face growing budget deficits also put substantial monetary constraints on potential

consumers of medical devices. These policies may take the form of budgetary caps (at the

national, regional, or local level) or the adoption of payment systems that classify particular

devices or treatments in categories for which the associated payment does not adequately

cover the total cost of the device, innovation, testing, and/or marketing.44

Most sector revenue comes from the sale of surgical and medical equipment to institutional

purchasers rather than from the sale of expensive devices to individuals. Institutional

purchasers, including public and private sector hospitals, have made efforts to trim costs by

standardizing treatment protocols, making purchasing more rational, and forming group

purchasing organizations (GPOs). The GPOs attempt to use their size to negotiate lower

prices and possibly to counter market power on the seller’s side. The increasing presence of

GPOs in the United States and the EU has been met with some controversy and reported

concerns about their impact on small and medium size suppliers and on the adoption of new

technology.45
 46 OECD, Table on “Total Population,” OECD Factbook 2006.

 47 The elderly’s share of the U.S. population is smaller than its share in the EU and Japan, and the U.S.

share has been relatively steady over the past 10 years. OECD, Table on “Population Aged 65 and Over,”

OECD Factbook 2006.

 48 United Nations (UN), World Population Prospects - 2000 Revisions.

 49 Statistics Bureau & Statistics Center, Ministry of Public, Management, Home Affairs (Japan),

Demographic Data. Accessed via CEIC database; Japan’s Ministry of Internal Affairs and Communication’s

Statistical Bureau and Statistical Research and Training Institute, Statistical Handbook of Japan, chapter 2-

Population.

 50 OECD, table on GDP per capita, OECD Factbook 2006.

 51 Diller, “Healthcare: Products and Supplies: Asia,” 13. 

2-10

Demographics

Demographics and income levels influence demand for medical devices, as aging

populations and high incomes are expected to enhance the growth of the medical device

industry. Organisation for Economic Cooperation and Development (OECD) data show that

population levels increased in the EU, Japan, and the United States over the last 10 years,46

and that the elderly generally represent an increasing share of the population.47 The

proportion of Japan’s population age 65 or older is growing faster than in the United States

and EU,48 and stood at 20 percent in 2005 (compared with 17 percent in 2004 in the EU and

12 percent in 2005 in the United States).49 Income also increased in the EU, Japan, and the

United States between 2000 and 2005.50 The greater the average age and income of a

population, the more advanced medical treatments that market is likely to demand.51
3-1

CHAPTER 3

Profiles of U.S. and Foreign Industries

and Markets

The United States, the EU, and Japan dominate the global medical device industry and

market (table 3-1). The U.S. medical device industry is widely acknowledged to be the most

competitive in the world in a broad range of product lines. It benefits from supply side

factors, such as above-average expenditures on R&D, innovative products, ready access to

capital, a well-trained and productive workforce, and a strong global marketing and

distribution network. The U.S. industry also benefits from strong demand factors, such as

a large and growing U.S. market, which spends about twice the percentage of its gross

domestic product (GDP) on healthcare as its major trading partners, favorable private and

public insurance reimbursement policies, and relatively high market pricing. 

Although EU firms tend to be smaller than U.S. firms, several of the largest and most

prominent medical device companies in the world are headquartered in EU member

countries. However, on the supply side, while an efficient regulatory approval system is an

important factor favoring the medical device industry in the EU market, the EU has relatively

lower expenditures on R&D, less innovative products, and less access to venture capital.

This has inhibited the development of leading-edge, high-technology medical device firms

that can compete effectively with the most advanced U.S.-based firms. On the demand side,

public policies of many EU member states aimed at strictly controlling healthcare

expenditures impact industry reimbursement and profit. 

Despite Japan’s traditional strengths in certain segments of the medical device industry, such

as diagnostic imaging and general hospital products, less favorable factors on the supply

side, including lower expenditures on R&D, lower technology products, and less access to

venture capital, have made Japan more dependent on imports for higher technology medical

device products. Despite favorable demographic factors, including the highest proportion of

elderly persons in the world, other demand factors, such as lower per capita expenditures and

less favorable government healthcare and regulatory policies, have inhibited the growth of

the Japanese market for medical devices. The Japanese medical device industry experienced

little growth in production from 2001 through 2005, and accounts for a decreasing share of

the global industry. Profiles of the U.S., EU, and Japanese medical device markets appear

below.
3-2

Table 3-1 Highlights of medical devices for the United States, EU, and Japan

Medical devices United States EU Production• Global share• Value (2005)• Dominant products 

51%$92.0 billion- Interventional cardiology (coronary stents,

pacemakers, defibrillators)- Diagnostic imaging- Orthopedic implants- Patient monitoring - Medical and surgical instruments - In vitro diagnostics (IVD)

30%$38.0 billion- Diagnostic imaging- IVD- Orthopedic implants- Dialysis- Commodity hospital supplies

10%$14.2 billion (20- Diagnostic ima- Optical (endos- Commodity ho

Consumption• Global share• Value (2005)• Population

50%$90.2 billion298.4 million

30%$38.1 billion457.0 million

10%$19.0 billion (20127.5 million

Trade Balance (2005) $1.8 billion $4.5 billion - $4.9 billion (20Total Employment (2005) 388,449 393,000 68,000National HealthcareExpenditures (percent ofGDP)

15% 7-8% 8%

Research & DevelopmentExpendituresa

10-13% 6% 6%

Source: Compiled by Commission staff from official government and industry sources. Population figures from CIA, The World Factboo

a Reported research and development expenditures as a share of sales.
 1

 European and Japanese government and industry officials and market analysts, interviews by

Commission staff, United States, June 5–16, 2006; Japan, July 31–August 8, 2006; and EU,

September 18–29, 2006; Diller and Gold, “Healthcare: Products and Supplies,” February 2006, 1–17;

Mergent, Inc., The North America Medical Instruments & Equipment Sectors, 1–6, and 10–13; and

Pammolli, et al., Medical Devices, Competitiveness and Impact on Public Health Expenditure, 116–159. 

 2

 Official statistics of the U.S. Department of Commerce; and U.S. industry representatives, personal and

telephone interviews by Commission staff, 2002–5, and March–April 2006.

 3

 For more information on U.S. medical equipment trade see USITC, Shifts in U.S. Merchandise Trade

2003, 60–64; USITC, Shifts in U.S. Merchandise Trade 2004, 55–59; and chapter 4 of this report. 

 4

 See USITC, Shifts in U.S. Merchandise Trade 2003, 60-64;and USITC, Shifts in U.S. Merchandise

Trade 2004, 55–59. 

 5

 See box 4-1 for more information on China.

 6

 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006; and General

Electric Corporation and Medtronic, Inc., annual reports and forms 10-K.

 7

 U.S. Census Bureau, “Statistics for Industry Groups and Industries, 2005 and earlier years.”

 8

 A subsidiary of Johnson & Johnson.

3-3

United States

The United States continues to maintain a large advantage over its principal foreign trading

partners in the design, manufacture, and marketing of medical devices and equipment.

Compared to their EU and Japanese rivals, U.S. medical device companies spend

significantly more on R&D, typically place innovative products on the market at a faster rate,

enjoy higher profit margins, and benefit from enduring reputations among healthcare

professionals around the world for high quality products and services.1

Notwithstanding these advantages, the trade surplus held by the U.S. medical device industry

has declined in recent years despite continued steady growth in U.S. exports. This decline

is largely due to rapidly increasing demand in the U.S. healthcare market, which has resulted

in higher growth rates of imports relative to exports,2

 and to a lesser extent, to supply side

factors, such as U.S. firms’ increased outsourcing of labor-intensive assembly and

production activities to Costa Rica, the Dominican Republic, Malaysia, and Mexico.3

 In

recent years, several major U.S. companies have also transferred some higher-value

production to Europe in order to benefit from market proximity and to take advantage of

investment incentives and highly skilled workers in Ireland and Switzerland, while

maintaining engineering, design, and other capabilities in the United States.4

 Further, the

manufacture and assembly of medical devices in China by U.S.-headquartered firms

continues to rise due to the increasing importance of maintaining a presence in that market,5

where healthcare demand is growing rapidly.6

Supply

Overall, there are an estimated 6,000–7,000 small, medium, and large medical device and

equipment manufacturers operating in the United States, many of which produce for both the

U.S. and international markets.7

 Major U.S. industry participants and their major products

(table 3-2) in the global market for medical devices include (1) Boston Scientific/ Guidant,

Cordis,8

 Medtronic, and St. Jude (major developers of advanced cardiovascular products);

(2) Abbott Laboratories, Baxter International, Becton Dickinson, C.R. Bard, Inc., and

Johnson & Johnson (large suppliers of a broad range of medical and hospital supplies); 
3-4

Table 3-2 Medical device NAICS segments and U.S. shipments, 2005NAICScode Name of segment Product examples Major companies

325413 In vitro diagnostic substances and

devices

Reagents, substances, devices, and systems for use in

diagnosis of disease or other conditions through collection,

preparation, and examination of blood, urine, tissue, otherspecimens taken from the human body 

Abbott, Bayer,Beckman Coulter, BectDickinson, Dade BehrinJohnson & Johnson, NMedical, Roche

334510;334517

Electromedical equipment Cardiac defibrillators and pacemakers, electrocardiographs,

electrosurgical instruments, hearing aids, medical imaging andtherapeutic apparatus (CT, MRI, nuclear, ultrasound, andX-ray), medical lasers, patient monitoring systems 

Accuscope, Beltone, BScientific, General ElecLaserscope, MedtronicSiemens, Spacelabs, SVarian 

339112 Surgical and medical instruments Anesthesia apparatus, arthroscopic instruments, cardiac and

urological catheters, drug-eluting stents, forceps, hypodermicneedles, heart valves, intravenous and blood administrationapparatus, surgical scalpels and other related instruments,surgical clamps, syringes

Abbott, Bard, Biomet, BBecton Dickinson, BosScientific, DePuy, JohnJohnson, St. Jude, StryWolf, Zimmer 

339113 Orthopedic devices and hospital

supplies 

Crutches, orthopedic implants (hip, knee, spine), prostheticappliances, surgical dressings, surgical gloves, sutures 

Abbott, Bard, Baxter, BDickinson, Boston ScieDePuy Orthopaedics, IJohnson & Johnson, Sand Zimmer

339114 Dental equipment Dental chairs, dental hand instruments, dental drills, other

instrument delivery systems

Align Technology, DenGreat Lakes Dental, SuSybron 

Source (of shipment data): U.S. Census Bureau, “Value of Product Shipments: 2005,” Annual Survey of Manufactures, M05(AS)-2, NoveGold, “Healthcare: Products and Supplies,” February 2006; and Mergent, Inc., The North America Medical Instruments & Equipment Sec
 9

 Philips, the large Dutch electronics firm, acquired the patient monitoring equipment operations of

Agilent (Hewlett-Packard), the leading U.S. producer of complete patient monitoring systems. These

operations remain in Andover, MA.

 10 This major U.S. manufacturer of nuclear medical imaging systems in Illinois is owned by Germanbased Siemens Medical Systems.

 11 A subsidiary of Johnson & Johnson.

 12 London-based Smith & Nephew is the other major orthopedic manufacturer.

 13 U.S. industry representatives, interviews by Commission staff, United States, June 15–16, 2006; and

company annual reports and forms 10-K.

 14 U.S. Census Bureau, “Value of Product Shipments: 2005.” The five North American Industry

Classification System (NAICS) medical device segments on which these data are based are In Vitro

Diagnostics (NAICS 325413), Electromedical and Irradiation Equipment (NAICS 334510 and 334517),

Surgical and Medical Instruments (339112), Surgical Appliances and Supplies (including Orthopedic)

(339113), and Dental Equipment and Supplies (339114). 

 15 U.S. industry analysts, telephone interviews by Commission staff, October 3–5, 2006.

 16 Diller and Gold, “Healthcare: Products and Supplies,” February 2006, 1–17; Mergent, Inc., The North

America Medical Instruments & Equipment Sectors, 1–6 and 10–13; and Boston Scientific, Johnson &

Johnson (Cordis and DePuy), Medtronic, St. Jude, Stryker, and Zimmer, annual reports and forms 10-K.

3-5

(3) General Electric Medical Systems (GEMS), Philips Medical Systems,9 Siemens Medical

Solutions,10 and SpaceLabs Medical (producers of electromedical diagnostic imaging and

complete patient monitoring systems); and (4) Biomet, DePuy Orthopaedics, Inc.,11 Stryker

Corp., and Zimmer Holdings, Inc. (four of the five leading orthopedic manufacturers in the

world).12 Almost all of these firms supply U.S. and foreign markets through both U.S.

exports and overseas manufacturing.13

Shipments

Newly developed high-technology electromedical, interventional cardiology, and orthopedic

products led strong growth in U.S. producers’ shipments of medical devices and equipment

for 2001–5. Such shipments increased at an average annual rate of 5 percent during 2001–5

to $92 billion (table 3-3) due to favorable demand by U.S. and foreign doctors and patients

for less-invasive, innovative products that improve the quality of patients’ lives and the

diagnosis and treatment of disease.14 U.S. shipments posted the largest increase in 2005,

rising by 11 percent over the previous year, principally as the result of cyclical factors as

U.S. and foreign healthcare providers replaced aging equipment with newer technologies.15

Figure 3-1 illustrates the shares of total U.S. shipments accounted for by each of the major

medical device segments of the industry in 2005.

Among the five industry segments, U.S. shipments of electromedical equipment for

diagnosis and treatment of cardiovascular disease and orthopedic devices and hospital

supplies grew at the fastest rates during 2001–5, each reaching $27 billion in 2005,

increasing at annual rates of growth of 10 percent and 7 percent, respectively. Specific

products that contributed significantly to this growth were implantable defibrillators (devices

which are programmed to deliver shocks to resuscitate failing hearts), neurostimulators (used

for non-pharmaceutical treatment of Parkinson’s Disease, mental depression, and other

therapeutic purposes), and orthopedic hip, knee, and spinal implants (which utilize biologics

to enhance adhesion of the implants to bone cartilage).16
3-6

Table 3-3 U.S. shipments of medical devices, 2001–5

NAICS segment 2001 2002 2003 2004 2005

Absolute

change

2001–5

Percent

change

2001–5

million dollars percent

In vitro diagnostic substances and 

 devices 11,026 9,172 8,417 8,730 8,741 -2,285 -21

Electromedical equipment 17,968 19,267 19,994 23,117 26,526 8,558 48

Surgical and medical instruments 23,560 22,396 21,417 22,337 25,872 2,312 10

Orthopedic devices and hospital

 supplies 20,860 22,036 24,732 24,634 27,296 6,436 31

Dental equipment 3,175 2,965 3,085 3,393 3,566 391 12

Total 76,589 75,836 77,645 82,211 92,001 15,412 20

Source: U.S. Census Bureau, “Value of Product Shipments: 2005,” Annual Survey of Manufactures, M05(AS)-2, 

November 2006.
3-7

Figure 3-1 Shares of U.S. shipments by major segment, 2005

Orthopedic, medical, and surgical appliances

and supplies Surgical and medical instruments 30%

28%

Dental equipment

4%

In Vitro

9%

Electromedical

29%

Total shipments 2005 = $92 billion

Source: Compiled by Commission staff based on official statistics of the U.S. Department of Commerce.
 17 IVD production declined sharply between 2001 and 2002, before steadily increasing by 5 percent

annually from 2003–5.

 18 U.S. and Japanese industry representatives, interviews by Commission staff, Japan, July 31–August 9,

2006.

 19 Estimated by Commission staff based on U.S. Census Bureau, “Statistics for Industry Groups and

Industries: 2001” and “Value of Product Shipments: 2005.”

 20 U.S. government and industry officials, telephone interviews by Commission staff, April 3–14, 2006. 

3-8

Meanwhile, shipments of surgical and medical instruments exhibited much smaller growth,

rising by an average annual rate of 2 percent throughout the period.17 Despite an

unremarkable performance by the surgical and medical devices segment, especially in lowprice margin, high-volume commodity products, such as disposable syringes, forceps, tongue

depressors, and surgical hand instruments, shipments of certain products within the segment,

including interventional cardiovascular products, such as angioplasty catheters and drugeluting stents, exhibited above average growth. Dental equipment shipments also registered

little growth over the period.

Finally, shipments of IVDs were variable during the period, declining in the first 2 years of

the period but increasing in the last 3 years of the period, as increasingly sophisticated

testing methods and products came on the market in those years.18

Employment

Labor productivity in the U.S. medical device industry improved from 2001 through 2005

(table 3-4) while U.S. employment in this industry declined by 5 percent, to 308,792

workers, over the same period (table 3-5).19 Employment decreased in every year during the

period except 2005, when such employment posted a slight increase of 2 percent. According

to U.S. government and industry representatives, the overall decline in U.S. employment is

largely attributed to (1) use of more advanced manufacturing technology in segments of the

industry producing high-technology medical devices such as drug-eluting stents, cardiac

defibrillators, and advanced orthopedic implants, which accounted for a significant portion

of the growth in shipments throughout the period; and (2) outsourcing of more laborintensive assembly and production abroad while maintaining more advanced research and

engineering activities in the United States, which increased the average productivity of U.S.

workers in the industry.20

Table 3-4 U.S. manufactured output per employee, 2001–5

Year U.S. production Employment Derived output per worker

million dollars dollars

2001 76,589 325,805 235,076

2002 73,836 324,936 227,232

2003 77,645 312,149 248,743

2004 82,211 302,068 272,161

2005 92,001 308,792 297,938

Source: US Census Bureau, “Statistics for Industry Groups and Industries: 2005,” Annual Survey of Manufactures,

M05(AS)-1, November 2006, and “Statistics for Industry Groups and Industries: 2001,” Annual Survey of

Manufactures, M01(AS)-1, January 2003. 
 21 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006; and Diller and

Gold, “Healthcare: Products and Supplies,” February 2006, 22.

 22 Company annual reports and Forms 10-K, 2004–5; U.S. industry officials, interviews by Commission

staff, United States, June 5–16, 2006; Diller and Gold, “Healthcare: Products and Supplies,” February 2006,

19 and 25; and Hanna, et al., eds., Innovation and Invention in Medical Devices, 31–46 and 49–60. 

 23 The National Science Foundation, Survey of Industrial Research and Development, shows that the

percentage of R&D to net sales for medical equipment and supplies under NAICS 3391 (which includes 3 of

the 6 NAICS categories covered by this investigation, but does not include statistics for generally more high-

(continued...)

3-9

Table 3-5 Employment in the U.S. medical device industry, 2001–5

NAICS

code Name of segment 2001 2002 2003 2004 2005

Absolute

change,

2001–5

Percent

change,

2001–5

number of employees percent

325413 In vitro diagnostic

substances and

devices

40,960 27,233 28,901 27,294 26,324 -14,636 -36

334510,

334517

Electromedical

equipment 67,924 71,548 66,994 65,491 67,602 -322 0

339112 Surgical and

medical

instruments 102,273 101,960 93,796 95,549 97,799 -4,474 -4

339113 Orthopedic

devices and

hospital supplies 96,914 107,200 105,873 96,695 98,993 2,079 2

339114 Dental equipment 17,734 16,995 16,585 17,039 18,074 340 2

Total 325,805 324,936 312,149 302,068 308,792 -17,013 -5

Source: U.S. Census Bureau, “Statistics for Industry Groups and Industries: 2005,” Annual Survey of Manufactures,

M05(AS)-1, November 2006, and “Statistics for Industry Groups and Industries: 2001,” Annual Survey of

Manufactures, M01(AS)-1, January 2003.

Factors of competition

Several supply factors contribute to U.S. firms’ competitive advantage in the global medical

device market, including significant investment in R&D (reflected in the large numbers of

patents owned by U.S. medical device companies); access to venture capital and other

funding sources; high barriers to entry; M&A strategies; and an increasingly efficient and

predictable regulatory approval system that facilitates the placement of new medical devices

on the U.S. market.21

It is estimated that U.S. medical device companies have spent more than 10 percent of their

total revenues on R&D in recent years, over twice the average for U.S. manufacturers as a

whole.22 Although large U.S. hospital supply firms producing mature commodity products

spend a relatively small percentage of their revenues on R&D,23 firms producing
 23 (...continued)

technology-intensive NAICS segments such as electromedical equipment (NAICS 334510) or IVDs (NAICS

325413) ranged from a high of 13.1 percent to a low of 6.6 percent from 1999–2003, averaging 9.2 percent

for the period. National Science Board, “Company and Other (Nonfederal) R&D Fund Share of Net Sales in

R&D-Performing Companies, by Industry and Company Size: 1999–2003,” A4–41.

 24 Company annual reports and SEC filings; and U.S. industry officials, investment analysts, and venture

capital specialists, personal and telephone interviews by USITC staff, United States, April 10–14 and

June 5–16, 2006.

 25 Mergent, Inc., The North America Medical Instruments & Equipment Sectors, 11; and U.S. industry

officials, investment analysts, and venture capital specialists, personal and telephone interviews by USITC

staff, United States, April 10–14, and June 5–16, 2006.

 26 Lawyer, et al., “High Science: A Best-Practice Formula for Driving Innovation: The Boston Consulting

Group Reveals Results of a Study on How Medical Technology Firms Can Cultivate and Manage their R&D

to Boost Revenue, Profits–and Stock Valuations,” 1–5.

 27 Ibid.

 28 Pammolli, et al., Medical Device Competitiveness and Impact on Public Health Expenditure, 116–159;

and OECD, Science Technology and Industry Outlook 2005.

 29 Pammolli et al., Medical Device Competitiveness and Impact on Public Health Expenditure, 116–159;

Hanna, et al., eds., Innovation and Invention in Medical Devices, 21–25 and 31–38; NAS, Institute of

Medicine official, telephone interview by Commission staff, May 17, 2006; and U.S. industry

representatives, personal and telephone interviews by Commission staff, United States, June 5–26, 2006.

 30 For further information on NIH and NASA funding related to their support for basic and applied R&D

with relevance to medical technology, see their annual reports at http://www.nih.gov and

http://www.nasa.gov, respectively. For background and history of U.S. government research and

expenditures benefitting the medical technology industry, see Thomas, “Federal Support of Medical Device

Innovation,” 51–57; and Hanna, et al., eds., Innovation and Invention in Medical Devices, 31–38.

 31 See NIH Budget and NIH Almanac at http://www.nih.gov/about/budget.htm.

3-10

high-technology products (such as IVD reagents and testing devices, interventional

cardiovascular and combination products, and implantable electromedical and orthopedic

devices) often spend 15 to 20 percent of their revenues on R&D.24 Some newly established

small firms reportedly spend significantly higher portions of their revenues on R&D.25 A

2004 study conducted by the Boston Consulting Group, which examined publicly available

information for 40 medical device companies, suggests that the relatively higher R&D

expenditures by U.S. firms may significantly improve U.S. competitiveness in this industry.26

The study indicated that gains from higher levels of R&D spending “translate into higher

revenue growth, profit margins, and stock valuations.”27 A recent European Commission

report examining U.S., EU, and Japanese government and trade association statistics finds

that U.S. medical device firms' expenditures on R&D as a percentage of sales were, on

average, roughly twice as high as such expenditures by medical device firms in the EU and

Japan in recent years.28 

A strength of the U.S. medical device industry is the significant amount of research

conducted by its national government.29 Two federal agencies that contribute to the

development of U.S. medical technology are the National Institutes of Health (NIH) and the

National Aeronautics and Space Administration (NASA).30 NIH is the principal U.S.

government agency responsible for the support of medical research.31 In recent years, NIH

has supported U.S. medical device and equipment companies by funding basic and applied

research in medical technologies through its bioengineering grant program, and by

sponsoring both intramural research at NIH and extramural research conducted by scientists

in universities, institutes, and organizations outside of NIH. In 2005, the total value of NIH

bioengineering grants for applied research related to medical technology amounted to

$1.3 billion, representing an increase of 30 percent from 2003 (figure 3-2). Cardiac 
 32 Hanna, et al., eds., Innovation and Invention in Medical Devices, 21–25 and 31–38; NAS, Institute of

Medicine official, telephone interview by Commission staff; and U.S. industry representatives, personal and

telephone interviews by Commission staff, United States, June 5–26, 2006. 

 33 The NIBIB mission is to bring together researchers in the imaging, physical sciences, bioengineering,

computer science, and informatics fields to support research on a broad variety of technologies. Such

technologies include molecular imaging tools that integrate imaging data from multiple sources, unique

imaging research tools, and low-cost imaging and diagnostic technologies that may be "widely deployed to

improve human health." Congressional appropriations for the new program increased by 166 percent to

$298 million during 2002–6. Public Law 106-580, signed into law on December 29, 2005, authorized the

establishment of NIBIB. NIH, About NIBIB; Zerhouni, National Institute of Biomedical Imaging and

Bioengineering Five-Year Professional Judgment Budget, 1–19; and NIH, “[Actual] and Estimated Funding

for Various Diseases, Conditions, and Research Areas.”

3-11

defibrillators, magnetic resonance equipment, and nuclear imaging devices are a few

examples of the numerous types of medical device technologies whose development has

benefitted from NIH-sponsored research. 32 A relatively new source of NIH funding directly

relevant to medical device and equipment firms is the National Institute of Biomedical

Imaging and Bioengineering (NIBIB), which was established by Congress in 2000 as the

newest NIH institute.33

Figure 3-2 NIH bioengineering grant awards, 1997–2005, and estimated 2006–7

100

300

500

700

900

1100

1300

1500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Million of dollars

0

1

2

3

4

5

6

Percent of total NIH spending

Biomedical grants Biomedical grants as percentage of total NIH budget

Source: National Institutes for Health (NIH), “[Actual] and Estimated Funding for Various Diseases,

Conditions, and Research Areas,” March 10, 2006, http://grants1.nih.gov/grants/award/award.htm.
 34 Hanna, et al., eds., Innovation and Invention in Medical Devices, 31–38. 

 35 U.S.-based Spacelabs was founded in 1958 to develop monitoring of astronauts during NASA space

travel. In 1974, Spacelabs launched the first monitoring system to incorporate microprocessor technology. 

For further information on Spacelabs history, see Spacelabs Medical, “A Pioneering History,” at

http://www.spacelabs.com.

 36 Philips Medical Systems acquired Agilent’s (formerly Hewlett-Packard’s) patient monitoring operations

in Andover, MA in 2003 and General Electric Medical Systems reacquired those of Marquette Electronics in

2004, which it had divested in the 1970s. Company annual reports and Internet sites. 

 37 Hanna, et al., eds., Innovation and Invention in Medical Devices, 31–38.

 38 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006.

 39 Agress, hearing transcript, 74.

 40 Loftus, “Medical Device Venture-Capital Funding on the Rise.”

 41 PriceWaterhouse Coopers, “MoneyTree Report, Historical Trend Data, Medical Devices and

Equipment,” Q1 2005–Q3 2006 data.

 42 Diller and Gold, “Healthcare: Products and Supplies,” February 2006, 22; and U.S. industry officials,

interviews by Commission staff, United States, January–June 2006.

 43 U.S. industry officials, interviews by Commission staff, United States, January–June 2006; and Diller

and Gold, “Healthcare: Products and Supplies,” February 2006, 22.

3-12

The U.S. industry also has derived significant side benefits from U.S. space program efforts

to fund or engage in the development of medical technology.34 NASA programs were critical

to the development of advanced patient monitoring technologies by such U.S. firms as

Spacelabs,35 Hewlett-Packard, and Marquette Electronics. These firms took advantage of

NASA research and NASA-supported grants in such areas as telemetry, for example, and

developed wireless technologies for medical and physiological monitoring of astronauts

using NASA-customized components and packaging designed to withstand the difficult 

conditions of space flight.36 Overall, NASA-supported research has led to the development

of a number of devices that have been adapted for commercial purposes, including heart

imaging systems, heart pumps, telemedicine instrumentation systems, and ingestible

temperature sensing pills.37 NASA continues to support such research efforts in connection

with the International Space Station. 

Another important resource unique to the U.S. medical device industry is a strong venture

capital industry.38 Venture capital funds provide many U.S. companies with significant

financial resources, enabling them to focus on funding key activities such as R&D.39

Growing demand for medical device products from an aging population has increased the

attractiveness of the medical device industry for venture capital funds.40 According to a

Moneytree Survey by the consulting firm PriceWaterhouseCoopers, venture capital

investments in the U.S. medical device industry reached $2.1 billion in 2005, up from

$1.7 billion in the previous year. In 2006, through the third quarter of the year, investments

in the industry were approximately $1.9 billion.41

The competitive strengths possessed by the U.S. medical device industry create high barriers

to entry in the imperfectly competitive medical device market,42 making it difficult for new

firms to challenge established firms.43 These advantages have especially benefitted large,

well-established U.S. firms that supply a large selection of commodity hospital supplies and

other medical devices and equipment, as well as U.S. manufacturers of high-technology

cardiac rhythm products (pacemakers and defibrillators), interventional cardiology products

(cardiovascular catheters and stents), diagnostic imaging equipment (CT, MRI, nuclear), and

orthopedic devices (hip, knee, and spinal implants), allowing them to maintain their

dominant positions in U.S. and global markets for medical devices.
 44 Healthcare GPOs, which have become a dominant feature of the U.S. distribution landscape in the

United States in recent years, were provided protection against antitrust laws under a “safe harbor” from

Congress in an attempt to provide leverage for relatively small hospitals and clinics against market power

held by large manufacturers of medical products and to help reduce price growth of medical devices.

However, one industry group, the Medical Device Manufacturers Association (MDMA), representing small

to mid size companies, indicates that, instead, GPO business has been captured by dominant U.S.

manufacturers, reducing sales opportunities for smaller companies. Rasmussen, “Is America’s Health Care

Hindered by ‘Group Purchasing Organizations?’,” 1; Medical Device Manufacturers Association (MDMA),

“Group Purchasing Organizations,” 1; Department of Health and Human Services, “Review of Revenue

From Vendors at Three Group Purchasing Organizations and Their Members,” 1; and U.S. industry

representatives, interview by Commission staff, United States, June 23, 2006.

 45 U.S. government officials, interview by Commission staff, United States, May 31, 2006; and Diller and

Gold, “Healthcare: Products and Supplies,” February 2006, 19–22.

 46 U.S. government officials, interview by Commission staff, United States, May 31, 2006; and Diller and

Gold, “Healthcare: Products and Supplies,” February 2006, 19–22.

3-13

Some medical device industry representatives argue that barriers to entry in the U.S. medical

device and equipment industry are reinforced and exacerbated by the power of group

purchasing organizations (GPOs). While GPOs were originally established to help hospitals

contain price growth for medical devices, some small and medium size company officials

state that long-term contracts large medical device firms have been able to negotiate with

GPOs, which include discounted pricing scales based on volume and compliance

requirements, dampen competition and opportunities for sales of innovative products by

smaller companies.44

Another factor affecting the competitiveness of the U.S. industry is the strategic use of

M&As by companies to create synergies. For example, established companies may engage

in M&As to strengthen themselves by increasing scale or diversifying their product lines.

They may also use M&As to increase shareholder value and reduce their risk by acquiring

smaller start-up firms after they have developed promising technologies. In such cases, the

start-up firms benefit by being acquired by more established firms which have greater

marketing capabilities, extensive distribution networks, and the experience and resources

necessary to take innovative technologies through the complex regulatory approval process

and onto the market. A number of notable M&As were completed by U.S.-based companies

during the period (box 3-1).

U.S. government regulation of medical devices and equipment is another important factor

affecting U.S. supply of such devices. The U.S. Food and Drug Administration (FDA) is the

principal federal regulatory agency responsible for protecting the public from unsafe and

ineffective medical products.45 As such, obtaining FDA approval to market new medical

devices is critical to the success of U.S. and foreign medical equipment suppliers in the U.S.

market. The FDA requires medical device producers to provide extensive documentation of

their products’ safety and effectiveness before granting approval. The agency also has the

authority to require producers to recall products, deny approval to manufacturers’ new

products, suspend sales of devices that it believes to be harmful, and levy fines and penalties

on companies that violate its regulations inside the U.S. market.46
 47 Holston, “An Overview of International Cooperation,” 1; and Kelly and Bachorik, “Promoting Public

Health and Protecting Consumers in a Global Economy: An Overview of HHS/FDA’s International

Activities,” 339-346.

3-14

Although the FDA’s primary role is the regulation of medical devices in the United States,

it has gradually become more involved in collaborating with other U.S. and foreign

government agencies that address international trade issues. According to FDA officials, the

agency realizes the implications of its regulatory policies on international commerce,47 even

though the FDA’s purpose is not to promote international trade. As the U.S. medical device

regulatory system, along with the regulatory policies of its major foreign competitors, can

have a significant effect on U.S. sales of medical equipment, it will be discussed in more

detail and compared with the regulatory systems of the EU and Japan in chapter 6.

Demand

Consumption

Demand conditions in the U.S. market are particularly favorable to the medical device

industry. The United States is, by far, the world’s largest consumer of medical devices,

accounting for nearly half of the global market in 2005. Apparent U.S. consumption

increased by an average annual rate of 6 percent during 2001–5, from $71 billion to

$90 billion (table 3-6). In 2005, U.S. consumption was dominated by products in three

Box 3-1 Merger and acquisition (M&A) activity in the U.S. market in 2001–6

One notable M&A deal in the U.S. market, resulting in the merger of two prominent U.S.-based firms with domestic

and global ramifications, was the 2006 purchase of Guidant (a major producer of cardiac pacemakers and

defibrillators, as well as interventional cardiovascular products) by Boston Scientific (a major producer of

interventional cardiovascular products such as catheters and stents).The acquisition, estimated at approximately $27

billion, is expected to enable Boston Scientific to offer a much more complete line of products to cardiologists and

implant physiologists. However, according to some market analysts, the undertaking also includes significant risks

for Boston Scientific, which needs to settle some potentially expensive regulatory issues related to product failures

of Guidant products reported just after the acquisition. To address antitrust concerns, Boston Scientific and Guidant

each divested portions of their interventional cardiovascular product lines to Abbott Laboratories. 

Other notable mergers and acquisitions throughout 2001–5 include Dutch-based Philips' acquisition of U.S.-based

Agilent's (formerly Hewlett-Packard) patient monitoring manufacturing facilities in Andover, MA, and General Electric

Medical System's (GEMS) re-acquisition of Marquette Electronics, a major patient monitoring producer spun off by

GEMS some years ago. Patient monitoring and medical imaging traditionally constituted distinct subsets of the

electromedical equipment segment of the medical device industry. Thus, these acquisitions represent a major

consolidation, offering further scope and scale and, thus, potential competitive advantage in an already fairly

concentrated medical device segment. Market analysts contend that the medical device and equipment market

“continues to be ripe for mergers and acquisitions.”

Source: Boston Scientific Form 10-K, 2; Boston Scientific and Abbott Laboratories, press releases and SEC filings,

2005 and 2006; “Medical Goods” writeups in USITC, Shifts in U.S. Merchandise Trade 2003, 60–64 and 2004,

55–59; Tully, "The Second Worst Deal Ever,” 1; Boston Scientific 2005 Form 10-K; Diller and Gold, "Healthcare:

Products and Supplies," 7; Mergent, Inc., The North America Medical Instruments & Equipment Sectors, 1–6 and

10–13; investment analysts, telephone interviews by Commission staff, May 22 and June 7, 2006; and U.S. industry

officials, interviews by Commission staff, United States, June 5–16, 2006. 
 48 U.S. industry representatives and market analysts, personal and telephone interviews by USITC staff,

United States, June 15–16, and October 11, 2006.

3-15

sectors: electromedical equipment (28 percent), orthopedic devices and hospital supplies

(27 percent), and surgical and medical instruments (26 percent) (table 3-7). Increased

demand for the latest cardiovascular technologies, such as coronary stents and implantable

defibrillators, promoted growth in the medical instruments and electromedical device

segments of the medical device market. Meanwhile, the orthopedics market has experienced

robust growth in the United States, due to significant increases in the number of senior

citizens taking advantage of new developments in minimally invasive joint reconstruction

procedures, hip and knee replacements, and spinal implant surgeries. Such procedures enable

them to continue to participate as active adults in normal recreational and social activities.48

Table 3-6 U.S. medical device shipments, exports, imports, apparent consumption, and the ratios of exports to

shipments and imports to consumption, 2001–5

Year U.S. shipments U.S. exports U.S. imports

Apparent U.S.

consumption

Ratio of

exports to

shipments

Ratio of

imports to

consumption

million dollars percent

2001 76,589 18,759 12,826 70,656 24 18

2002 73,836 18,806 15,390 70,420 25 22

2003 77,645 20,997 18,854 75,502 27 25

2004 82,211 22,709 21,752 81,854 28 27

2005 92,001 25,501 23,700 90,200 28 26

Source: Compiled from official statistics of the U.S. Department of Commerce.

Table 3-7 U.S. medical device shipments, exports, imports, apparent consumption, and the ratios of exports to

shipments and imports to consumption, by segment, 2005

NAICS

Code Name of segment

U.S.

shipments

U.S.

exports

U.S.

imports

Apparent

U.S.

consumption

Ratio of

exports to

shipments

Ratio of

imports to

consumption

million dollars percent

325413 In vitro diagnostic

substances and

devices 8,741 3,798 1,470 6,413 43 23

334510,

334517

Electromedical

equipment 26,526 7,894 9,030 27,662 30 33

339112 Surgical and medical

instruments 25,872 7,286 7,373 25,959 28 28

339113 Orthopedic devices

and hospital supplies 27,296 5,658 4,866 26,504 21 18

339114 Dental equipment 3,566 866 961 3,661 24 26

Total 92,001 25,501 23,700 90,200 28 26

Source: Compiled from official statistics of the U.S. Department of Commerce. Source (of shipment data): U.S. Census Bureau,

“Value of Product Shipments: 2005,” Annual Survey of Manufactures, M05(AS)-2, November 2006. 

Note.—Due to rounding, figures may not add up to totals.

An important factor influencing U.S. consumption of medical device products is increasing

healthcare expenditures. Aggregate healthcare expenditures traditionally have been a major
 49 Russell, Technology in Hospitals, 80; and healthcare analyst, Center for Medicare and Medicaid

Services, telephone interviews by Commission staff, March 3, 2005, and June 7, 2006.

 50 OECD, “How Does the United States Compare,” 1; OECD, “Total Expenditures on Health-% of Gross

Domestic Products;” and OECD, “Special Report: America’s Health-Care Crisis, Spending on Health as %

of GDP (table),” 25. 

 51 Diller and Gold, “Healthcare: Products and Supplies,” August 2006, 2; and Bian and Morrisey, “HMO

Penetration, and Growth of Ambulatory Surgery Centers,” 111-122.

 52 U.S. Census Bureau, “Statistical Abstract of the United States, Table No. HS-3”; U.S. Census Bureau,

“2004 American Communities Survey, S0101"; and U.S. Census Bureau, “2005 American Communities

Survey, S0101.”

 53 U.S. Census Bureau, “U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin.”

 54 The U.S. Center for Disease Control and Prevention (CDC) estimates that healthcare cost per capita for

persons 65 and older is three to five times the cost for younger people. For further information and statistics

on these trends, see the CDC Internet site at http://www.cdc.gov.

 55 Center for Medicare and Medicaid Services (CMS) official, personal and telephone interviews by

Commission staff, United States, 2003, and June 6, 2006; and company forms 10-K.

 56 Company forms 10-K.

3-16

determinant of demand for medical devices; such goods have historically accounted for

about 5 to 6 percent of total U.S. healthcare expenditures, and sales of such equipment have

risen proportionally with increases in overall healthcare expenditures.49 In recent decades,

the United States has outspent other major countries on health and medical care by a large

margin as U.S. doctors and their patients have demanded more technologically sophisticated

and expensive procedures. Healthcare expenditures currently account for 15 percent of U.S.

GDP, about twice the OECD average of 7 to 8 percent (figure 3-3).50 The largest customers

for medical devices and equipment in the U.S. market are hospitals, followed by physician

offices and other outpatient facilities, including freestanding imaging centers and ambulatory

surgical centers.51

Demographic trends in the United States also have influenced growth in the U.S. market for

medical devices and equipment. U.S. citizens aged 65 and above accounted for

approximately 12 percent of the population in 2005 (figure 3-4), up from over 8 percent

since 1950.52 This figure is projected to rise to almost 20 percent by 203053 with the aging

of the "baby boomer" generation. As people age, the incidence of disease and injury

increases, leading to growth in the intensity of demand for medical services. U.S. medical

device companies benefit from these trends.54

Health insurance

U.S. medical device and equipment manufacturers sell the largest portion of their products

to hospitals and physicians who typically bill various third-party payers, such as the

Medicare and Medicaid programs, private insurance plans, and health maintenance

organizations (HMOs), for the healthcare provided to their patients.55 As the largest single

insurer in the United States, the Federal Medicare and Medicaid program has a profound

influence on the healthcare market.56 About one-third of funding for hospitals, or

approximately $125 billion a year, is from Medicare, and much of the balance is from 
 57 Diller and Gold, “Healthcare: Products and Supplies,” August 2006, 2; and Bian and Morrisey, “HMO

Penetration, and Growth of Ambulatory Surgery Centers,” 111–122.

 58 U.S. industry officials, personal and telephone interviews by Commission staff, United States,

June–July 2006.

 59 Russell, Medicare’s New Hospital Payment System, 2.

3-17

private insurers and HMOs.57 Thus, the ability of customers (healthcare providers) to obtain

reimbursement from third-party payers is critical to the success of medical device producers

because it determines which products a customer can purchase and the price it is willing to

pay. 

According to U.S. industry representatives, the processes through which medical device

firms obtain desired levels of reimbursement under Medicare and private health insurers are

complex.58 Initially reimbursement was based primarily on “usual and necessary costs”

incurred by healthcare providers in providing treatment. However, with healthcare

expenditures contributing to a rapidly growing federal deficit, in an effort to contain costs,

Congress approved legislation in 1983 to replace Medicare’s cost-based system with a

prospective payment plan based on diagnosis-related groups (DRGs).59 After adoption of the

Figure 3-3 Total expenditures on healthcare as a percentage of gross

domestic product

Source: OECD Health Data, June 2006, at http://www.oecd.org/dataoecd/60/28/35529791.xls (accessed

October 16, 2006). 

Note.— For Germany, data provided up to 1990 are for West Germany. For some countries, data were not

available for specific years or were estimated in OECD figures.
 60 Under prospective payment, rates of reimbursement are set in advance of the period to which they

applied. The prospective rates are set for over 500 diagnosis-related groups (DRGs) (i.e., groups of patients

with similar conditions) used for coding reimbursement claims. Developed from costs historically associated

with diagnosis and treatment for each condition, the rates for the groups would cover all hospital operating

costs. Under the DRG system, the rates constitute payment in full to the hospital. Hospitals can keep any

profits but have to absorb any losses. Russell, Medicare’s New Hospital Payment System, 2.

 61 Pub. L. No. 109-171, 120 Stat. 4.

 62 Ku, et al., “Survey Indicates Deficit Reduction Act Jeopardizes Medicaid Coverage for 3 to 5 Million

U.S. Citizens,” 1. 

 63 U.S. industry officials, personal and telephone interviews by Commission staff, United States,

June–July 2006.

3-18

new prospective payment cost-containment program, hospitals have become much more

cost-conscious in their purchases of medical devices, and demand for such equipment has

consequently become more price sensitive.60

The U.S. Center for Medicare and Medicaid Services (CMS) has been tasked by Congress

to implement further cost containment policies in an effort to reduce the growth in healthcare

reimbursement. One recent example of such a policy is the 2005 Deficit Reduction

Reconciliation Act,61 which reduced Medicare reimbursement for medical imaging

procedures.62 Industry representatives in the medical imaging equipment area estimate that

the change could result in losses of $8.9 billion in the next 10 years, due to cancelled orders

for nuclear medicine, CT, and MRI devices.63

CMS and private health insurance cost-containment efforts also have used technology

assessment and cost-benefit analyses as the basis for a larger number of medical device

reimbursement decisions. Such efforts have required firms to demonstrate the cost

Figure 3-4 Composition of the U.S. population (by age)a

22.6 20.1 19.7 19.6

66.2 65.9 66.1 66.9 63.7 60.7 60.0

16.3 19.7 20.4

28.5

20.0 21.6 21.4 31.1

26.8

19.7

61.6

65.0 55.3

59.7

8.1 9.2 9.9 11.3 12.6 12.4 13.0

20.7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Age group

Percent of total

0-14 15-64 65+

Source: U.S. Census Bureau, Statistical Abstract: Historical Statistics, No. HS-3; and U.S.

Census Bureau, “U.S. Interim Projections by age, sex, and race, and Hispanic origin.”

a

 Numbers may not add to 100 percent due to rounding. 
 64 Gainsharing offers financial incentives to physicians and other employees who can reduce hospital

expenditures by using less costly procedures or purchasing methods. For example, under gainsharing,

physicians can “order less expensive treatment options or agree to work with fewer vendors so that their

hospitals [can] obtain better discounts on high-volume supplies.” In return, the doctors may be reimbursed

for a portion of the savings their treatment decisions yield. Diller and Gold, “Healthcare: Products and

Supplies,” 12; MDMA, “Gainsharing;” and Accenture, “Using Gainsharing to Align Incentives for Medical

Management,” 2.

 65 U.S., European, and Japanese government and industry officials and experts, interviews by Commission

staff, United States, June 5–16, 2006; Japan, July 31–August 8, 2006; and EU, September 18–29, 2006.

 66 U.S., European, and Japanese industry representatives, personal and telephone interviews by

Commission staff, June–July 2006.

 67 The terms EU, Europe, and EU-25 are used interchangeably throughout the report and, unless

otherwise indicated, refer to the 25 member states of the EU. The analysis does not address the two new

states that entered the EU in 2007, Bulgaria and Romania.

3-19

effectiveness of their medical devices, and largely benefitted manufacturers supplying lessinvasive medical innovations that enable patients to be treated in outpatient settings rather

than more expensive hospital settings. As a result of U.S. medical device firms’ competitive

advantages in such technologies compared to their principal foreign rivals, they have profited

more from these trends. Finally, efforts to reduce the growth in healthcare costs also have

included the use of private high-deductible healthcare plans and health savings accounts, and

experimentation with other new proposals, such as gainsharing.64

Trade practices

U.S. and foreign medical device industry representatives state that there are few, if any,

formal trade barriers to the marketing of medical devices in the United States.65 Some foreign

industry representatives suggest that preferences for U.S.-made medical equipment among

U.S. doctors and hospitals may have a negative effect on foreign firm sales, but acknowledge

that healthcare providers in foreign markets often have similar preferences for certain

brands.66 Moreover, leading European and Japanese firms with well-known reputations and

brands—such as Philips, Siemens, and Toshiba —also may benefit from U.S. market

preferences for certain medical equipment.

European Union

Firms operating in the EU67 sell a broad array of products ranging from inexpensive

commodity items to large-scale capital equipment. The EU medical device industry largely

comprises small and medium size companies, many of which employ less than 20 people.

With few exceptions, EU firms are not market leaders within the European or global market;

large U.S. multinational firms dominate most industry segments. While production and

employment in the EU medical device industry grew during 2001–5, outsourcing to other

European countries and Asia is becoming increasingly important for the EU industry as

competitive pressures intensify. 

The competitive conditions in the EU market vary widely according to product type;

companies that produce commodity products adapt strategies that are qualitatively different

than the R&D focused strategies of firms in advanced product segments. The M&A activities

of EU-headquartered companies are typically driven by corporate strategies aimed at

acquiring new product lines, technologies, and distribution channels. On the demand side,
 68 Belgian industry official, interview by Commission staff, Belgium, September 19, 2006; Marchant,

“Europe’s Medical Device Market Braces for an Era of Change”; “Medical Devices Sector Seeks Innovation

Boost;” Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public Health Expenditure,

90; and Diller, “Healthcare: Products and Supplies: Europe,” 18.

 69 Belgian, German, and UK industry officials, interviews by Commission staff, Belgium, Germany, and

the United Kingdom, September 19–27, 2006.

 70 Eucomed, Medical Technology Brief.

 71 Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public Health Expenditure,

109–110.

 72 Diller, “Healthcare: Products and Supplies: Europe,” 18.

 73 Belgian industry official, interview by Commission staff, Belgium, September 19, 2006.

 74 Diller, “Healthcare: Products and Supplies: Europe,” 9 and 12.

3-20

demographic trends, such as aging populations and rising incomes, may lead to increases in

demand, and increased prices and sales in some EU countries. On the other hand, divergent

and constrained reimbursement policies across EU member countries substantially limit

demand and the uptake of new technologies. 

Supply

The EU medical device and equipment industry comprises between 8,500 and 10,000

companies.68 Firms in the European medical device industry range from suppliers of

commodity products, such as syringes and gloves, to cardiology companies producing

pacemakers, to electronics firms producing X-ray and MRI machines. Although firms

operating in Europe include large and diversified multinational companies such as Johnson

& Johnson, most firms operating in the EU are small and medium size companies.69

According to the industry trade association Eucomed, more than 80 percent of the medical

device firms in Europe employ less than 250 people.70 Further, an estimated 40 percent of

employees in the European medical device sector work in firms with less than 20 employees,

compared with 6 percent in the United States.71

European-based medical device firms generally focus on sales in Europe, although some

firms sell medical devices throughout the world.

72 Europe’s leading medical device product

groupings, in terms of revenues and/or technological distinction, include advanced wound

care, cardiovascular, diagnostic imaging, dialysis, IVD, and orthopedic devices.73 Although

industry leaders vary by country and industry segment and no single firm dominates all

product segments, large U.S. multinational firms account for the vast majority of sales in

most medical device product segments in Europe (table 3-8).74 Large U.S. firms are

particularly active in highly profitable segments characterized by technologically advanced,

high-value-added products, particularly cardiovascular and orthopedic devices. U.S. firms

also own a relatively large proportion of the medical device firms located in Europe. U.S.

ownership is particularly high in Ireland, where approximately 60 percent of medical device

companies registered with the FDA are owned by U.S. parent companies (box 3-2).

Similarly, U.S. parent companies own large shares of medical device firms located in

Finland (17 percent), Hungary (15 percent), the United Kingdom (12 percent), the

Netherlands (11 percent), France (10 percent), and Germany (7 percent). By contrast, 
3-21

Table 3-8 Major EU medical device product groupings and leading firms

Product grouping Leading firms

Advanced wound care 3M (U.S.), Coloplast (Denmark), Johnson & Johnson (U.S.), Smith & Nephew

(U.K.)

Cardiovascular Abbott (U.S.), Biotronik (Germany), Boston Scientific (U.S.), Johnson &

Johnson (U.S.), Medtronic (U.S.), St. Jude/Guidant (U.S.), Sorin (Italy)

Dental implants AstraZeneca (U.K.), Lifecore Biomedica (U.S.), Nobel Biocare (Switzerland),

Straumann (Switzerland), Zimmer (U.S.)

Diagnostic imaging General Electric (U.S.), Philips (Netherlands), Siemens (Germany)

Dialysis Fresenius Medical Care (Germany), Gambro (Sweden)

Hearing devices Amplifon (Italy), GN Store Nord (Denmark), Logitech (U.S.), Phonak

(Switzerland), Plantronics (U.K.), William Demant (Denmark), Siemens

(Germany)

In vitro diagnostics Abbott Labs (U.S.), Bayer Diagnostics (Germany), Becton Dickinson (U.S.),

Beckman Coulter (U.S.), BioMerieux (France), Dade-Behring (U.S.), OrthoClinical Diagnostics (U.S.), Roche Diagnostics (Switzerland)

Lab equipment Affymetrix (U.S.), Applied Biosystems (U.S.), Biacore (Sweden), Invitrogen

(U.S.), Millipore (U.S.), Qiagen (Germany)

Orthopedic devices and hospital

supplies

B. Braun (Germany), Biomet (U.S.), Encore Medical (U.S.), Medtronic (U.S.),

Smith & Nephew (U.K.), Stryker (U.S.), Synthes (Switzerland), Wright Medical

(U.S.), Zimmer (U.S.)

Source: Compiled by Commission staff from Belgian industry official, interview by Commission staff, Belgium,

September 19, 2006; and Diller, “Healthcare: Products and Supplies: Europe,” 18.

Box 3-2 The Irish medical device cluster

Medical device firms have been establishing operations in Ireland since 1974, when Abbott Laboratories established its first

facility. It was not until 1994, however, when Boston Scientific set up operations in Galway, that Ireland’s medical device

cluster began to take shape. Following Boston Scientific’s investment, other global medical device firms began to establish

operations in Galway, including Bausch & Lomb, Medtronic, and Johnson & Johnson. Overall, investment in the medical

devices segment has centered in the west of Ireland, largely due to efforts by the Investment Development Authority (IDA)

to target high regional unemployment. 

One of the primary catalysts for investment in the medical device sector was the government’s policy of waiving corporate

taxes for firms establishing manufacturing facilities in Ireland. Although Ireland still maintains one of the lowest corporate

tax rates in Europe, it was increased to 12.5 percent in 2003 to comply with EU regulations. Other important factors leading

global medical device firms to locate manufacturing facilities in Ireland included relatively low labor costs, a well-educated,

English-speaking population, and proximity to the EU market.

To date, approximately 91 separate medical device companies have established facilities in Ireland, including 15 of the

world’s top 25 medical device firms. The medical devices industry in Ireland generates approximately $5 billion in annual

sales and employs nearly 25,000 people. Over the years, a large support infrastructure has evolved to support Ireland’s

medical device industry, including both multinational companies and indigenous Irish firms. Large multinational companies

such as Medtronic typically tend to produce advanced, high technology products such as pacemakers and arterial stents.

By contrast, indigenous Irish firms such as Creganna tend to produce disposable medical devices and/or inputs, such as

guidewires, for multinational companies.

Over the past several years, Ireland’s medical device industry has expressed concern that it is losing its cost advantage

relative to countries in Eastern Europe and Asia, largely due to increasing labor costs, tax rates, and energy costs, as well

as costs associated with complying with increasing levels of regulation, particularly environmental laws. As a result, the IDA

is increasingly emphasizing Ireland’s experienced, well-trained workforce and high levels of labor productivity. The IDA is

also highlighting Ireland’s growing R&D capacity: approximately 50 percent of medical device firms located in Ireland now

conduct R&D within Ireland.

Source: Irish industry officials, interviews by Commission staff, Ireland, September 28–29, 2006; and Ludwig, hearing

transcript, 70.
 75 Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public Health Expenditure,

109–110.

 76 In 2003, market share for the top five firms in the European hip and knee market included Zimmer

(19 percent), DePuy/Johnson & Johnson (15 percent), Biomet (12 percent), Stryker (12 percent), and Smith

& Nephew (9 percent). Medtech Insight Report #A305, cited in Diller, “Healthcare: Products and Supplies:

Europe,” 21.

 77 Eurostat, Prodcom Database 2006. Table 3-10 understates production in the EU for at least two

reasons. First, production data from Eurostat, the official data source, does not include missing values (where

individual countries have failed to report) or suppressed values (where data are not publicly reported to

protect confidential business information). Second, Eurostat reports production totals for the category NACE

33.1, medical and surgical equipment and orthopedic appliances. This category does not include chemical

and biochemical devices, such as IVDs, which are classified under “chemicals,” and medicine-impregnated

products, such as gauzes, which are classified as “pharmaceutical preparations.” Moreover, these particular

types of medical devices are extremely difficult to separate out from chemical and pharmaceutical

preparation classifications. Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public

Health Expenditure, 161. 

 78 Eurostat, Prodcom Database 2006. Production shares for 2004 are provided because 2005 production

data for the United Kingdom and Ireland, while included in the aggregate, were suppressed at the country

level in 2005.

 79 Marchant, “Outsourcing Outlook”; U.S. industry officials, interviews by Commission staff, United

States, June 13, 2006; German, Irish, and UK industry officials, interviews by Commission staff, Germany,

Ireland, and the United Kingdom, September 21–29, 2006.

3-22

European parent companies own approximately 1 percent of medical device firms located

in the United States.75

Although Europe’s many small firms tend to focus on commodity/disposable products and

relatively low-value-added niche products, several large European firms compete

successfully in high-value-added product segments, notably advanced wound care, dialysis,

diagnostic imaging, and orthopedic devices. However, in terms of sales, few European firms

are leaders in the European market. In 2003, for example, one of Europe’s leading

orthopedic firms, UK-based Smith & Nephew, ranked fifth in the European market for hip

and knee implants, behind four U.S. firms.76 Leading European-headquartered medical

device firms include Fresenius (Germany), Philips (Netherlands), Siemens (Germany), Smith

& Nephew (United Kingdom), and Synthes (Switzerland) (table 3-9). With the exception of

Siemens and Philips, however, few European-based companies are active in non-European

markets, and only a small number are global leaders in their respective medical device

segments.

Production

EU production of medical devices totaled approximately i31 billion ($38 billion) in 2005

(table 3-10).77 Production grew at a compound annual growth rate of approximately 8 percent

from 2001-5, with particularly strong growth in 2002 (12 percent) and 2005 (20 percent).

Overall, production at the end of the period was 34 percent higher than at the beginning. In

2004, five countries accounted for nearly 87 percent of total EU-25 production, with

Germany (45 percent) accounting for the largest share, followed by France (13 percent), the

United Kingdom (12 percent), Italy (11 percent), and Ireland (5 percent).78

Historically, European medical device companies have been reluctant to outsource

production activities. However, shorter product life-cycles, competitive pressures to reduce

costs, and currency risks are forcing European firms to consider outsourcing strategies.79
3-23

Table 3-9 Selected EU-headquartered medical device companies

Company Country Main market segments 2005 Revenue

billion

dollars

Siemens Medical Systems Germany Imaging equipment, in vitro diagnostics,

and hearing aids

$9.5

Philips Medical Systems Netherlands Imaging equipment and healthcare

information systems

$7.6

B. Braun Melsungen Germany Orthopedics and surgical instruments $3.8

Smith & Nephew United Kingdom Orthopedics, wound treatment, and

endoscopy

$2.4

Synthes Switzerland Orthopedics $2.1

BioMerieux France In vitro diagnostics equipment $1.2

Sorin Group Italy Cardiovascular and dialysis $0.9

Carl Zeiss Meditec Germany Ophthalmology products $0.4

Gyrus Group United Kingdom Surgical instruments and ear, nose, throat

instruments

$0.3

Ambu Denmark Life support systems $0.1

Bayer Diagnostics Germany In vitro diagnostics (a

)

Elektra Sweden Radiation oncology and neurosurgery

equipment

(

a

)

Fiab Italy Electromedical devices (a

)

Maersk Medical Denmark Disposable medical supplies (a

)

Roche Diagnostics Switzerland In vitro diagnostics (a

)

Source: Compiled by Commission staff from Diller, “Healthcare: Products and Supplies: Europe,” 18.

a

 Not available.

Table 3-10 EU production of medical devices, 2001–5

2001 2002 2003 2004 2005

Absolute change

2001–5

Percent change

2001–5

million euros percent

Total 22,854 25,555 24,209 25,495 30,657 7,803 34.1

million dollars percent

Total 20,451 24,050 27,323 31,657 38,125 17,674 86.4

Source: Eurostat, Prodcom Database; IMF Exchange Rate.

Note.—The 2001–2002 aggregates were obtained as the sum of available national data reported by Eurostat's

Prodcom. Aggregates for 2003–2005 were obtained as a sum of available EU 25 8-digit code totals. The differences

between the data in euros and dollars is a result of exchange rate fluctuations that occurred in this period.

According to a survey by European Medical Device Manufacturer, for example,

approximately 75 percent of responding firms maintained outsourcing contracts with firms

located in Western Europe, followed by Central and Eastern Europe (29 percent), North

America (26 percent), and Asia (23 percent). Within Central and Eastern Europe, Hungary,

Poland, and the Czech Republic were the preferred country locations for outsourcing

production, largely due to their low labor costs and geographic proximity to Western

European markets. With respect to Asia, nearly 70 percent of firms with outsourcing

contracts in the region identified China as the source country, followed by Malaysia, India,

Taiwan, and Thailand. The most commonly outsourced activities include production

(70 percent), packaging and/or sterilization (45 percent), surface treatment and other
 80 Sparrow, “Outsourcing Outlook.” Totals exceed 100 percent because survey participants were allowed

to select multiple categories.

 81 The German diagnostics industry association, VDGH, reports that 21,500 persons were employed in the

diagnostics sector in Germany in 2005, a 16 percent increase over employment in 2001. Verband der

Diagnostica-Industrie e.V. (VDGH), “The VDGH and its Companies.”

 82 Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public Health Expenditure, 94

and 199.

 83 Examples of such products include trays, gloves, bandages, syringes, and disposable medical devices

such as catheters. Diller, “Healthcare: Products and Supplies: Europe,” 18.

 84 German industry officials, interview by Commission staff, Germany, September 22, 2006; and Diller,

“Healthcare: Products and Supplies: Europe,” 28.

3-24

specialized processes (37 percent), electronics (34 percent), logistics (13 percent), product

design (13 percent), research and development (7 percent), and regulatory compliance

(7 percent).80

Employment

Employment in the EU medical device industry has steadily increased, from 341,020

employees in 2001 to 388,449 in 2005 (table 3-11). With nearly 158,000 employees,

Germany has, by far, the largest number of persons employed in the sector.81 France

maintains the second highest level of employment, followed by the United Kingdom, Italy,

and Ireland. Together, these five countries are estimated to account for 73 percent of 2005

employment in the EU medical device industry. The countries of Central and Eastern Europe

generally experienced strong employment growth during the period, although most began

from employment levels that were much lower than those in Western Europe.

Productivity measures, particularly the derived output per employee, indicate that apparent

labor productivity in the EU is substantially lower (table 3-12) than that recorded in either

the United States or Japan. EU labor productivity varies among countries; value-added per

employee is low in Central and Eastern Europe, whereas other countries, such as Ireland and

Finland, report levels that are closer to those of Japan and the United States.82

Factors of competition

Competitive conditions in the European medical device market vary widely by product type.

For example, companies that manufacture commodity products typically face high levels of

competition and price sensitive markets, due largely to relatively low barriers to entry and

the relative ease of manufacturing low-tech, undifferentiated products.83 To remain profitable

in such a highly competitive environment, companies selling commodity/disposable

products typically sell high volumes at the lowest possible price, and focus on minimizing

manufacturing costs and increasing sales and distribution efficiencies. To stay competitive,

such firms must produce a broad range of products, maintain high quality standards, develop

high levels of brand recognition, and cultivate strong relationships with buyers. In

commodity segments, R&D and technological innovation play a relatively small role in

developing and maintaining industry competitiveness.84
3-25

Table 3-11 Employment in the EU medical device industry, by country, 2001–5

Country 2001 2002 2003 2004 a

2005

Absolute

change,

2001-5

Percent

change,

2001-5

Austria 6,249 6,335 6,622 6,986 7,233 984 16

Belgium 2,980 (b

) 3,273 a3,368 3,465 985 16

Cyprus (b

) (b) (b) 155 168 (b) (b)

Czech Republic 8,649 9,106 9,649 a

10,654 11,764 3,115 36

Denmark 7,142 7,397 7,338 7,435 7,638 496 7

Estonia 528 685 785 a

957 1,167 639 121

Finland 5,115 5,156 4,663 a

4,447 4,241 -874 -17

France 42,527 43,297 43,916 44,734 46,071 3,544 8

Germany 145,037 140,328 153,639 154,416 157,959 12,922 9

Greece (b

) (b) (b) (b) (b) (b) (b)

Hungary 7,019 7,682 8,043 8,092 9,130 2,111 30

Ireland 14,770 15,093 15,133 16,883 17,789 3,019 20

Italy 25,692 26,769 26,296 28,676 28,663 2,971 12

Latvia 564 587 591 a

599 607 43 8

Lithuania 1,415 1,451 1,545 1,755 1,928 513 36

Luxembourg 290 301 341 a

 361 382 92 32

Malta 489 (b

) (b) (b) (b) (b) (b)

Netherlands (b

) 10,742 10,131 11,218 11,352 (b) (b)

Poland 10,621 12,675 13,109 14,515 15,682 5,061 48

Portugal 2,223 2,084 1,959 a

1,944 1,929 -294 -13

Slovakia 2,600 2,764 2,824 2,352 2,408 -192 -7

Slovenia 827 1,010 1,059 a

1,212 1,387 560 68

Spain 11,845 13,014 13,662 13,635 15,303 3,458 29

Sweden 9,356 9,287 (b

) 10,426 10,804 1,448 15

United Kingdom 35,082 33,023 33,894 31,066 31,379 -3,703 -11

Total 341,020 348,786 358,472 a

375,827 388,449 47,429 14

Source: Eurostat, Structural Business Statistics Database.

a

 Estimated values. All 2005 values are estimated based on average annual growth. b

 Not available.
 85 Examples of such products include advanced wound care products, defibrillators, diagnostic imaging,

hip and knee implants, and pacemakers. Diller, “Healthcare: Products and Supplies: Europe,” 18.

 86 First-mover advantage is the potential advantage gained by the initial occupant of a market segment.

Such advantages include the acquisition of substantial market share because of a lack of competition; the

preemption of scarce resources (e.g., occupation of prime retail locations); the ability to reinvest early

profits; and reputational benefits (e.g., supplier, distributor, and customer familiarity and loyalty). Secondmover advantages are created by the drawbacks of first-mover initiatives, largely high up-front costs (firstmovers often face high R&D and marketing costs) and risk (first-movers may fail and/or cannot capitalize on

the experience/mistakes made by others). In some cases, such drawbacks permit second-movers to gain a

larger share of the market than first-movers, often by focusing their resources on developing a superior

product or by taking the first-mover’s niche product to the mass market. Grant, Contemporary Strategy

Analysis, 2003.

 87 German industry officials, interview by Commission staff, Germany, September 21, 2006.

3-26

Table 3-12 EU manufactured output per employee, 2001–5

Year EU production Employment Derived output per worker

million euros euros

2001 22,854 341,020 67,018

2002 25,555 348,786 73,268

2003 24,209 358,472 67,534

2004 25,495 375,827a 67,838

2005 30,657 388,449a 78,921

EU production Employment Derived output per worker

million dollars dollars

2001 20,451 341,020 59,970

2002 24,050 348,786 68,955

2003 27,323 358,472 76,220

2004 31,657 375,827a 84,233

2005 38,125 388,449a 98,149

Source: Eurostat, Prodcom and Structural Business Statistics Databases, and IMF exchange rates.

a

 Estimated values.

By contrast, companies attempting to sell more complex, technologically advanced products

in Europe typically face lower levels of competition and less severe pricing pressures, largely

due to high barriers to entry and short product life cycles.85 Although competitive conditions

in Europe require companies to control costs, produce high-quality products, and maintain

strong ties with customers, one of the most crucial factors in maintaining industry

competitiveness is the maintenance of cutting-edge medical technology research, and/or the

development of such research into marketable products. In many cases, companies in such

segments utilize R&D-driven technological innovation to differentiate their products from

those of competitors. Successful products typically improve clinical outcomes while

simultaneously allowing hospitals to reduce costs and operate more efficiently. In an attempt

to achieve first-mover advantages,86 many firms release high-technology products in rapid

succession, leading to product life cycles as short as 18–24 months. In contrast, some

companies reportedly adopt second-mover strategies as a means to reduce large, up-front

costs associated with product development and customer education/training.87

For companies in advanced product segments, R&D expenditures and the effectiveness of

that spending are extremely important to maintaining competitiveness. European companies
 88 Pammolli, et al., eds., Medical Devices Competitiveness and Impact on Public Health Expenditure, 130.

 89 Ibid.

 90 As part of the 7th Framework Programme, the European medical device trade association, Eucomed, is

pursuing the establishment of so-called Medical Technology Innovation Centres. If initiated, such centers

would assist companies with many aspects of commercializing new technologies, including advisory services

related to obtaining appropriate financing, developing business plans, and protecting intellectual property.

Eucomed, “Position Paper on FP7.” A similar model already has been adopted in Oxford, United Kingdom,

where DiagnOx, a company funded initially by the U.K. Department of Trade and Industry, seeks to improve

the commercialization of R&D in the U.K. diagnostics sector by providing laboratory facilities as well as

services and advice related to start-up financing and intellectual property protection. Arthur D. Little

Limited, UK Sector Competitiveness, 69. Such initiatives address a commonly cited weakness in the EU

medical device sector – the difficulty of commercializing new technologies.

 91 Belgian, German, U.K, and Italian industry officials, interviews by Commission staff, Belgium,

Germany, the United Kingdom, and Italy, September 18–29, 2006.

 92 “Medical Devices Sector Seeks Innovation Boost,” European Innovation. 

3-27

spend approximately 6 percent of sales on R&D compared with, on average, above

10 percent for U.S. medical device firms.88 Lower R&D expenditures on the part of

European firms, a frequently cited weakness of the European medical device industry, likely

reflect the European industry structure, which is dominated by small and medium size

companies that tend to have fewer financial resources than large, multinational firms.

Nonetheless, companies in Germany (10 percent) and Sweden (9 percent) record average

R&D expenditures closer to U.S. averages.89

Most government funding for R&D in the EU occurs through the Framework Programmes,

which provide for R&D funding across different thematic areas. The European Council

recently adopted the 7th Framework Programme, which covers the period 2007–13, and

identifies various thematic areas of relevance to the medical device field including health,

nano-sciences, and research infrastructures.90 Few of the EU industry officials interviewed,

however, reported receiving any substantial government funding to support their R&D

efforts.91

Increasing competition in most segments of the European medical device industry is driving

industry consolidation and leading to the creation of ever-larger firms, mainly because size

conveysimportant competitive advantages. As discussed in chapter 2, large firms, in general,

are often better at accessing capital markets, managing regulatory approval processes,

achieving manufacturing efficiencies, taking innovative products to market, developing

distribution channels, and managing global supply chains. In Europe, the well-developed,

experienced administrative bureaucracy of most large corporations also provides an

advantage in navigating divergent reimbursement schemes across the EU.92 Overall, the

many advantages of size and scale provide many advantages unavailable to small and

medium size firms in Europe, limiting the ability of small and medium size firms to break

into markets and/or develop substantial market share.

Mergers and acquisitions are becoming an important feature of the global medical device

marketplace, including Europe. Although most high-profile acquisitions in the past three

years have involved U.S. companies, the M&A activities of European-headquartered

companies tend to involve other European companies, with small to medium size firms 
 93 On occasion, European firms also purchase companies based in the United States. In 2005, for example,

Philips (Netherlands) bought joint venture partner Agilient’s share of Lumiled for $948 million. Similarly, in

2006, Coloplast Group (Denmark) bought U.S.-based Mentor Corporation’s urology business for

$463 million, while Siemens (Germany) announced plans to acquire IVD firm Diagnostic Products for

$1.9 billion. Diller, “Healthcare: Products and Supplies: Europe,” 6; and Landesbank Baden-Wurttemberg,

Sector Analysis: Medical Technologies 2006, 12 and 35.

 94 Belgian, German, and U.K. industry officials, interviews by Commission staff, Belgium, Germany, and

the United Kingdom, September 19–27, 2006.

 95 U.S. industry officials, interviews by Commission staff, United States, June 2006; Agress, hearing

transcript, 51; and Ludwig, hearing transcript, 51–2.

 96 German and U.K. industry officials, interviews by Commission staff; and Germany and the United

Kingdom, September 20–27, 2006.

 97 German industry officials, interviews by Commission staff, Germany, September 22, 2006.

 98 U.S. industry officials, interviews by Commission staff, United States, June 2006; and German and

U.K. industry officials, interviews by Commission staff, Germany and the United Kingdom, September

20–27, 2006.

3-28

acting as either acquirer and/or target.93 In Europe, as in the United States, M&A activity

is typically driven by corporate strategies aimed at acquiring new product lines, technologies,

and distribution channels.94

Another important supply-side factor is the regulatory system under which a company

operates. Many U.S. industry representatives state that the EU system for medical device

approval ismore predictable, efficient, and transparent than those in the United States,Japan,

and other global markets.95 Industry representatives in Europe also rate the EU regulatory

system positively, noting that the governing standards, time lines, and costs generally are

reasonable and predictable.96 IVD manufacturers, in particular, have noted that the EU

regulatory system encourages innovation and the development of new products because,

unlike in the United States and Japan, many new products may be self-certified by the

manufacturer.97 As a result, many U.S. and European companies introduce innovative

medical devices and equipment in the EU prior to the United States, Japan, and other global

markets.98 Chapter 6 presents additional information concerning the EU regulatory system.

Demand

Consumption

Apparent EU consumption of medical devices grew at a compound annual rate of 5 percent

during 2001-5, ranging from i22.2 billion ($19.9 billion) to i27.4 billion ($34.1 billion).

During 2003, apparent consumption began to decline, falling by 11 percent in euro terms by

the end of 2004, before rebounding by 30 percent in 2005. Overall, consumption at the end

of the period was approximately 23 percent higher than at the beginning (table 3-13).
 99 Belgian, German, and U.K. industry officials, interviews by Commission staff, Belgium, Germany, and

the United Kingdom, September 19-27, 2006; Diller, “Healthcare: Products and Supplies: Europe,” 16;

Marchant, “Europe’s Medical Device Market Braces for an Era of Change.”

 100 Marchant, “Europe’s Medical Device Market Braces for an Era of Change.”

3-29

Table 3-13 EU medical device production, exports, imports, apparent consumption, and the ratios of exports to

production and imports to consumption, 2001–5

Year

EU

production EU exports EU imports

EU apparent

consumption

Ratio of exports

to shipments

Ratio of imports to

consumption

million euros percent

2001 22,854 14,705 14,095 22,244 64 63

2002 25,555 16,198 14,467 23,824 63 61

2003 24,209 17,291 14,922 21,840 71 68

2004 25,495 19,521 15,297 21,272 77 72

2005 30,657 20,474 17,262 27,446 67 63

million dollars percent

2001 20,451 13,159 12,612 19,905 64 63

2002 24,050 15,245 13,616 22,421 63 61

2003 27,323 19,515 16,842 24,649 71 68

2004 31,657 24,238 18,994 26,413 77 72

2005 38,125 25,461 21,467 34,131 67 63

Source: Global Trade Information Services, Inc. Global Trade Atlas Database; Eurostat, Prodcom Database; and IMF

exchange rates.

Note.—Imports and exports do not include the in vitro diagnostics segment to harmonize with production data. Totals

may not add due to rounding.

As in all markets, demographic trends are an important driver of demand for medical devices

in the EU. The age structure of the European population, for example, is shifting upward due

to low birthrates and greater longevity (figure 3-5). Since older people typically require

higher levels of medical treatment, many observers speculate that the aging of Europe’s

relatively active and wealthy population will drive demand for medical devices and

equipment over the next two or three decades.99 Consumption is also driven by the

application of both new and existing technologies to new markets, notably the move by some

medical device companies to penetrate younger age groups. In the orthopedic device

segment, for example, young patients are increasingly seeking orthopedic implants for the

treatment of sports injuries.100 In order to take advantage of this trend, for example, UKbased Corin Group plc, a developer, manufacturer, and distributor of reconstructive 
 101 Corin Group PLC, Annual Report 2005, 7; and U.K. industry officials, interview by Commission staff,

United Kingdom, September 27, 2006.

 102 Diller, “Healthcare: Products and Supplies: Europe,” 13; and Belgian, German, and U.K. industry

officials, interviews by Commission staff, Belgium, Germany, and the United Kingdom, September 19–27,

2006. 

3-30

orthopedic devices, is pursuing a deliberate strategy of focusing on “young, active”

patients.101 Budget-cutting initiatives across Europe also affect demand for medical devices.

Large national budget deficits in nearly all European countries, for example, have put

pressure on national governments to reduce healthcare expenditures, including spending on

medical devices. Since European governments, through publicly funded national health

plans, are overwhelmingly the largest purchasers of medical devices in Europe, many

companies in Europe, both large and small, expect reimbursement cuts to negatively affect

the pricing and sales environments. Such reforms are likely to have a disproportionate impact

on small to medium size companies, the core of Europe’s medical device industry, as such

firms typically have fewer financial resources and staff to deal with new reimbursement rules

and procedures. Companies producing high-volume/low-margin commodity products are

also expected to be negatively affected by such reforms.102

Figure 3-5 Projected composition of the EU’s population (by age)

15% 14%

67% 65% 61% 57%

18% 22% 26% 30%

14% 14% 14%

56%

30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

Percent of total

0-14 15-64 65+

Source: United Nations Economic Commission for Europe, Population Activities Unit. Demographic

Database.

Note.—Numbers may not add to 100 percent due to rounding.
 103 The national health service model is generally present in Denmark, Finland, Greece, Ireland, Italy,

Portugal, Sweden, Spain, and the United Kingdom. The social insurance model is followed in Austria,

Belgium, France, Germany, Luxembourg, and the Netherlands. Grimmeeisen and Rothgang, “The Changing

Role of the State in Europe’s Health Care Systems,” 7.

 104 The DRG system, initiated in the United States in 1983, has different variants around the world. The

German DRG system, for example, is modeled after that in place in Australia. German government officials,

interview by Commission staff, Germany, September 20, 2006.

 105 The rate of adoption of activity-based payment methods varies across EU countries. Such methods are

currently in place in Austria, Belgium, Italy, Ireland, Portugal, and Spain, while France, Germany, the United

Kingdom, and several Nordic countries are currently in the process of implementing variations of

activity-based payment methods. Diller, “Healthcare: Products and Supplies: Europe,” 13.

 106 Belgian, French, German, Italian, and U.K. industry officials, interviews by Commission staff,

Belgium, France, Germany, Italy, and the United Kingdom, September 18–29, 2006.

 107 New tests have been only sporadically funded through an escape valve mechanism contained in the

health insurance legislation. German industry official, interview by Commission staff, Germany,

September 22, 2006.

 108 French industry officials, interview by Commission staff, France, September 19, 2006.

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Health insurance

EU residents have access to universal health care through two main types of systems:

national health service and social insurance models. The main difference between the two

is whether the system is funded primarily from taxation (e.g., the national health service

model typified by the UK system), or from some form of social insurance (e.g., the German

system where employers and employees contribute and the state pays the contributions of

the unemployed and the elderly).103 Initiatives intended to cut costs and improve efficiency

are prevalent in the EU, including a recent shift away from the global budgeting of

healthcare spending to activity-based methods of payment, such as diagnosis-related groups

(DRGs),104 and the increased use of health technology assessments (HTAs). 

Under DRGs, governments reimburse hospitals in a fixed amount based on the diagnosis and

treatment category in which the illness falls.105 DRGs may have a positive or negative effect

on demand based on whether reimbursement classifications and rates accurately reflect the

costs of care. In general, EU industry officials assert that funding constraints present much

more severe barriers to the sale of medical devices in Europe than regulatory approval

requirements.106 They raise particular concerns about the negative impact of DRGs on the

uptake of new technologies and the incentives that they provide for the use of the least

expensive rather than the best products. In Germany, for example, it has reportedly been

5 years since the Ministry of Health has approved an application for reimbursement of a new

IVD test by the statutory health insurance system.107 In France, reimbursement authorization

must be obtained not only for each product code, but also for each indicated use of the

product, an expensive process that typically lasts years, limits authorized uses, and keeps

new technologies off the market.108 In general, the efficiencies that have been gained from

the harmonization of regulatory requirements throughout the EU are not present in the area

of funding and reimbursement.
 109 HTA means different things in different countries. In the United Kingdom, for example, the National

Institute for Health and Clinical Excellence (NICE) – considered the preeminent HTA agency by European

industry officials – provides recommendations on the use of new and existing technologies based on clinical

and economic evidence that addresses how well the technology works in relation to its cost. NICE, “About

Technology Appraisals.”

 110 French, German, Italian, and U.K. industry officials, interviews by Commission staff, France,

Germany, Italy, and the United Kingdom, September 19–29, 2006. 

 111 AdvaMed, “United Kingdom Medical Technology Issues: CEO Tool Kit.” 

 112 Italian industry officials, interviews by Commission staff, Italy, September 28, 2006; and Bridges,

“Lean Systems Approaches to Health Technology Assessment,” 103.

 113 U.S. and Japanese industry officials, interviews by Commission staff, United States, June 13–17, 2006;

and Japan, July 31–August 9, 2006.

 114 Ludwig, hearing transcript, 8–9.

 115 Japan Ministry of Health, Labour and Welfare (MHLW), Annual Statistics on Production by

Pharmaceutical Industry.

 116 Official MHLW 2005 production and trade data will not be available until April 2007.

 117 U.S. and Japanese industry officials and market analysts, interviews by Commission staff, Japan,

July 31–August 9, 2006.

3-32

Throughout Europe, the expanding use of HTAs109 to determine reimbursement or clinical

use places additional burdens on medical device firms.110 Although a favorable HTA should

result in the adoption of a new technology by public sector practitioners, industry officials

state that they are often ignored in practice.111 Most HTA agencies in Europe do not have a

budgetary link – that is, a technology may be recommended with no money allocated to pay

for it. Without this link, industry officials assert that HTA often operates as a barrier, rather

than a gateway, to market access.112 

Trade practices

U.S. and Japanese industry officials interviewed by Commission staff indicated that, as in

the United States, there are very few, if any, tariff barriers, non-tariff barriers, and/or

burdensome customs procedures that affect exports of medical devices and equipment to the

EU.113

Japan

Japan's medical device market is the second largest single-country market in the world,114

and it imports over half of its medical devices from the United States.115 Despite the large

size of its market, Japanese production and consumption growth was sluggish between 2001

and 2004, while the country’s global medical device trade deficit widened.116

Japan’s share of global medical device production has decreased in recent years, given faster

manufacturing growth from medical device firms in the United States and EU. Despite its

traditional strengths in selected segments of the medical device industry, such as diagnostic

imaging and general hospital supplies, overall production growth in Japan declined from

2001–4 as government healthcare and regulatory policies inhibited the growth of its domestic

market for medical devices.117 Slower growth in Japan also reflected limited product

innovation, as Japanese medical device firms spent a lower proportion of their sales on R&D

than their counterparts in the United States. Other factors contributing to slower production

by Japan over the period included macroeconomic phenomena, such as Japan’s slow

industrial activity and GDP growth, and the exposure of Japanese firms to more risk than
 118 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 119 Relative to the U.S., the EU, and other highly industrialized markets. Ludwig, hearing transcript,

10–14; and U.S., EU, and Japanese industry officials and market analysts, interviews by Commission staff,

United States, EU, and Japan, June–September, 2006.

 120 U.S. and Japanese industry officials and market analysts, interviews by Commission staff, Japan,

July 31–August 9, 2006.

 121 MHLW, posthearing statement, 2-13.

 122 Based on survey data provided by MHLW officials, e-mail message to Commission staff,

November 2006.

 123 U.S. and Japanese industry officials and market analysts, interviews by Commission staff, Japan,

July 31–August 9, 2006.

 124 “Overseas Sales Account for 60% of Sales-Toshiba Medical Systems,” Pharma Japan, 19.

 125 “The Top 30 Global Medical Device Companies,” Medical Product Outsourcing; and company annual

reports.

3-33

U.S. companies, given limited venture capital funding and less protective domestic

bankruptcy laws.118

Consumption in Japan also grew at a slower pace than in the U.S. and EU markets between

2001 and 2004 despite relatively long life spans and rising demand for medical devicesfrom

Japan’s rapidly growing elderly population. Slow demand growth119 is attributed to Japan’s

complex distribution network, government cost-containment strategies (in light of rising

public debt), and relatively low aggregate and per-capita healthcare spending, which have

cumulatively inhibited consumption growth.120 The Japanese government made an effort to

reform its regulatory process in 2004 and to address significant approval delays that keep the

latest medical technology from reaching the Japanese public. Meanwhile, cost- containment

efforts will continue to be a major priority for the Japanese government.121

Supply

The medical device industry in Japan consists of approximately 750 firms with licenses to

manufacture domestically.122 Despite slow domestic production growth in Japan, several

Japanese-based companies have remained highly competitive worldwide,123 including

Toshiba Medical Systems, which derives 60 percent of its sales of diagnostic imaging

devices from overseas,124 and Olympus Optical, which holds 70 percent of the global market

for medical endoscopes.125 While not as dominant in overseas markets as Toshiba and

Olympus, Terumo, the leading Japanese-based firm in terms of revenues in 2005, is the

largest Japanese supplier of a broad range of general and commodity hospital supplies

(including syringes, catheters, cardiovascular guidewires, intravenous apparatus, blood

purification devices, and dialysis apparatus). While Terumo faces competition from imports

from major U.S. suppliers of hospital supplies, the market for dialyzers and other dialysis

apparatus in Japan is supplied predominantly by Terumo, Asahi Medical, and other domestic

companies. Table 3-14 provides a more comprehensive list of Japanese medical device

companies.

Several major U.S.-based companies manufacture medical devices in Japan. Notable among

these, GE-Yokogawa Medical Systems, a majority-owned affiliate of U.S.-based General

Electric, is a significant Japanese producer of medical imaging devices. The American 
 126 Hanawa, “Medical Devices” (Japan).

3-34

Table 3-14 Leading manufacturers of medical devices in Japan

Rank Company Primary segment Headquarters

1 Aloka Co., Ltd. Instruments, gauges, and meters Japan

2 Asahi Medical Co., Ltd. Dialyzer equipment Japan

3 Baxter Limited Medical, surgical, & dental supplies United States

4 Boston Scientific Japan K.K. Medical, surgical, & dental supplies United States

5 Fuji Photo Optical Diagnostic imaging Japan

6 GE Yokogawa Medical Systems, Ltd. Diagnostic imaging Japan

7 Goodman Co., Ltd. Cardiac goods Japan

8 Hitachi Medical Corporation Diagnostic imaging Japan

9 Hogy Medical Corporation Disposable hygienic products Japan

10 Johnson & Johnson K.K. Diversified United States

11 JMS Medical processing Japan

12 Kawamoto Sangyo Corporation Disposable hygienic products Japan

13 Medtronic Japan Co., Ltd. Medical, surgical, & dental supplies United States

14 Mochida Pharmaceutical Co., Ltd. Diagnostic imaging Japan

15 Nihon Mathys K.K. Medical, surgical, & dental supplies Japan

16 Nipro Corporation Medical processing Japan

17 Nipuru Corporation Dialyzer equipment Japan

18 Olympus Optical Corporation Diagnostic imaging Japan

19 Philips Medical Systems Japan Corp. Diagnostic imaging Netherlands/United States

20 Siemens Diagnostic imaging Germany

21 Shimadzu Corporation Diagnostic imaging Japan

22 St. Jude Medical, Inc. Medical, surgical, & dental supplies United States

23 Stryker Japan K.K. Medical, surgical, & dental supplies United States

24 Terumo Corporation Medical processing Japan

25 TOP Corporation Medical processing Japan

26 Toray Medical Co., Ltd. Dialysis devices Japan

27 Toshiba Medical Systems

Corporation (Tokyo Office) Digital imaging Japan

28 Zimmer K.K. Orthopedic products United States

Source: Medical Product Outsourcing, Wright Reports, company annual reports and websites, 10-K reports, and

other sources. 

Chamber of Commerce in Japan (ACCJ) estimated the combined annual sales of its 54

members who produce medical devices in Japan to be roughly $8.5 billion in 2003.126

Shipments

As shown in table 3-15, total shipments of medical devices in Japan amounted to

¥1.53 trillion ($14.2 billion) in 2004, representing an average annual growth rate of
 127 Based on Commission staff estimations using Japan’s consumer price index, as published by Japan’s

Statistics Bureau, Ministry of Internal Affairs and Communication. 

 128 Based on Commission staff estimates.

 129 U.S. and Japanese industry officials and Japanese market analysts, interviews by Commission staff,

Japan, July 31–August 9, 2006.

 130 Institute for Trade and Commercial Diplomacy, “Deregulation of the Medical Equipment Industry in

Japan International Trade Negotiations”; and MLHW, Annual Statistics on Production by Pharmaceutical

Industry.

 131 Based on survey data provided by MHLW officials, e-mail message to Commission staff,

November 2006.

 132 Pammolli, et al., Medical Devices: Competitiveness and Impact on Public Health Expenditure. 

 133 MLHW, Annual Statistics on Production by Pharmaceutical Industry.

3-35

0.4 percent from 2001 through 2004 (or 0.6 percent after correcting for deflation).127 Japan’s

relatively slow shipment growth during the period resulted in a decline in its share of global

production of medical devices to 10 percent, down from an estimated 11 percent in 2004

(and from an average of 13–15 percent in the 1990s).128 Slow industry growth over the

period was attributable to industry-specific determinants, such as limited technical

innovation, as well as macroeconomic factors, such as Japan’s recessionary and deflationary

environments during that period. The decline in Japanese market growth was also a principal

factor contributing to slow Japanese production growth.129

The composition of medical device production in Japan did not change markedly between

2001 and 2004. Shipments were concentrated in diagnostic imaging systems (20 percent),

operating equipment and supplies (15 percent), artificial internal organ assisting devices

(12 percent), and electronic measurement and monitoring systems (11 percent).130 Medical

devices that contributed most to the overall growth in the domestic industry in the period

were medical devices for home use (such as inhalers and hearing aides), and IVDs (such as

blood testing devices). Table 3-16 provides more information on Japanese device categories.

Employment

According to official data, employment in the Japanese medical device industry in 2004 was

81,759, or approximately 0.1 percent of the country's total workforce in that year

(table 3-17).131 Manufactured output per employee in this industry, which amounted to ¥18.8

million ($173,460) in 2004, declined by about 5 percent between 2001 and 2004 in yen

denominated terms. Independent labor productivity estimates on data ending in 2001 show

that the workforce in Japan provided less gross value added per employee than the U.S.

workforce, but more than the European workforce.132

Factors of competition

Japan’s sluggish production growth in its medical device industry is attributable, in part, to

limited R&D and venture capital spending that have impeded innovation and inefficient

distribution and regulatory systems. Private Japanese medical device manufacturing

companies spend less on R&D relative to sales than their U.S. counterparts, according to

MHLW’s survey of the medical device industry.133 According to the survey, larger Japanese

companies with capital in excess of $425 million allocate an average of 6 percent of sales

to research and development funding, compared with U.S. firms, which average over

10 percent. To stimulate domestic R&D, the Japanese government has recently revised its

tax guidelines to allow for 8-10 percent of a domestic company’s R&D expenditures to be

tax-exempt (which has enhanced incentives relative to the United States). 
3-36

Table 3-15 Japanese shipments of medical devices, 2001–4

Segment 2001 2002 2003 2004

Absolute cha

20

million yen 

Diagnostic imaging systems 309,552 264,178 324,875 305,045 -4Related diagnostic X-ray equipment 115,267 118,700 100,080 110,475 -4Measuring and monitoring systems for biophenomena 156,709 147,976 154,704 167,458 10In vitro clinical test equipment 78,484 92,564 81,089 89,067 10Operating equipment and supplies 226,684 235,724 227,121 233,323 6Clinical equipment and supplies 28,731 26,569 29,234 28,736 

Artificial internal organ and assisting devices 184,656 182,572 177,569 189,979 5Therapeutic and surgical equipment 51,319 60,301 49,422 40,335 -10Dental equipment 34,476 34,667 33,949 37,843 3Dental material 98,585 96,117 86,026 87,900 -10Steel products for medical use 8,469 8,728 8,003 8,979 Ophthalmic and related products 79,188 76,937 74,885 78,411 Surgical dressing/hygienic products 4,328 4,722 4,152 4,740 Medical devices for home use 140,541 153,752 147,809 152,047 11

Total 1,516,989 1,503,507 1,498,918 1,534,338 17

million dollars 

Diagnostic imaging systems 2,547 2,107 2,802 2,820 Related diagnostic X-ray equipment 948 947 863 1,021 Measuring and monitoring systems for biophenomena 1,289 1,180 1,334 1,548 In vitro clinical test equipment 646 738 699 823 Operating equipment and supplies 1,865 1,880 1,959 2,157 Clinical equipment and supplies 236 212 252 266 Artificial internal organ and assisting devices 1,519 1,456 1,532 1,756 Therapeutic and surgical equipment 422 481 426 373 Dental equipment 284 276 293 350 Dental material 811 767 742 812 Steel products for medical use 70 70 69 83 Ophthalmic and related products 652 614 646 725 Surgical dressing/hygienic products 36 38 36 44 Medical devices for home use 1,156 1,226 1,275 1,405 

Total 12,482 11,991 12,930 14,182 1

Source: Japan’s Ministry of Health, Labour and Welfare and IMF exchange rates.

a Less than 0.05 percent.
3-37

Table 3-16 MHLW medical device categories and examples of their components

Official category Medical device product examples

Artificial internal organ and assisting devices Dialyzers, cardiac pacemakers, artificial blood vessels, artificial joints,

intraocular implants, artificial lungs, artificial respirators, anesthesia

devices, etc.

Clinical equipment and supplies Drug sprayers, medical suction units, inhalers, medical irrigators, etc.

Dental equipment Dental surgery, units, and related equipment, orthodontic material and

related equipment, etc.

Dental material Dental metals, tooth crown materials, denture baseplate materials, dental

model materials, etc.

Diagnostic imaging systems X-ray diagnostic devices, CT, MRI, diagnostic ultrasound imaging devices,

etc.

In vitro clinical test equipment Clinical laboratory test equipment, blood testing devices, serum testing

devices, etc.

Measuring & monitoring systems for biophenomena Thermometers, blood pressure gauges, stethoscopes, cardiac output

monitors, tonometers, electrocardiographs, electroencephalographs,

monitoring equipment, endoscopes, etc.

Medical devices for home use Massage and bath devices, electric/light-ray therapy devices, inhalers,

hearing aids, etc.

Operating equipment and supplies Syringes, tubes, catheters, blood collection/transfusion/infusion devices,

suture machines, etc.

Ophthalmic and related products Sight-correcting spectacles, cataract spectacles, contact lenses,

optometric instruments, etc.

Related diagnostic X-ray equipment X-ray imaging equipment, protective devices, etc.

Steel products for medical use Amputators, snares/excisers, sharp/blunt curettes, retractors, apertureopening devices, etc.

Surgical dressing/hygienic products Sterile products, sterile materials, etc.

Therapeutic and surgical equipment Radiation and laser therapy equipment, lithotripters, infrared ray therapy

devices, low frequency electric therapy devices, ultrasound and short wave

therapy devices, etc.

Source: Compiled by Commission staff from MHLW and JETRO information.
 134 MHLW, “Medical Device Industry Vision-Aiming to Provide Even Better, Safer, and Innovative

Medical Devices.”

 135 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 136 U.S. Department of Commerce, International Trade Administration, Medical Device Outlook 2005.

 137 MHLW, “Medical Device Industry Vision-Aiming to Provide Even Better, Safer, and Innovative

Medical Devices.”

3-38

Table 3-17 Japanese manufactured output per employee, 2001–4

Year Japanese production Employment Derived output per worker

million yen yen

2001 1,516,989 77,195 19,651,389

2002 1,503,507 80,361 18,709,411

2003 1,498,918 100,525 14,910,898

2004 1,534,338 81,759 18,766,595

Japanese production Employment Derived output per worker

million dollars dollars

2001 12,482 77,195 161,700

2002 11,991 80,361 149,210

2003 12,900 100,525 128,326

2004 14,182 81,759 173,460

Source: MHLW. Employment data is likely higher, given that consolidated data only represents information from firms

that responded to MHLW surveys.

Although Japan's National Institute of Health Science conducts its own medical research and

provides its research results to the medical and scientific community, it does not provide the

same sort of university and limited private sector grants that exist in the United States.

Moreover, industrial-academic or medical-industrial research linkages are significantly less

prevalent in Japan relative to the United States, so information does not easily flow across

medical disciplines. Compared with the United States and the EU, medical practitioners in

Japan also collaborate considerably less with those involved with medical training and

design engineering.

The lower level of innovation in Japan’s medical device industry is mainly evidenced by its

low number of patents compared to its U.S. and EU counterparts.134 According to U.S. and

Japanese industry representatives, Japan’s medical device industry is not firmly rooted in a

pro-growth business environment, and its venture capital market is not as accessible, does

not bear the risk, and/or is not as proactively involved in product development as it is in the

United States and the EU.135 The limited venture capital market in Japan has ultimately

impeded the industry’s ability to innovate. This is particularly true for small and medium

size companies, which do not have critical funding during early product development that

is necessary to continue research and sustain a business in a short product life-cycle industry.

Moreover, given the limited venture capital firm presence in this highly regulated industry,

innovation in Japan will likely continue to lag other major producers.136 According to the

MHLW, the Japanese venture capital market is not supportive of the medical device industry

since firms in the venture capital industry are primarily funded by financial or security

companies with very low risk thresholds. Moreover, entrepreneurs’ home and family assets

are not guaranteed in bankruptcy cases, which provide further innovation disincentives.137

Recent bilateral government negotiations through the U.S.-Japan Regulatory Reform and
 138 Fontanazza, “Japanese Reform Brings More Access to Innovation.” 

 139 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

3-39

Competition Initiative suggest that the Japanese government may provide greater innovation

incentives in the near future.138

Japan’s complex distribution system also makes it difficult for the industry to remain

competitive. The system is characterized by various distribution layers employing numerous

intermediary agents between manufacturers and end users (figure 3-6). More than 80 percent

of foreign or domestic manufacturers’ medical device sales are filtered through a series of

regional agents (who often serve rural areas), specialist dealers (who possess highly technical

training, such as for cardiac-related medical devices), intermediary dealers (whose purpose

and business dealings are ill-defined), and/or hospital-linked dealers (who directly service

hospitals by monitoring daily inventory records and matching hospital needs with other

dealer offerings). Additionally, foreign manufacturers usually also sell through Japan’s

import distributors, who are considered the most expensive intermediary dealers by Japanese

industry analysts interviewed by Commission staff.139

Figure 3-6 Japan’s distribution system for medical devices

Foreign

Manufacturer

I 

M

P

O

R

T

D

I

S

T

R

I

B

U

T

O

R

Specialist

Dealer

Regional 

Agent

Japanese

Manufacturer

Other 

Intermediary

Dealers

HospitalLinked

Dealer

END-USER

Source: Japan External Trade Organization; and industry analysts, interviews by Commission staff, Japan,

July 31–August 9, 2006.

Direct Sales to End-Users (not-typical)

Sales via Distributors (typical)
 140 JETRO, Japanese Market Report-Medical Equipment; and MHLW, “Medical Device Industry VisionAiming to Provide Even Better, Safer, and Innovative Medical Devices.”

 141 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 142 Ludwig, hearing transcript, 93; U.S. and Japanese industry officials, interviews by Commission staff,

Japan, July 31–August 9, 2006; and MHLW, “Medical Device Industry Vision-Aiming to Provide Even

Better, Safer, and Innovative Medical Devices.”

 143 JFMDA, Report on the Investigation Into the Distribution of Medical Devices.

 144 R&D Corporation, Medical Equipment/Supplies Yearbook.

 145 U.S. and Japanese industry officials and market analysts, interviews by Commission staff, Japan,

July 31–August 9, 2006.

 146 JETRO, Japanese Market Report No. 69: Medical Equipment.

 147 General Electric Form 10-K.

 148 U.S. and Japanese government and industry officials, interviews by Commission staff, United States,

May 31, 2006, and Japan, July 31–August 9, 2006.

3-40

Japan’s larger number of intermediary agents along typical supply routes is a key difference

in its distribution system compared with the distribution systems in other advanced countries.

Distributors of medical devices were estimated to account for between ¥100-¥200 billion

(less than $1 billion) of business in Japan in 2003. They are smaller and more numerous than

in other highly industrialized countries and sell a wide variety of products.140

Nearly all industry analysts and distributors interviewed by Commission staff in Japan

suggested that Japan’s relatively complex distribution system has increased supply

inefficiencies and prices, since product training and price markups are added at each level

of the distribution chain.141 Although the number of agents used by the medical device

industry was estimated to total nearly 2,500 in Japan, Japanese industry officials, analysts,

and distributors suggest that increased consolidation among industry distributors over the

past few years may have reduced that number.142

Only a minority of Japan's producers (e.g., those selling large expensive equipment such as

MRIs)143 supply their products directly to their healthcare customers, including hospitals,

clinics, and physicians. The R&D Corporation, a research subsidiary of JFE Holdings, Inc.,

estimated that between 1997 and 2001, roughly 19 percent of manufacturers’ sales went

directly to end users,144 though industry officials suggest that share has probably decreased

in recent years.145

Another strategy foreign businesses have used to penetrate Japan’s medical device market,

other than through distributors, involves mergers, acquisitions, and/or the establishment of

joint-venture operations. While this latter strategy has generally been rare in Japan, several

prominent partnerships have recently been created. Boston Scientific Japan, for example, has

continued to buy several domestic Japanese companies since its 1995 acquisition of SciMed

Life Systems, to increase its domestic market presence.146 St. Jude Medical, Inc. acquired the

import retailer Getz Bros. in April 2003, largely in an effort to secure domestic distribution

routes. Finally, GE entered the Japanese market by forming a joint-venture operation with

Yokogawa Electric to form GE Yokogawa Medical, in which GE currently holds a 75

percent ownership position.147

Japan's system for regulatory review of medical devices, another supply-side factor of

competition, has come under widespread criticism for its excessive delays, complicated

requirements, non-transparency, insufficient number of qualified reviewers and limited

number of product categories, and expense in gaining product approvals.148 Delays

associated with regulatory review inhibit consumption and often result in Japanese patients

gaining access to new medical technologies years after the products have come into use in
 149 Chapter 6 provides further detail on the Japanese regulatory system.

 150 U.S. and Japanese government and industry officials, interviews by Commission staff, United States,

May 31, 2006, and Japan, July 31–August 9, 2006.

 151 Diller and Gold, Industry Survey-Healthcare: Products & Supplies. 

 152 OECD, Health Data Database, 2006; and U.S. and Japanese government and industry officials,

interviews by Commission staff, United States and Japan, May–August 2006.

 153 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 154 U.S. and Japanese industry officials; and Japanese healthcare economist, interviews by Commission

staff, Japan, July 31–August 9, 2006.

 155 OECD, Health Data Database, 2006; and JETRO, “Attractive Sectors-Medical Care.”

 156 United Nations (UN). World Population Prospects-2000 Revisions.

 157 Statistics Bureau & Statistics Center, Ministry of Public, Management, Home Affairs (Japan),

Demographic Data, accessed via CEIC database, Japan’s Ministry of Internal Affairs and Communication’s

Statistical Bureau and Statistical Research and Training Institute, Statistical Handbook of Japan, accessed

via CEIC database.

 158 AdvaMed/ACCJ, “Japan Medical Technology Issues CEO Tool Kit.”

 159 Hanawa, “Medical Devices” (Japan).

3-41

the United States or in the EU. Industry officials suggest that the standard review process in

Japan is generally much longer than in the United States and the EU.

In the most recent legislative revision of the Pharmaceutical Affairs Law (PAL) on

July 25, 2002, the Japanese government streamlined the regulatory review process of

medical devices and pharmaceuticals.149 U.S. and Japanese officials indicate that while these

reforms may help expedite the regulatory review process in the future, the inclusion of

additional regulatory review requirements (e.g., plant inspections), and the existing backlog

of applications that preceded the creation of the PMDA, reportedly have compromised the

agency’s present ability to significantly decrease review times.150

Demand

According to several industry sources, growth in medical device demand in Japan, relative

to other prominent markets, remains constrained by the government’s broader costcontainment strategy151 and the populations’ relatively low aggregate and per-capita

spending on healthcare compared with other OECD countries.152 Japan’s lower healthcare

spending appears to reflect weaker domestic demand from doctors and patients who are not

as likely to use more advanced medical technologies as in other highly developed

industrialized countries,153 as well as Japanese cultural preferences (such as higher product

safety expectations and a relative reluctance to undergo physically invasive procedures).154

Nevertheless, the rapidly growing proportion of Japan’s aging population has placed upward

pressure on overall consumption of medical devices. The average life span of the Japanese

population was 82.1 years by 2006, longer than in any other OECD country.155 Moreover,

the proportion of the country’s population aged 65 or older is rising faster than any other

advanced industrial country,156 and increased from 18 percent in 2001 to 20 percent in 2004

(figure 3-7).157 These factors are expected to continue to have a positive impact on medical

device industry growth in Japan. Healthcare expenditures for Japanese citizens over 65

account for nearly 40 percent of overall healthcare spending, and have been estimated to

reach 50 percent of total spending by 2011.158 Moreover, the percentage of the population

exceeding age 65 is projected to increase to 30 percent by 2025.159
 160 Citrin and Wolfson, “Japan’s Back!,” Finance and Development; and Economist Intelligence Unit,

Country Report (Japan), 19.

 161 Economist Intelligence Unit, Country Report (Japan), 19.

 162 OECD, Health Data Database, 2006.

 163 AdvaMed/ACCJ, “Japan Medical Technology Issues CEO Tool Kit.”

3-42

The Japanese government has sought to curb healthcare spending in recent years, and has

viewed a reduction in medical device prices as a critical component in controlling healthcare

expenditures. Japan's sluggish economic performance since the early 1990s160 has only

recently begun to rebound, and has encumbered the government with large public debt

currently exceeding 160 percent of GDP.161

Consequently, Japan has recently sought to limit public spending, which includes healthcare

expenditures. However, since 1992, Japan's public healthcare expenditures have

progressively increased, largely due to an increase in the country’s retired population, who

account for a greater share of government healthcare spending. By 2002, expenditures

reached nearly ¥30 trillion ($250 billion), which represented approximately 8 percent of 

Japan’s GDP in that year.162 The Japanese public's perception that medical device prices

in Japan significantly exceed foreign prices has increased pressure to reduce medical

device and equipment pricing.163

Figure 3-7 Composition of Japan’s population (by age)

23.93

18.24 14.58 13.89 13.4 12.2 11.3 11

69 67.39

69.69

68.06 66.63 64.1

60 59.2 55.8

5.73 7.07

17.36 19.48 22.5

27.8 29.6 33.2

10.8

23.51

30.04 35.37

53.6

64.23

59.69

35.7

12.08 4.94 9.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1950 1960 1970 1980 1990 2000 2004 2010 2020 2030 2040 2050

Percent of total

65+

15-64

0-14

Historic Projected

Age 

Distribution

Source: National Institute of Populaiont and Social Security Research (Japan), "Population for Japan: 2001-2050, January 2006. 

83 93 103 117 123 126 127 127 124 117 109 100

Population, in Millions
 164 MHLW, “Medical Device Industry Vision-Aiming to Provide Even Better, Safer, and Innovative

Medical Devices.”

 165 MLHW, Annual Statistics on Production by Pharmaceutical Industry.

 166 MHLW, “Medical Device Industry Vision-Aiming to Provide Even Better, Safer, and Innovative

Medical Devices.”

 167 JETRO, Japanese Market Report No. 69: Medical Equipment.

 168 Ibid.

 169 Diller and Gold, “Healthcare: Products & Supplies.”

 170 U.S. and Japanese government and industry officials, interviews by Commission staff, Japan,

July 31–August 9, 2006.

3-43

Consumption

While Japan's medical device market is the second largest single country market in the world

behind the United States, valued at ¥2.1 trillion ($19.0 billion) in 2004 (table 3-18),164

relatively low average growth of 2 percent (even after correcting for deflation) per year since

2001 has resulted in loss of global market share.

The leading segments of the Japanese market are artificial internal organ and assisting

devices (implantable medical devices) (21 percent), operating equipment/supplies

(20 percent), diagnostic imaging systems (13 percent), and ophthalmic devices

(10 percent).165 The contribution of each of these segments to overall consumption in Japan

has remained virtually unchanged since 2001, with the exception of ophthalmic devices

whose market share grew by 2 percentage points. 

Health insurance

Since 1961, Japan's healthcare system has provided universal coverage and equality of

benefits to its citizens. It currently maintains this system through three basic sources of

insurance: municipal government (which includes coverage for the unemployed and retired);

national government (which includes coverage for employees of small and medium size

enterprises); and private companies (which provide coverage for employees of large

enterprises).166 Citizens pay insurance premiums into a public health insurance system, and

can receive medical care at any medical facility in the country providing insurance-covered

care.167 Under this system, the national government, local governments, and unions pay

reimbursement for medical care to medical facilities and pharmacies directly.168 The national

government is fully involved in reimbursement decisions, as well as some purchasing

decisions of medical equipment. Those purchasing decisions affect the type and cost of

equipment deemed necessary, which ultimately influences market conditions faced by

Japanese and foreign manufacturers.169 The situation is further exacerbated by the financial

burdens imposed on the government from an increasing elderly proportion of the population

(mostly retiring from large private firms) who are less able to pay insurance premiums.

Moreover, a growing proportion of patients is not paying its supplementary medical charges

to hospitals, thereby further constraining hospitals’ medical device purchasing decisions.170
 171 USTR, National Trade Estimate Report on Foreign Trade Barriers.

 172 U.S. and Japanese industry officials, interviews by Commission staff, Japan, July 31–August 9, 2006.

 173 Ludwig, hearing transcript, 35.

 174 USTR, National Trade Estimate Report on Foreign Trade Barriers.

3-44

Table 3-18 Japanese medical device shipments, exports, imports, apparent consumption, and the

ratios of exports to shipments and imports to consumption, 2001–4

Year

Japanese

shipments

Japanese

exports

Japanese

imports

Apparent

Japanese

consumption

Ratio of

exports to

shipments

Ratio of

imports to

consumption

billion yen percent

2001 1,517 397 836 1,956 26 43

2002 1,504 377 840 1,967 25 43

2003 1,499 421 884 1,962 28 45

2004 1,534 430 955 2,059 28 46

billion dollars percent

2001 12.5 3.3 6.9 16.1 26 43

2002 12.0 3.0 6.7 15.7 25 43

2003 12.9 3.6 7.6 16.9 28 45

2004 14.2 3.9 8.8 19.0 28 46

Source: Japan’s Ministry of Health, Labour and Welfare and IMF exchange rates.

Note.—Official 2005 Japanese production and trade data will not become available until early 2007.

Trade practices

Several U.S. and other foreign manufacturers state that the most prominent Japanese trade

barriers revolve around regulatory delays, reimbursement policies, and market entry

restrictions. According to a U.S. government report, the regulatory reform priority that would

most benefit U.S. industry and government is a faster product approval process in Japan.171

While most U.S. and EU medical device manufacturing firms agreed that this is the main

obstacle to accessing the Japanese market, Japanese firms also indicated that they were

adversely affected by Japan’s slow review process.172 This suggests that although Japan’s

relatively slow regulatory process has hampered the introduction of new products, the

regulatory review process does not appear to be discriminatory against foreign

manufacturers.173 Rather, complex regulations, the low number of qualified medical device

reviewers, overseas audits, and factory inspection procedures appear to be the principal

causes of more lengthy medical device reviews in Japan.174

Another high priority issue for U.S. and foreign businesses, according to U.S. industry and

government officials, is the establishment of a reimbursement system in Japan that

sufficiently accounts for product differentiation through its reimbursement schedule. U.S.

industry officials contend that the number of product categories in the MHLW’s

reimbursement schedule is too limited, and thereby incapable of effectively differentiating

products for reimbursement purposes.
 1

 Global Trade Information Services, World Trade Atlas Database 2006. Global Trade Atlas statistics

likely underestimate trade in medical devices.

 2

 Yeo, North America Medical Instruments, 3; and U.S. healthcare analysts, telephone interviews by

Commission staff, October 17, 2006.

4-1

CHAPTER 4

Trade in Medical Devices

The EU, the United States, and Japan accounted for 68 percent of total global trade in

medical devices in 2005, which was valued at nearly $190 billion.1

 The United States and

the EU both maintained a trade surplus, in dollar terms, during 2001–5. Japan, on the other

hand, maintained a trade deficit throughout the period. National trade data for medical

devices are not directly comparable between the United States, the EU, and Japan, as

industry definitions and product coverage vary.

United States

The U.S. medical device industry has posted a trade surplus every year during 2001–5.

However, the surplus declined steadily from 2001 through 2004, before rebounding modestly

in 2005 (figure 4-1). Healthcare analysts attribute the decline largely to continuing strong

demand for medical devices in the United States, both the largest healthcare market in the

world and fastest-growing among the more advanced economies.2

 Despite steady growth in

exports, which increased by 36 percent from 2001 through 2005, the uninterrupted growth

in U.S. demand led to even greater increases in imports over the period, which rose by 85

percent. Increased foreign outsourcing, especially to foreign affiliates of U.S. firms in the

EU (particularly Ireland), has also been a significant contributor to the decline in the trade

balance (figure 4-2).
4-2

0

5,000

10,000

15,000

20,000

25,000

30,000

2001 2002 2003 2004 2005

Million dollars

Exports Imports Trade Balance

Figure 4-1 U.S. exports, imports, and merchandise trade balance in medical devices, 2001–5

Source: Compiled by Commission staff based on official statistics of the U.S. Department of Commerce.
 3

 Diller and Gold, “Healthcare: Products and Supplies”; 3–7, 30, and 31; and Zimmer, “Spinal Fusion,”

1–8. 

4-3

Mexico

Source: Compiled from official statistics of the U.S. Department of Commerce.

Ireland

Germany

France

UK

EU-25

Japan

Figure 4-2 U.S. bilateral trade balance in medical devices with selected trading partners, 

2001–5

Among the major medical device segments, electromedical equipment, followed by surgical

and medical instruments, and dental equipment, contributed the most to the decline in the

U.S. trade surplus for 2001–4, which decreased from $5.9 billion in 2001 to $957 million

in 2004, before turning up again in 2005 to $1.8 billion (table 4-1). Conversely, orthopedic

devices and hospital supplies accounted for a large portion of the rebound in the trade

surplus in 2005. However, selected products from all five major medical device segments

influenced the turnaround in the trade balance as overseas demand picked up for innovative

U.S.-made medical devices after gaining regulatory approval in Europe and Japan,

contributing to a 12 percent rise in U.S. exports in the final year of the period. Among these

were new versions of IVDs, implantable cardiac defibrillators, drug-eluting stents, and

advanced orthopedic products, such as hip, knee, and spinal implants.3
 4

 Alch, The U.S. Market for Medical Devices, 8.

 5

 “How Does Japan Compare,” OECD Health Data 2005, 1.

 6

 Ludwig, hearing transcript, 7.

 7

 Diller, “Healthcare: Products and Supplies: Europe,” 8–12.

 8

 “How Does the United Kingdom Compare,” OECD Health Data 2005, 1–2; and UK government and

industry officials, interviews by Commission staff, United Kingdom, September 25–27, 2006.

 9

 U.S. industry officials, telephone interviews by Commission staff, August 21–23, 2006.

4-4

Table 4-1 U.S. medical device trade balance, by segment, 2001–5

NAICS code Product segment 2001 2002 2003 2004 2005

Absolute

change,

2001–5

Percent

change,

2001–5

million dollars percent

325413

In vitro diagnostic

substances and devices 2,086 2,028 2,408 2,324 2,328 242 12

334510,

334517 Electromedical equipment 1,191 -453 -1,195 -1,363 -1,136 -2,327 -195

339112

Surgical and medical

instruments 1,746 1,071 677 -273 -88 -1,834 -105

339113

Orthopedic devices and

hospital supplies 739 618 264 297 792 53 7

339114 Dental equipment 171 151 -11 -28 -95 -266 -156

Total 5,933 3,415 2,143 957 1,801 -4,132 -70

Source: Compiled from official statistics of the U.S. Department of Commerce.

U.S. exports of medical devices increased by 36 percent from 2001 through 2005 to

$25.5 billion, influenced by changes in foreign government policies and growing demand

from China. Although Japan continued to be the most important single country market for

U.S.-manufactured medical devices (table 4-2), growth in exports to Japan lagged other

markets as U.S. exports to that country grew by just 13 percent from 2001–5.4

 However, in

the final year of the period, U.S. exports to Japan rose by 9 percent as U.S. medical device

makers benefitted from efforts in 2005 by the Japanese government to address growing

imbalances in its healthcare expenditures compared to other OECD countries.5

 According

to a major U.S. trade association, “U.S. companies are the major suppliers of many critical

products in Japan such as pacemakers, orthopedic implants such as hips and knees, and drugeluting stents.” 6

U.S. exports to the EU increased by a total of 39 percent for the 2001–5 period, led by

exports to Germany, the EU’s largest market for medical devices.7

 U.S. exports to the United

Kingdom rose by 14 percent in 2005, largely as a result of the “UK government's

commitment to increase public spending on health.”8

 U.S. exports to Ireland grew by

84 percent over the period to $1.4 billion. However, such exports declined by one percentage

point in 2005, as U.S.-owned operations in Ireland, which account for a large portion of the

trade with the United States, produced more parts and components themselves, relying less

on their parent companies.9
 10 Whitney, “Innovation Ireland,” 1.

 11 U.S. industry officials, telephone interviews by Commission staff, March 20–21, 2006; Irish industry

officials, interviews by Commission staff, Ireland, September 28 and 29, 2006; and official trade data of

MHLW.

 12 Alch, The U.S. Market for Medical Devices, 8; Medtronic, Inc., Medtronic Switzerland at a Glance, 1;

and Medtronic Inc., form 10-K. 

4-5

Table 4-2 U.S. imports and exports of medical devices, by selected countries, 2001–5

Country 2001 2002 2003 2004 2005

million dollars

Imports:

Ireland 1,409 1,881 2,951 4,120 3,811

Germany 1,751 2,108 2,578 3,154 3,582

Mexico 1,693 2,097 2,506 2,726 3,134

Japan 1,494 1,550 1,585 1,761 1,989

United Kingdom 578 747 775 947 1,163

Switzerland 428 734 1,230 1,173 1,113

China 396 533 689 805 1,049

France 450 512 567 683 730

Netherlands 478 502 471 532 608

Canada 347 421 493 554 607

Exports:

Japan 2,876 2,756 2,841 2,996 3,259

Germany 2,043 2,004 2,344 2,461 2,656

Netherlands 1,241 1,428 1,776 2,087 2,410

Canada 1,592 1,561 1,700 1,840 2,070

United Kingdom 1,437 1,382 1,291 1,350 1,538

Ireland 753 905 1,336 1,395 1,387

Mexico 825 948 1,091 1,165 1,335

France 1,118 1,036 1,075 1,173 1,312

Belgium 713 602 667 967 1,122

Australia 523 579 621 743 845

Source: Complied from official statistics of the U.S. Department of Commerce.

U.S. exports to China (box 4-1) doubled to $661.0 million over the period, making it the

fastest growing among the top 10 U.S. export markets, as demand for better healthcare by

China's growing middle class led to increased expenditures on medical devices, including

U.S.-made medical devices.

U.S. imports of medical devices also increased from 2001 through 2005, mainly based on

growing U.S. demand and transfers from U.S. affiliate companies abroad. The EU, Mexico,

Switzerland, China, and Japan accounted for a significant amount of the increase. U.S.

imports from the EU increased to $11.5 billion in 2005. Ireland remained the leading

supplier of U.S. imports of medical devices. However, imports from Ireland declined by

8 percent in the final year of the period, as Irish subsidiaries of U.S. high-tech producers10

directed a greater portion of their sales to fast-growing markets in other EU countries and

to Japan.11 U.S. imports from both Germany and the United Kingdom more than doubled

during the period, while U.S. imports from Switzerland, which included cardiac pacemakers

manufactured in a Swiss subsidiary of a U.S.-based manufacturer and orthopedic devices

from a major Swiss producer, increased to $1.1 billion.12
4-6

Box 4-1 Growing importance of China’s medical device market

China’s market is generally recognized as among the fastest growing in the world, growing 15–20 percent annually,

and is the second largest market in Asia, after Japan. Estimates of the size of China's medical device market vary

widely, ranging from $2.5 billion to $9.4 billion. Nevertheless, a strong driver of market growth is demand for IVDs.

Notably, Frost and Sullivan project the estimated value of the Chinese IVD market to grow at 14 percent annually

through 2010, the fastest IVD market growth rate worldwide. The Chinese market for devices is primarily concentrated

in large east coast cities, such as Beijing and Shanghai. 

Growing imports of medical devices reflect in part the general increase in market demand. Imports supply an

estimated 75 percent of the Chinese market. Underscoring the importance of the Chinese market in terms of growth,

U.S. exports to China have more than doubled from 2001 through 2005.

Factors driving increased consumption in China include an increasingly wealthy and growing middle class, an

expanding elderly population, and a state-sponsored push to extend access to quality healthcare. As part of China's

most recent five-year plan, the government plans to invest 21.7 billion RMB ($2.8 billion) in healthcare. Funding from

the central government is expected mainly to channel into rural hospitals, providing them with the means to buy more

advanced medical equipment. In fact, about 6.8 billion RMB ($877 million) is earmarked for medical device and

equipment purchases. The Chinese elderly population is also increasing and is projected to reach nearly 400 million

in 2050. Finally, the expanding Chinese middle class has the potential to augment these growth prospects in their

ability to afford increasing expenditures on healthcare. 

To meet current and anticipated demand, industry players have stepped up production. Currently, foreign firms

dominate the production and sale of high-end devices, while smaller Chinese firms are more price-competitive in

low-tech, commodity-type items. At the end of 2003, approximately 2,900 domestic manufacturers were producing

basic medical supplies, such as bandages, patient aids, and medical or surgical instruments. The number of Chinese

manufacturers is reportedly expanding, with sales estimated at over $5 billion in 2005, 75 percent of which

represented exports.

Sources: Agress, hearing transcript, 46; "China Rural Medical Market Target for GE Healthcare"; "J&J Targets

Medical Device Sector"; Biggs, "China's Medical Device Market"; Chang-Hong, "Regulators Continue to Tighten

Control over Med-Tech Companies"; Cowan, “Chinese Medical-Device Maker's IPO Rises 30%"; Cleaveland, "Critical

Outsourcing Questions"; Lipson, “Healthcare Market in China”; Hassell and Bella, "Diagnosing China's Medical

Device Market"; The Global Plastics Magazine; Mindray Medical Form 10-K; and Zamiska,"Beijing Policy Shift May

Boost Local Medical Device Companies."

U.S. imports from Mexico also rose during 2001–5 to $3.1 billion in 2005. Mexico continues

to be a major base for manufacturing operations of U.S.-headquartered companies. U.S.

firms originally established operations there to take advantage of U.S. and Mexican tax and

tariff incentives and relatively low wage costs. However, Mexico has moved up the supply

chain to manufacture more advanced products, while U.S. firms outsource more laborintensive manufacturing activities to less-developed Latin American countries such as Costa

Rica and the Dominican Republic. Together, these two countries accounted for over

$1 billion in U.S. imports in 2005 and represent an increase of 52 percent over the period

(box 4-2).

Meanwhile U.S. imports from Japan increased by 33 percent from 2001 through 2005 to just

under $2 billion. A significant portion of the U.S. imports from Japan consisted of diagnostic

imaging apparatus, endoscopic instruments, and commodity hospital supplies from firms

such as Toshiba, Olympus, and Terumo. 
4-7

Box 4-2 Outsourcing by the U.S. medical device industry

As in other industries, most medical device companies outsource some aspect of operations to independent firms to reduce

operating costs and focus on core strengths. In recent years, many U.S. industries have successfully broadened their outsourcing

model to include U.S. and foreign firms with offshore production facilities.

Transportation costs, speed to market issues, and vast differences in individual market demand have created overall structural

incentives for medical device firms to locate manufacturing facilities near customer bases. Medical device firms adopt offshore

outsourcing as a strategy to boost competitiveness in terms of both cost and market access. In addition to internal efforts to control

expenditures, companies confront external downward price pressures on their products. A global trend of healthcare

cost-containment combined with intra-industry competition has created significant momentum for medical device firms to actively

pursue cost-reducing strategies. As well, companies are looking to offshore outsourcing as a preliminary step in entering new

markets. By strategically positioning themselves in these developing markets now, they hope to reap the future returns associated

with expanding their customer base.

When firms decide to outsource their manufacturing to offshore plants, tax incentives, proximity to important markets, or low

production costs dictate where operations are located. Outsourcing by U.S. companies largely consists of (1) exporting parts and

subassemblies of low-end commodity hospital supplies, such as intravenous and blood administration sets, to be assembled in Latin

America and Asia to reduce labor costs for products to be consumed in the United States; and (2) more sophisticated components

for such devices as pacemakers, defibrillators, and magnetic resonance imaging equipment exported to foreign manufacturing

subsidiaries and partners in the European Union and Switzerland, for purposes of proximity to those important overseas markets

for medical goods.

A number of U.S. companies also maintain manufacturing facilities in Mexico, the Dominican Republic, Costa Rica, Singapore, and

Malaysia. Large U.S. hospital supply companies began substantive assembly and manufacture in Mexico in the 1970s. They

benefited from relatively lower wages and from preferential duty treatment provided by both the United States and Mexico in the

maquiladora program. Since that time, even as its wages and production costs have gone up, Mexico has advanced itself to

become an outsourcing partner with higher-technology U.S. firms, assembling such sophisticated products as self-expanding and

drug-eluting stents. The Dominican Republic replaced Mexico as a leading low-cost assembler of commodity medical devices in

the 1990s, taking advantage of tax and infrastructure incentives provided by the Dominican Republic government and preferential

tariff treatment under the U.S. GSP and CBERA programs, which lowered the cost of exporting finished products back to the United

States. More recently, Costa Rica has emerged as a major competitor for U.S. investment in manufacturing and assembly facilities

as the Dominican Republic has begun to face capacity constraints. Products imported by the United States from the Dominican

Republic and Costa Rica consist primarily of high volume, price-sensitive hospital products, such as intravenous and blood

administration sets, assembled for large U.S. hospital supply companies. Other countries serving as outsourcing partners for U.S.

companies for similar products include Singapore and Malaysia.

More advanced countries, such as Ireland and Switzerland, have become major outsourcing partners for leading U.S.-based

suppliers of advanced cardiovascular and orthopedic implant devices. Ireland, especially, has become a major outsourcing partner

for leading U.S. high-tech firms who have substantial investment in Irish facilities.

Sources: Agress, hearing transcript, 46; Andrews, "10 Reasons to Outsource Design and Development;" Bell, "Have It Your Way:

Full Service Outsourcing Firms Offer OEMs Broader Menus of Capabilities;" Conkey, "Made in USA? Now, Customers Get to

Choose;" Davies, "Outsourcing Goes to a Deeper Level;" "Healthcare Trends: Medical Device Outsourcing;" Medtech Insight,

May 2005; Kerber, "Medical Device Makers Increasingly Send Work to Contract Manufacturers;" Nyberg, "International Outsourcing:

When Outsourcing in Asia, a Cornucopia of Options Exists;" "Outsourcing in Asia: As China's Capabilities Grow, OEMs Face Pros

and Cons of Sourcing from Chinese Market;" Sparrow, "Outsourcing Outlook;” US industry officials, interviews by Commission staff,

June 5–16, 2006; Cordis de Mexico VPO Victor Chance; and Irish industry officials, interviews by Commission staff, Ireland,

September 28–29, 2006. 
4-8

European Union

The EU medical device industry experienced a rapidly growing trade surplus from 2001–4

(figure 4-3). Although that surplus declined in 2005, exports still exceeded imports by

i3.6 billion ($4.5 billion), driven by a surplus of i2.6 billion ($3.2 billion) in the

electromedical equipment segment (including irradiation and diagnostic imaging equipment

such as MRI and CT apparatus). Surgical and medical instruments, in vitro diagnostics, and

dental equipment sectors all posted surpluses in 2005 (table 4-3). European-headquartered

global leaders, such as Siemens and Philips, are active in the electromedical segment and B.

Braun in the surgical and medical instruments segment. By contrast, orthopedic and surgical

supplies recorded a consistent, albeit declining, trade deficit from 2001–5, ranging from -

i618 million to -i186 million (-$553 million to -$232 million).

At the individual country level, Germany and Ireland lead the EU in exports of medical

devices. In 2005, Germany reported trade surpluses across all segments, with particularly

large balances in the areas of surgical and medical instruments and orthopedic and surgical

supplies, and an overall surplus of i4.6 billion ($5.8 billion). Ireland reported large trade

surpluses in the surgical and medical instruments and electromedical equipment segments,

and an overall surplus of i4.3 billion ($5.4 billion). By contrast, Italy, France, and the

United Kingdom reported overall deficits of -i2.3 billion (-$2.8 billion), -i96 million

(-$741 million) and -i20 million (-$24 million), respectively, in 2005. The large trade

surpluses of Germany and Ireland drive the EU's positive trade balance (figure 4-4). 

The United States is, by far, the most important trading partner of the EU; it is the top export

destination (42 percent of all exports) and the top foreign source (54 percent of all imports)

for medical devices across all segments. The EU has recorded a consistent deficit, albeit

declining, in its medical device trade with the United States. Japan, Switzerland, and China

are the EU's next largest trading partners, with the EU reporting surpluses in its medical

device trade with Japan and China and a deficit with Switzerland in 2005. Russia and

Australia also are important export destinations for EU medical devices (table 4-4).
4-9

Table 4-3 EU medical device trade balance, by segment, 2001–5

Segment 2001 2002 2003 2004 2005

Absolute

change

2001–5

Percent

change

2001–5

million euros

In vitro diagnostic substances and devices -270 -152 69 244 404 673 250

Electromedical equipment 1,566 1,874 1,780 2,948 2,553 988 63

Surgical and medical instruments -425 324 763 1,324 667 1,092 257

Orthopedic devices and hospital supplies -618 -607 -377 -245 -186 432 70

Dental equipment 88 139 203 196 178 89 101

Total 341 1,579 2,438 4,468 3,616 3,274 960

million dollars

In vitro diagnostic substances and devices -241 -143 78 303 502 743 308

Electromedical equipment 1,401 1,764 2,009 3,661 3,175 1,774 127

Surgical and medical instruments -381 305 862 1,644 829 1,210 318

Orthopedic devices and hospital supplies -553 -571 -426 -304 -232 321 58

Dental equipment 79 131 229 243 221 142 180

Total 305 1,486 2,752 5,548 4,496 4,191 1,373

Source: Global Trade Information Services, Inc. Global Trade Atlas Database; and IMF exchange rate.

Note.—The 2001–2002 aggregates were obtained as the sum of available national data reported by Eurostat's Prodcom. Aggregates

for 2003–2005 were obtained as a sum of available EU 25 8-digit code totals. The differences between the data in euros and dollars

is a result of exchange rate fluctuations that occurred in this period.

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2001 2002 2003 2004 2005

Millions of euros

Exports Imports Trade Balance

Figure 4-3 EU exports, imports and merchandise trade balance in medical devices, 2001–5

Source: Global Trade Information Services, Inc., Global Trade Atlas Database.

Note.—Imports and exports do not include the in vitro diagnostics segment.
4-10

-1,500-1,000

-500

0

500

1,0001,5002,0002,5003,0003,500

In vitro diagnostic substances and

devices

Electromedical equipment Surgical and medical instruments Orthopedic devices and hospital

supplies

Dental equipm

Medical Device Segments 

million euros

France Germany Italy Ireland United Kingdom

Figure 4-4 Trade balance, by segment, 2005: Germany, France, Italy, United Kingdom, and IrelandSource: Global Trade Information Services, Inc. Global Trade Atlas Database.

Note.⎯Due to scaling, countries' sectoral medical device trade balances less than 10,000 euros may appear as zero.
4-11

Table 4-4 EU imports and exports of medical devices, by selected countries, 2001–5

Country 2001 2002 2003 2004 2005

million

euros

million

dollars

million

euros

million

dollars

million

euros

million

dollars

million

euros

million

dollars

million

euros

million

dollars

Imports:

United States 10,216 9,142 10,360 9,750 9,926 11,203 9,814 12,185 10,416 12,955

Switzerland 2,003 1,792 2,262 2,129 2,722 3,072 2,680 3,328 2,980 3,706

Japan 1,420 1,271 1,391 1,309 1,433 1,617 1,431 1,777 1,475 1,834

Mexico 87 78 102 96 234 264 411 510 1,011 1,257

China 298 267 350 329 425 480 500 621 631 785

Israel 379 339 323 304 296 334 291 361 331 412

Singapore 207 185 229 216 257 290 274 340 313 389

Malaysia 254 227 254 239 233 263 219 272 232 288

Australia 127 114 145 136 153 173 161 200 199 247

Canada 145 130 144 136 128 144 147 183 169 211

Exports:

United States 6,082 5,442 7,342 6,910 8,265 9,328 9,559 11,869 9,696 12,059

Japan 1,661 1,486 1,731 1,629 1,712 1,932 1,970 2,446 2,068 2,572

Switzerland 743 665 984 926 993 1,121 1,044 1,296 1,071 1,333

China 359 321 426 401 554 625 620 770 670 833

Russia 604 540 527 496 522 589 561 697 667 830

Australia 400 358 476 448 498 562 622 772 649 807

Turkey 333 298 330 311 356 402 514 638 627 780

Canada 365 327 415 391 420 474 491 610 567 705

Norway 381 341 444 418 463 523 527 654 514 640

Singapore 125 112 185 174 264 298 370 459 424 527

Source: Global Trade Information Services, Inc. Global Trade Atlas Database.
4-12

Japan

Japan has remained a net importer of medical devices for many years (figure 4-5), as a result

of growing differentials between national consumption and production levels. As shown in

table 4-5, its medical device trade deficit widened to ¥525.1 billion ($4.9 billion) in 2004,

from ¥438.8 billion ($3.6 billion) in 2001, while its import to consumption ratio increased

from 43 to 46 percent in that period.

Exports of Japanese medical devices amounted to ¥430.1 billion ($3.9 billion) in 2004,

compared with ¥397.4 billion ($3.3 billion) in 2001. Export growth, which averaged

3 percent annually from 2001 to 2004, was mostly driven by overseas demand for

Japanese-made in vitro clinical test equipment (such as blood testing devices), whose share

of Japan's medical device export market grew by 2 percentage points over the period. Overall

export growth in this period was also attributable to exports of diagnostic imaging equipment

(such as MRI and CT), Japan's largest medical device export segment. The recent

discontinuation by Hitachi and Shimadzu of the manufacture of high-end CT and MRI

devices in 2006 may lower exports of these products over the course of the next few years.

The United States, historically the largest export market for Japanese-made medical devices,

accounted for approximately 26 percent of Japan's exports in 2004 (table 4-6). Germany was

the second largest market for Japanese exports of such devices, accounting for 9 percent in

2004, while China, the Netherlands, and Switzerland rounded out the top five leading export

markets for Japan. China's growth as an export destination for Japanese medical devices has

been the most pronounced in recent years.

Japan's medical device market has increasingly been supplied by imports, which accounted

for ¥955.3 billion yen ($8.8 billion) in 2004, compared to ¥836.3 billion yen ($6.9 billion)

in 2001. Import growth in this sector has averaged 5 percent per year since 2001, and was

mainly driven by ophthalmic devices (such as ophthalmic lasers and sight test equipment),

internal organ devices (implantable devices such as orthopedic implants and cardiac

pacemakers), and diagnostic imaging systems (such as MRI and CT devices).

The United States has also historically been the largest source of Japanese medical device

imports, accounting for 58 percent in 2004. U.S. firms are the major suppliers of many

critical products in Japan, such as pacemakers, defibrillators, and orthopedic implants,

including artificial hips and knees, which are not made in Japan. Other Japanese imports

from the United States primarily consist of catheters, diagnostic X-ray equipment, MRI

systems, laser surgical equipment, and cardiac valve prostheses. In some cases, such as the

drug-eluting stent, U.S. companies are the only approved supplier in Japan. Medical device

imports from the United States grew by 4 percent in 2004, though their share of Japan's

import market fell because of faster growth from such countries as Ireland. Between 2003

and 2004, Japan's medical device imports from Ireland grew by 31 percent, and gained

nearly 2 percentage points in Japanese market share, as major U.S.-based firms increased

manufacture and assembly of medical devices in majority-owned affiliate operations in

Ireland.
4-13

-0.001

-0.0005

0

0.0005

0.001

0.0015

million yen

2001 2002 2003 2004

Exports Imports Trade balance

Figure 4-5 Japanese exports, imports, and merchandise trade balance in medical devices, 2001–4

Source: Japan’s Ministry of Health, Labour and Welfare.

Note.—Official 2005 Japanese production and trade data will not become available until early 2007.
4-14

Table 4-5 Japanese merchandise trade balance in medical devices, by segment, 2001–4

Segment 2001 2002 2003 2004

Absolute c

million yen 

Diagnostic imaging systems 50,444 38,811 70,033 46,722 Related diagnostic X-ray equipment 14,143 17,804 12,539 15,455 Measuring and monitoring systems for biophenomena 41,429 23,744 44,022 48,515 In vitro clinical test equipment 5,250 2,200 4,771 17,705 Operating equipment and supplies -170,102 -145,662 -164,684 -171,054 Clinical equipment and supplies -2,535 -2,567 -1,973 -1,527 Artificial internal organ and assisting devices -223,069 -221,992 -260,312 -267,852 Therapeutic and surgical equipment -31,483 -37,970 -27,425 -33,964 Dental equipment -3,270 1,341 2,904 3,057 Dental material -17,975 -20,153 -19,009 -21,187 Steel products for medical use -20,587 -21,172 -21,411 -26,607 Ophthalmic and related products -69,287 -90,274 -97,122 -127,314 Surgical dressing/hygienic products -8,331 -9,415 -7,440 -7,875 Medical devices for home use -3,442 2,155 1,795 777 Total -438,815 -463,150 -463,312 -525,149 

million dollars 

Diagnostic imaging systems 415 310 604 432 Related diagnostic X-ray equipment 116 142 108 143 Measuring and monitoring systems for biophenomena 341 189 380 448 In vitro clinical test equipment 43 18 41 164 Operating equipment and supplies -1,400 -1,162 -1,421 -1,581 Clinical equipment and supplies -21 -20 -17 -14 Artificial internal organ and assisting devices -1,836 -1,770 -2,245 -2,476 Therapeutic and surgical equipment -259 -303 -237 -314 Dental equipment -27 11 25 28 Dental material -148 -161 -164 -196 Steel products for medical use -169 -169 -185 -246 Ophthalmic and related products -570 -720 -838 -1,177 Surgical dressing/hygienic products -69 -75 -64 -73 Medical devices for home use -28 17 15 7 Total -3,611 -3,693 -3,998 -4,855 Source: Japan’s Ministry of Health, Labour and Welfare; and IMF exchange rate.Note.—The differences between the data in yen and dollars is a result of exchange rate fluctuations that occurred in this period.
4-15

Table 4-6 Japanese imports and exports of medical devices, by selected countries, 2001–4

Country 2001 2002 2003 2004

billion

yen

billion

dollars

billion

yen

billion

 dollars

billion

 yen

billion

 dollars

billion

 yen

billion

 dollars

Imports:

United States 527 4.34 511 4.08 536 4.62 555 5.13

Ireland 35 0.29 53 0.42 77 0.66 100 0.92

Germany 58 0.48 71 0.57 66 0.57 69 0.64

China 23 0.19 26 0.21 31 0.27 34 0.31

Switzerland 14 0.12 17 0.14 30 0.26 33 0.31

Thailand 18 0.15 15 0.12 18 0.16 22 0.20

Netherlands 37 0.30 26 0.21 22 0.19 22 0.20

Sweden 12 0.10 13 0.10 14 0.12 13 0.12

France 11 0.09 14 0.11 12 0.10 12 0.11

United Kingdom (a

) (a) (a) (a) 10 0.09 12 0.11

Exports:

United States 104 0.86 884 7.05 110 0.95 112 1.04

Germany 34 0.28 31 0.25 39 0.34 38 0.35

China 15 0.12 15 0.12 17 0.15 21 0.19

Netherlands 20 0.16 16 0.13 20 0.17 18 0.17

Switzerland (a

) (a) 7 0.06 9 0.08 11 0.10

Korea 11 0.09 12 0.10 11 0.09 10 0.09

Taiwan 8 0.07 9 0.07 11 0.09 9 0.08

Belgium 7 0.06 7 0.06 7 0.06 7 0.06

Italy (a

) (a) 5 0.04 (a) (a) 6 0.06

France 5 0.04 (a

) (a) 5 0.04 5 0.05

Source: Japan’s Ministry of Health, Labour and Welfare.

a

 Not available.

5-1

CHAPTER 5

Relevant Multilateral and Bilateral

Trade Agreements

Several multilateral and bilateral trade agreements have direct implications for U.S. trade in

medical devices, as they focus on issues of concern to the medical device industry including

the harmonization of medical device regulatory systems. These include a World Trade

Organization (WTO) agreement for addressing standards and regulatory issues, two related

U.S.-Japan initiatives for addressing regulatory and other market access issues, an agreement

between the United States and the EU to recognize one another’s regulatory requirements

and procedures, a more recent U.S.-China initiative to address important trade issues of

concern, and a major voluntary agreement between the United States and several of its major

trading partners to harmonize global medical device standards and regulatory approval

procedures (table 5-1).

Table 5-1 Relevant medical device trade agreements and initiatives

Agreement/Initiative Country Issues

WTO Agreement on Technical Barriers to Trade WTO members Tries to ensure that standards, 

technical regulations, and

conformity assessment measures

do not constitute unnecessary trade

barriers

Regulatory Reform and Competition Policy Initiative Japan Regulatory and market access 

U.S.-EU Mutual Recognition Agreement EU Reciprocal recognition policies

U.S.-China Joint Commission on Commerce and

Trade

China Regulatory, certification, and pricing

issues

Global Harmonization Task Force Australia, Canada,

Japan, EU, and United

States 

Standards harmonization

Source: Compiled by Commission staff.

Each of these agreements and initiatives focuses on issues of concern to the U.S. medical

device industry that have the potential to impede U.S. sales and exports of medical devices.

Following is a brief overview of these agreements and initiatives and an examination of the

implications of each for the U.S. medical device industry. 

WTO Agreement on Technical Barriers to Trade

As WTO members, the United States, Japan, the EU, and other signatories are bound by the

WTO Agreement on Technical Barriers to Trade (TBT). The TBT agreement is significant

to medical device companies because it can impact regulatory issues confronting the

industry. The TBT tries to ensure, inter alia, that mandatory technical regulations and

conformity assessment requirements, such as product approval procedures, do not constitute
 1

 WTO TBT, Article 2-2.

 2

 WTO TBT Articles 2.1 and 5.1.1.

 3

 WTO TBT Articles 2.2 and 5.1.2.

 4

 WTO TBT Articles 2.9 and 5.6.

 5

 Draft regulations should be received by the WTO Secretariat, if possible, sixty days prior to their formal

adoption so as to allow time for other Members to make comments. The required process is analogous to the

U.S. Federal Register process in the United States and similar processes in many other developed countries,

requiring that all new proposed regulations first go through a review and comment process to ensure

transparency and careful consideration of the views of all interested parties to decrease the likelihood that

ineffective and costly new rules are adopted that result in more costs than benefits than intended by the

proponents of the original draft regulation. 

 6

 AdvaMed, “Comments to the World Trade Organization (WTO) on the European Commission’s

Notification Under the Technical Barriers to Trade (TBT) Agreement of its Draft Directive to Up-Classify

Total Joint Implants.”

 7

 U.S. industry officials, interviews by Commission staff, United States, June 15–16 and September 20,

2006.

 8

 U.S. government officials, interviews by Commission staff, United States, September 27, 2006; and

U.S. and foreign government officials, interviews by Commission staff, WTO TBT Committee Meeting,

Geneva, Switzerland, March 21–23, 2005.

5-2

unnecessary trade barriers.1 Generally, under the TBT agreement, national governments are

to apply their technical regulations and conformity assessment procedures on a

nondiscriminatory basis2

 and develop regulations and procedures in such a manner that they

are no more trade-restrictive than necessary to meet legitimate objectives, which may include

the protection of human health, safety, and the environment, and the prevention of deceptive

practices.3

Strict transparency provisions4

 that require members to notify the WTO in advance of

adoption of all proposed new regulations that have a potential to impact trade are an

important mechanism to ensure that members’ regulatory policies adhere to TBT principles.5

Such transparency provisions provide WTO members with an opportunity to review and

comment on proposed new regulations and have their views taken into account before final

regulations are adopted. Such was the case in a recent European Commission decision to

increase the regulatory scrutiny of certain orthopedic implant devices, a leading product

segment for the U.S. industry. The TBT’s transparency provisions provided the United States

and other concerned WTO members an opportunity to carefully review, comment on, and

request the European Commission to explain its reasons for its proposal.6

 After adoption of

the proposed EU regulation, U.S. industry officials indicated that while they were

disappointed with the adoption of the proposed directive, they are pleased that some of their

comments, which addressed ways to comply with the directive, were taken into account.7

Although the TBT procedures do not guarantee that all members’ concerns regarding

proposed regulations will be completely resolved in their favor, there has been broad

consensus among WTO members, including the United States, that the TBT provisions have

greatly enhanced the opportunity of all members to learn about and influence the final

decisions of WTO member country regulators before they become final.8
 9

 USTR, “Fact Sheet on Fifth Report to the Leaders on the U.S.-Japan Regulatory Reform and

Competition Policy Initiative," 1. 

 10 USDOC, Trade Compliance Center, “Report on the U.S.-Japan Market-Oriented, Sector-Selective

Discussions on Medical Equipment and Pharmaceuticals.” 

 11 U.S. government and industry officials, interviews by Commission staff, United States, MarchJune 2006.

 12 USTR, "Fact Sheet on Fourth Report to the Leaders on the U.S.-Japan Regulatory Reform and

Competition Policy Initiative,” 1; and "Fact Sheet on Fifth Report to the Leaders on the U.S.-Japan

Regulatory Reform and Competition Policy Initiative,” 1.

 13 USDOC, “Medical Devices and Pharmaceuticals,” and U.S. industry officials, interviews by

Commission staff, United States, June 5-16, 2006.

 14 USTR, “Fact Sheet on Fifth Report to the Leaders on the U.S.-Japan Regulatory Reform and

Competition Policy Initiative.”

5-3

U.S.-Japan Trade Agreements Related to Medical Devices

and Equipment

Over the past two decades, the United States has entered into trade talks with Japan through

market-oriented, sector-selective (MOSS) negotiations9

 and a Regulatory Reform and

Competition Policy Initiative (Regulatory Reform Initiative) to address key regulatory and

other market access issues for U.S. industries, including the medical device industry.10 In

general, bilateral discussions between U.S. and Japanese government officials have provided

opportunities to address industry concerns regarding issues such as the Japanese regulatory

system structure. 

Although U.S. government and industry officials state that substantial progress was achieved

in these discussions, they indicate that U.S. companies still face complex and slow regulatory

approval procedures for medical devices sold in Japan.11 

Progress in the Regulatory Reform Initiative discussions is reported to Japanese and U.S.

leaders twice a year. Recommendations by the United States to Japan in December 2005 and

June 2006 focused on progress in the reform of the Japanese medical device regulatory

system and on new Japanese medical device reimbursement and pricing proposals.12

Although the April 2005 reorganization of Japan’s medical device regulatory system was

purportedly to boost efficiency, U.S. government and industry officials continue to express

frustration regarding continued delays in processing of applications for medical device

approvals and other elements of the new regulatory system which reportedly increase U.S.

exporters’ costs in marketing medical devices in Japan.13 Further, U.S. industry and

government officials have expressed opposition to a new Japanese policy aimed at reducing

the natural rate of growth of healthcare costs by reducing insurance reimbursement rates on

medical devices.

The June 2006 report on the Regulatory Reform Initiative does include agreements by Japan

to increase staff at Japan’s new regulatory approval agency to help shorten review and

approval times and to establish a system to expedite regulatory approval of partial changes

to medical devices, many of which are currently reviewed as completely new applications.

The report also acknowledges Japan’s agreement to carefully review industry studies

examining the costs of Japan’s regulatory and distribution systems, with a view toward

taking such costs into account when determining new reimbursement rates for medical

devices.14 Another issue being discussed within the framework of the U.S.-Japan Regulatory

Reform Initiative is what U.S. medical device companies perceive as insufficient use by
 15 Further discussion of this issue is contained in chapter 6 of this report.

 16 Devereaux, International Trade Meets Domestic Regulation, 1. 

 17 Chai, “Medical Device Regulation in the United States and the European Union,” 75–76.

 18 European Commission official, interviews by Commission staff, Belgium, September 18, 2006.

 19 U.S. and European Commission officials, telephone interviews by Commission staff, May 9 and 11,

2006; and U.S. industry official, interview by Commission staff, United States, September 20, 2006. 

 20 U.S. and Japanese industry officials, and officials of third-party bodies accredited to the Pharmaceutical

Affairs Law, Japan, July 31–August 9, 2006.

 21 U.S. government official, interview by Commission staff, United States, May 2006.

5-4

Japanese regulators of non-Japanese clinical data to demonstrate safety and efficacy of

medical devices, which they indicate requires U.S. producers to duplicate trials previously

conducted in the United States or the EU. The Medical Device Resource Group, a coalition

of medical device industry companies, estimated that, in 2005, only 20 percent of

submissions relying entirely on foreign data were accepted by Japan.15

U.S.-European Union Mutual Recognition

Agreement–Medical Devices

On May 18, 1998, the United States and the EU signed a mutual recognition agreement

(MRA), which became effective in December of that year.16 The MRA consists of a

framework agreement and six sectoral annexes, one of which covers medical devices and

equipment. The medical device MRA specifies conditions under which U.S. and EU

regulatory bodies will recognize the results of conformity assessment (or product approval)

by the other party's conformity assessment bodies (CABs).17

Under the medical device MRA, the relevant regulatory authority can conduct reviews for

the sale of medical devices in the other country (or countries in the case of the EU) to assess

their conformance with the importing party's requirements and make recommendations. This

may include premarket reviews of select low- to medium-risk devices. In the United States,

third-party CABs are to evaluate products and conduct inspections with respect to EU

requirements as specified in the EU’s medical device directive (MDD). Conversely, in the

EU, CABs are to test to U.S. requirements. Regulatory reviews conducted in the United

States for the EU market and in the EU for the U.S. market by the CABs do not constitute

final approvals but only provide recommendations to regulatory authorities to grant approval

in the respective markets.18

Although government and industry officials interviewed indicate that the U.S.-EU medical

device MRA has not fully met initial expectations, they state that it has improved

cooperation and understanding between regulatory officials in the two largest global markets

for medical devices.19 They indicate that it has significantly contributed to the movement

towards international harmonization and cooperation in medical device regulatory review

and approval processes. For instance, the introduction of the new approach of using private

third-party review and testing has since been incorporated in a number of other regulatory

approval systems, including that of Japan.20

However, consolidation and globalization of the medical device supply chain has led to

reduced interest in the medical device MRA by U.S. medical device companies. In 1998, one

of the main objectives of the Agreement was to facilitate regulatory review of U.S. and EU

firms’ medical devices in their domestic markets. However, many U.S. firms now have a

major presence in the EU21 or can now gain EU approval by simply using U.S. subsidiaries
 22 AdvaMed, “US-EU Mutual Recognition Agreement (MRA).”

 23 U.S. industry representatives, personal and telephone interviews by Commission staff, May 9 and 11,

2006, and September 20, 2006.

 24 U.S. government officials, telephone interviews by Commission staff, November 21–22, 2006.

 25 GAO, Medical Devices: Status of FDA Inspections, 2-12; and Swain, “Euro-US Inspections to Begin by

December,” 21.

 26 Rudolph and Stigi, “FDA Third-Party Programs: Reality or Myth,” 64.

 27 GAO, Medical Devices: Status of FDA Inspections, 9; and Rudolph and Stigi, “FDA Third-Party

Programs: Reality or Myth,” 64; and U.S. government officials, interview by Commission staff, United

States, May 31, 2006.

 28 USTR, Summary of JCCT Medical Devices Task Force Meeting.

 29 USTR, “Trade Facts, The U.S.-China JCCT: Outcomes on Major U.S. Trade Concerns.”

 30 USDOC, “U.S-China Joint Commission on Commerce and Trade (JCCT).”

5-5

of EU accredited third-party bodies to complete much of the required testing and review in

the United States, thereby bypassing use of the medical device MRA.22

Some U.S. industry representatives suggest that, in order to be effective, the medical device

MRA would have to be conceptually different, allowing acceptance of foreign medical

device approval without further evaluation.23 In other words, they hope that FDA approvals

will be considered as acceptable as CE-marked medical devices in the EU and vice versa.

However, U.S. government officials suggest that significant policy, legislative, and

regulatory changes would need to occur first.24

Still, the United States and the EU continue to work to make the medical device MRA fully

operational. An area of current focus is joint inspections of medical device manufacturing

facilities to ascertain compliance with both U.S. and EU regulatory requirements.25 For such

inspections to be accepted by both parties, regulatory authorities for both parties must have

complete assurance that the other party’s CABs will be able to effectively perform such

inspections to meet their own specific guidelines.26 To help achieve such confidence,

regulators for each party are calling for companies to volunteer to have their facilities

inspected to meet both U.S. FDA and EU manufacturing requirements.27

U.S.-China JCCT Medical Devices and 

Pharmaceuticals Subgroup

The U.S.-China Joint Commission on Commerce and Trade (JCCT),28 chaired by the U.S.

Secretary of State and USTR and China’s Vice Premier for Foreign Trade, provides a forum

for the United States and China to discuss trade concerns and expand commercial trade

opportunities.29 Within the JCCT, U.S. and Chinese government and industry officials

employ the Medical Devices and Pharmaceuticals (MDP) Subgroup to discuss medical

device regulatory and market access issues.30

Three major issues currently dominate the MDP discussions: China’s decentralized

regulatory system, redundant certification requirements, and proposed price controls on

medical devices. Because of the growing importance of China as a major medical device

market, U.S. industry officials state that China must address these issues if U.S. exports are
 31 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006.

 32 U.S. industry and government officials, interviews by Commission staff, September 20 and October 10,

2006.

 33 U.S. industry and government officials, interviews by Commission staff, United States, September 20

and October 10, 2006.

 34 USTR, Summary of JCCT Medical Devices Task Force Meeting; and U.S. government and industry

officials, interviews by Commission staff, United States, June 5-16, 2006.

 35 U.S. Chamber of Commerce, “International Trade and Investment, Accomplishments and Ongoing

Activities by Country.” 

 36 U.S.-China Business Council, “China’s 2004, 2005, and 2006 JCCT Commitments,” 6. 

 37 World Health Organization (WHO), Medical Device Regulations: Global Overview and Guiding

Principles, 15–17.

 38 GHTF, “Working Toward Harmonization in Medical Device Regulation,” 1.

 39 FDA, “FDA Extends Pilot Program for Evaluation of Globally Harmonized Medical Device Premarket

Applications Until July 2006 (STED Initiative).”

5-6

to thrive in that market.31 They claim that the JCCT subgroup for medical devices is an

important vehicle to continue to address these issues.32

While China has created a separate regulatory agency for medical devices (the China Food

and Drug Administration (CFDA), patterned on the U.S. FDA), U.S. industry officials

contend that other Chinese agencies continue to impose their own approval requirements on

medical devices,33 often resulting in costly and duplicative testing and inspection

requirements for U.S. medical device firms attempting to gain product approval.34 China

agreed to eliminate redundant certification requirements on imported medical devices by

May 2006.35 However, according to the U.S.-China Business Council, proposed regulations

issued on April 30, 2006 to accomplish this do not appear to effectively address the

redundancy issues.36

Global Harmonization Task Force

The Global Harmonization Task Force (GHTF) is a voluntary effort established in 1993 by

government and medical device industry officials of Australia, Canada, Japan, the EU, and

the United States. The primary purpose of the GHTF is to harmonize medical device

standards to minimize regulatory barriers related to the safety, performance, and quality of

medical devices and equipment; facilitate international trade; and improve access to new

medical technologies.37 The work of the GHTF is accomplished principally through

publication and dissemination of harmonized guidance documents on basic regulatory

practices, which are developed by four different GHTF study groups.38 These documents

may then be implemented or adopted by the regulatory authorities of members. The GHTF

also serves as an information exchange forum for countries in the process of developing

medical device regulatory systems so they can benefit from the experience of countries with

existing systems.

One document adopted by the GHTF that may ease product registration for U.S. medical

device companies is an internationally harmonized format for the submission of premarket

applications by members, the Summary Technical Documentation for Demonstrating

Conformity to the Essential Principles of Safety and Performance of Medical Devices

(STED). GHTF member countries launched a pilot project in 2002 to test the viability and

effectiveness of STED. In the United States, the FDA initiated its STED pilot program in

June 200339 and has extended the deadline indefinitely in hopes of encouraging the industry
 40 U.S. government official, telephone interview by Commission staff, United States, November 2006.

 41 U.S. and Japanese government officials, interviews by Commission staff, Japan, July 31 and

August 8, 2006.

 42 U.S. and Japanese government and industry officials, interviews by Commission staff, United States,

May 31 and June 5–16, 2006, and Japan, July 31–August 9, 2006.

 43 U.S. government and industry officials, interviews by Commission staff, United States,

June 5–16, 2006.

 44 U.S. and Japanese government officials, interviews by Commission staff, United States, May 31, 2006,

and Japan, July 31 and May 8, 2006. 

5-7

to utilize STED.40 Meanwhile, Japan has made STED an integral component of its

application process in its recently reformed medical device regulatory approval system.41

U.S. industry officials state that for GHTF documents to effectively minimize the inherent

costs and redundancy resulting from firms’ having to register products to different rules and

regulations in multiple markets, there must be consistency in how each of the GHTF

countries implements each document.42 Often, member countries add their own specific

provisions to GHTF documents, thus reducing the benefits of harmonization the documents

are meant to provide.43 For instance, they point out that U.S. and Japanese pilot STED

applications require different information for product applications to the two countries.

However, U.S. and Japanese regulatory authorities believe that as more experience is gained

through the pilot efforts, some national deviations may be minimized or even eliminated.44

 1

 For reasons explained in the qualitative assessment section of this chapter, Commission staff determined

that a quantitative analysis measuring the impact of foreign regulatory approval systems on U.S. sales and

exports could not be adequately and reliably completed for purposes of this investigation.

 2

 Ludwig, hearing transcript, 9-10; Agress, hearing transcript, 109; and U.S. and Japanese industry

officials, market analysts, and a Japanese healthcare economist, interviews by Commission staff, Japan,

July 31–August 9, 2006.

6-1

CHAPTER 6

Impact of Regulatory Approval Systems on

U.S. Industry

To assess the impact of Japan’s regulatory approval system on U.S. trade of medical devices,

this chapter compares it with those of the United States and the EU, reviews relevant

literature on the subject of medical device regulation, and examines regulatory data on

product approvals. Regulatory cost and approval data indicate that while total fees paid by

firms to gain approval in the United States appear to be higher than those in Japan, the

average total length of time it takes to approve new medical devices is significantly higher

in Japan. Even though average approval times in Japan declined substantially in 2005, the

year in which a major reform of the Japanese regulatory approval system took effect, they

still were more than three times the average level experienced in 2002. They also continued

to be significantly higher than those in the United States and EU. 

A qualitative assessment1

 of the potential impact on U.S. medical device producers of

Japan’s longer average approval times indicates that U.S. firms may be disproportionately

affected compared to Japanese and EU rivals in terms of sales, exports, and profitability even

though there is no evidence of discrimination. This is because U.S. medical device firms

have a competitive advantage in higher-risk, more innovative products compared to their

principal foreign rivals. Such innovative medical devices, which face approval times of up

to 3 years in Japan, are characterized by much shorter product life cycles (as little as 18

months) than most other products. Thus, industry officials contend that delays in regulatory

approvals in Japan result in significant opportunity costs for U.S. medical device firms

during the time their products are undergoing review. 

U.S. industry officials report that medical device firms also encounter some other significant

costs in Japan not faced in other markets. For example, U.S. medical device firms reportedly

have incurred substantial reorganization costs to comply with a new Japanese regulation

requiring medical device firms to separate their manufacturing from their marketing

operations for regulatory purposes. Neither the United States nor the EU has such a

requirement. Further, U.S. industry officials report that Japan often requires medical device

firms to conduct additional clinical trials to produce safety data that are equivalent to those

obtained in clinical trials in other countries, while the United States and the EU commonly

accept foreign clinical trial data for regulatory approval purposes. While such requirements

do not discriminate against U.S. companies, industry officials state they still add significant

costs to their operations that adversely affect their sales and trade with Japan. Industry

officials also indicate that medical devices do not reach patients in Japan until several years

after they are approved for sale in the United States and the EU, thus depriving Japanese

patients of the latest medical technologies.2

 
 3

 U.S., Japanese, and European industry and government officials, interviews by Commission staff,

United States, June 5–16, 2006; Japan, July 31–August 9, 2006; and the EU, September 18–29, 2006.

 4

 Efficiency in producing a public good, such as product safety, is difficult to measure. Input

measurements, such as the number of employees per approved device, are straightforward, but do not

measure the safety aspect of what the regulatory agency is supposed to produce. There is a nascent literature

in economics on bureaucratic efficiency, such as Prendergast and Chan, but it does not address issues

pertinent to this report.

 5

 Although the U.S. classification system of products for regulatory purposes is technically broken into

three risk categories, while Japan uses a four-class system, and the EU, a three-class system with two

subparts in its second class, there is much overlap between the three systems.

 6

 Diller, “Healthcare: Products and Supplies: Europe,” July 2006, 25–26; European Commission officials,

telephone interviews by Commission staff, March 6–10, 2006; and EU notified body official, interview by

Commission staff, United States, May 4, 2006.

 7

 Based on a review of the literature, Campbell is virtually alone in advocating that independent, privately

funded organizations review and approve medical devices. Campbell, “Exploring Free Market Certification

of Medical Devices.” Preker and Harding advocate a strong governmental role that is restricted to

stewardship and financing. Preker and Harding, “The Economics of Public and Private Roles in Health Care:

Insights from Institutional Economics and Organizational Theory.”

 8

 GAO, “Medical Device Regulation,” 6.

 9

 Chai, “Medical Device Regulation in the United States and the European Union,” 62–63.

6-2

Comparison of the U.S., EU, and Japanese Regulatory

Systems

U.S. medical device firms have faced strict regulatory measures in the United States, the EU,

and Japan for several decades given the potential health and safety risks intrinsic to medical

technology. All three of these markets have medical device regulations with broadly similar

purposes.3

 All classify medical devices according to risk, and a regulatory organization must

approve the riskier devices before they can be marketed. All have postmarket monitoring

systems for surveillance of approved products but place more emphasis on premarket

approval. Given the broad similarities in regulations across regions, the efficiency of

regulatory agencies’ implementation of them becomes a central concern to medical device

firms. The scant literature identified by the Commission on this issue is inconclusive and

mainly addresses distinctions between different aspects of EU and U.S. regulations.4

Despite differences in the number of risk categories5

 of the U.S., EU, and Japanese medical

device regulatory systems, they are conceptually the same (table 6-1). The most important

differences among the three systems are those pertaining to the role of government. In the

United States and Japan, the government retains final authority for approval of medical

devices. In contrast, premarket review and approval in the EU is principally conducted by

independent third-party testing laboratories accredited by member state health ministries to

review and approve medical devices for the EU market.6

 Although the U.S. and Japanese

systems do not grant third parties as much discretion as the EU system, both the U.S. and

Japanese regulatory bodies use third parties for the preliminary assessment of low- and

medium-risk devices but retain the final authority over device approval.7

Another important difference is that while the United States and Japan review devices for

safety and effectiveness, which includes providing a benefit to patients, EU accredited

testing and certification bodies review medical devices for safety and performance according

to the manufacturer’s specifications.8

 The EU’s mandate is thus more limited than that of the

U.S. and Japanese regulatory bodies.9
6-3

Table 6-1 Medical device classification and regulation in the European Union, the United States, and Japan

International Classificationa EU system guidelines U.S. system guidelines Japanese system guidelines

Class I

(extremely low risk– e.g.

tongue depressors,

X-ray film, sutures)

No approval necessary No approval necessary No approval necessary

Class II

(low risk– e.g. MRI,

urological catheters)

Third-party

certification Site inspection only

Document

examination

necessary

Government

approval

necessary

(limited 3rd-party initial review)

Third-party certification

Class III

(medium risk– e.g. dialysisapparatus, artificial bones) Government

approval

necessary

Class IV

(high risk– e.g. implantable

pacemakers/

defribrillators, coronary

stents, heart valves)

Sources: Global Harmonization Task Force, U.S. Food and Drug Administration, European Commission, and Japanese Ministry of

Health, Labour and Welfare.

a Global Harmonization Task Force translation of EU, U.S., and Japanese medical device classes for comparison purposes.
 10 21 U.S.C. § 301 et seq.

 11 See 21 U.S.C. § 352.

 12 21 U.S.C. § 360c et seq.; Diller and Gold, “Healthcare: Products and Services,” 22–25; and U.S.

industry analysts and government officials, personal and telephone interviews by Commission staff, MayJune 2006.

 13 FDA/CDHR, CDHR’s Medical Device Postmarket Safety Program, 6–20. 

 14 FDA, “Overview: FDA Regulation of Medical Devices,” 1.

6-4

United States

The Federal Food, Drug, and Cosmetic Act 10 of 1938 (Act) laid the foundation for federal

regulation of medical devices by authorizing the FDA to prosecute individuals and firms

who misused or misbranded medical devices for commercial purposes.11 However, it did not

require firms to obtain approval before they placed medical devices on the market. Following

a number of highly publicized incidents involving injuries from newly developed products,

such as pacemakers and intrauterine devices (IUDs), Congress passed significant

amendments to the Act in 1976, establishing a substantive FDA medical device regulatory

approval system.12

Under the 1976 law, the FDA reviews all new medical devices for safety and efficacy prior

to granting regulatory approval. Medical device firms are required to provide data to the

FDA supporting their device claims. The amount of data required depends on the potential

degree of risk to a patient using the medical device in question. The FDA has three general

product classifications and related requirements based on level of risk (table 6-2).

All domestic and imported medical devices, regardless of classification, are also subject to

postmarket controls by the FDA, i.e., monitoring the safety of medical devices already in use

and taking required remedial actions. Important components of the FDA’s postmarket

program include mandatory medical reports from manufacturers under the Medical Device

Reporting (MDR) system, reports from hospitals, and FDA inspections of manufacturing

facilities.13 Postmarket information on devices also is compiled through FDA recallnotification reports, FDA bio-research monitoring investigations, user complaints,

international vigilance reports, and studies carried out by manufacturers after their products

have been approved. Based on data and other information developed from these sources,

FDA staff and outside experts identify the nature, magnitude, and public health significance

of any problems regarding certain medical devices to determine whether actions are required

to protect the public, such as issuing urgent alerts or instituting administrative or judicial

enforcement actions.14
 15 GAO, Medical Devices: Status of FDA Inspections, 3.

 16 FDA/CDHR, “What is a Third Party Review,” 1. 

6-5

Table 6-2 FDA medical device classification system and regulatory clearance requirements

FDA 

class Device types and requirements Regulatory clearance procedure

I Commodity medical devices posing least

potential risk to patients. 

Examples: Tongue depressors, stethoscopes,

X-ray film, and sutures. 

Most class I devices similar to ones already on the

market require no regulatory clearance or approval,

and manufacturers may place them directly on the

market 90 days after notifying and listing products with

the FDA, registering manufacturing facilities, and

conforming to good manufacturing practices (GMPs).

A few class I devices are required to undergo more

rigorous demonstration of equivalence to products

already on the market, such as required with a 510(k)

filing, the most common FDA filing for approval of

medical devices.

II Devices constituting moderate potential risk to

patients. 

Examples: X-ray, MRI, CT, endoscopes, and

surgical lasers. 

Most class II devices are cleared through the FDA

510(k) process. Manufacturers must demonstrate

substantial equivalence of their products to predicate

devices already on the market, provide evidence of

product safety and efficacy, and meet certain other

standards. They are also responsible for registering

their facilities, conforming to GMPs, postmarket

surveillance, and maintenance of patient registries. 

III Technologically advanced products constituting

significant potential risk to patients.

Examples: Cardiac pacemakers, implantable

defibrillators, angioplasty (balloon) catheters,

coronary stents, replacement heart valves, and

silicone gel-filled breast implants.

Most class III devices employing new methods of

treatment and not similar to medical devices already on

the market require FDA premarket approval (PMA), a

more complex and lengthier process than 510(k) filing.

Submission usually requires significant clinical testing

data, manufacturing information, and other data

supporting firms' claims of safety and efficacy for the

new product. Producers are also responsible for the

same GMP and postmarket surveillance requirements

as class I and II devices. (A few class III devices

similar to devices already on market only require

510(k) review.)

Source: FDA, "Overview: FDA Regulation of Medical Devices," 1; FDA/CDHR, CDHR’s Medical Device Postmarket

Safety Program, 6–20; and Diller and Gold, “Healthcare: Products and Services,” 22–25.

Although the FDA traditionally has been responsible for both the review and approval of

medical devices, the FDA Modernization Act of 1997 (FDAMA) created a third-party review

program referred to as the “Accredited Person Program.”15 Under this program, third-party

testing bodies accredited by the FDA are authorized to conduct primary reviews of selected

510(k) applications, which are applications for devices substantially equivalent to devices

already on the market.16 The third-party conducts the primary review of the 510(k), then

forwards its review, recommendation, and 510(k) to the FDA. The FDA is required to issue

a final determination within 30 days of receiving the recommendation of the accredited third

party. It is important to note that like Japan, but unlike the EU, a third-party decision in the

United States must be reviewed and approved by the government authority, the FDA, before

a device may be placed on the U.S. market.

Rapid developments in emerging technologies are challenging the FDA as well as foreign

regulators, particularly with respect to the classification and regulation of medical products
 17 See Massa, in Hanna et al., Innovation and Invention in Medical Devices; Fox and Shapiro,

"Combination Products;" Sall, Lassoff, and Babbit, "Getting Started with a Combination Product Part 1"; and

FDA, “Intercenter Agreements.”

6-6

Box 6-1 Combination products: Questions and answers

What are combination products?

In brief, combination medical devices are defined in the United States as regulated drugs, devices, or biologics,

whether already approved or investigational, that are either mixed with, packaged with, or required for use with one

or more other such products to provide delivered, metered doses in potentially safer, more efficient, and/or more

convenient form than that of the individual products.a 

Examples of recently approved combination devices in the United States include products to deliver medications

directly to users in measured doses (e.g., metered-dose inhalers, transdermal patches, inhaled insulin, and an inhaled

flu vaccine), as well as products intended to enhance and/or facilitate the effectiveness of various procedures (e.g.,

drug-eluting coronary stents and surgical mesh with antibiotic coating).

How large is the market for combination products?

The global market for combination medical devices is rapidly evolving. The estimated value of this market totaled

$5.4 billion in 2004, and is expected to more than double to $11.5 billion by 2010. The U.S. market accounted for 65

percent of the world market in 2004 (compared with 24 percent for Europe and 7 percent for Japan), largely because

of the rapid U.S. adoption of drug-eluting stents. Drug-eluting stents accounted for about $4.0 billion of the 2004

global market, a 100 percent increase from 2003, their introductory year. The worldwide drug-eluting stent market

is expected to double again by 2010 to $8.0 billion, paralleling double-digit annual growth projected through 2010 for

the overall combination products market.b

What regulatory issues face combination products?

The regulation of such products creates unique challenges for manufacturers and regulators because, by definition,

the devices involve disparate products that often fall under the jurisdiction of two or more regulating organizations.c

Also, many are innovative products with unique doses and delivery methods that present new safety and efficacy

issues and make it difficult to generalize across product categories.d

 Such issues, when combined with differences

in national regulatory systems, can result in additional testing requirements and, in turn, additional paperwork, time,

and expenditures for manufacturers. 

The two principal differences between the EU and Japanese regulatory systems, and the regulatory system of the

United States is that neither the EU nor Japan has an official definition of combination products nor do they have

centralized mechanisms to allow for jurisdictional decisions related to the regulation of combination products. Japan

reportedly has no specific provisions for the regulation of combination medical devices. Also, whereas medicinals and

medical devices marketed in the United States undergo a centralized review by the FDA, under the EU’s New

Approach, combination products classified as medical devices undergo third-party certification (although incorporation

of a medicinal in such a device requires that the Notified Body consult with a competent authority).

Country/regional profiles

United States–Regulatory challenges have been addressed through numerous initiatives, including 1990

amendments to the Federal Food, Drug and Cosmetic Act (21 U.S.C.21 U.S.C. §301 et seq.), which introduce the

concept of combination products as part of a larger effort to clarify product jurisdiction issues, as well as through

structural changes within the FDA. These structural changes resulted from the implementation of the Medical Device

User Fee and Modernization Act of 2002 (PL 107–250, 116 Stat. 1588), which, among other things, established the

Office of Combination Products. Although this office does not review products itself, it makes timely jurisdictional

decisions regarding the appropriate center within FDA to review/approve such products,e

 oversees reviews and

resolves associated disputes, develops regulations, and responds to issues raised by interested parties. Companies

that combine elements that were previously subject to differing regulatory regimes, such as

medical devices, drugs, and biologics.17 Significant issues presented by such combination

devices are discussed in box 6-1.
6-7

Box 6-1 Combination products: Questions and answers (Continued)

EU– In the EU, combination products are covered by either the medicinals directive or the medical devices directive,f

generally depending on their mode of action and intended purpose.g If any doubt exists, the product would reportedly

be addressed as a medicinal and would be subject to what has been characterized as a more rigorous regulatory

review. The manufacturer has sole and ultimate responsibility for the conformity of the product to the applicable

directives.

The medical devices directive provides three potential classifications for combination products. Products that

administer medicinals (e.g., empty syringes) are classified as medical devices, although the pharmaceutical delivered

must be approved for use in the EU. One-time use devices that deliver prepackaged medicinals (e.g., prefilled

syringes) are covered by the medicinal directive, although the device must meet the conditions of the medical devices

directive addressing safety and performance. Combination products in which both the device and the medicinal play

an integral therapeutic role are subject to approval by a notified body under the auspices of the medical devices

directive; however, the notified body must also consult with the proper competent authority either through the

centralized procedure (via the European Medicines Evaluation Agency) — particularly if the product contains human

blood or derivatives, or through the decentralized procedure (via the competent authorities of individual member

states).

Japan– In Japan, there are reportedly no special provisions for regulating combination products. Although the revised

Japanese regulatory system for medical devices is reportedly evolving, industry sources do not expect combination

products to be addressed immediately, given many other priority issues facing the PMDA. 

Sources: Compiled by Commission staff using information gathered from U.S. industry officials, telephone interviews

by Commission staff, May–August 2006; U.S. government official in Belgium, e-mail messages to Commission staff,

February–October, 2006; U.S. government official in Japan, e-mail message to Commission staff, April 12, 2006; EU

government official, e-mail message to Commission staff, April 25, 2006; EU industry officials, interviews by

Commission staff, September 17–29, 2006; Japanese government official, e-mail message to Commission staff,

December 8, 2006; Massa, in Hanna et al., Innovation and Invention in Medical Devices; Fox and Shapiro,

“Combination Products”; Sall, Lassoff, and Babbit, "Getting Started with a Combination Product Part 1”; and FDA,

“Intercenter Agreements;” among others.

a

 The complete U.S. definition, dating to 1991, can be found in 21 CFR §3.2(e). b

 The market value information was obtained from Gray, “B-205 Drug-Device Combinations,” Press Release. c

 Industry cites the FDA’s Office of Combination Products’ list of newly approved products as providing helpful

regulatory information on certain types of products, giving insight into regulatory issues of new products. d

 Industry sources note that U.S., EU, and Japanese reviewing authorities may consider review findings for products

already approved in foreign markets but are not bound by the results. e

 The FDA centers responsible for review remain the Center for Drug Evaluation and Research, the Center for

Biologics Evaluation and Research, or the Center for Devices and Radiological Health, depending largely on the

product’s primary mode of action (PMOA). Additional factors are considered if the PMOA cannot be determined with

reasonable certainty. Although generally maintaining full responsibility for the product, the designated lead FDA Center

may consult with other FDA centers on specific components of the product. According to the FDA, intercenter

consultation requests almost tripled between early FY2003 and FY2005. f

 “Borderline” products are subject to the Demarcation Guidelines. If any ambiguity still remains, companies may

seek guidance from a competent authority in a procedure described as being similar to the U.S. RFD. Also,

representatives of the EU state that the pending European Regulation on Advanced Therapies, which addresses

advanced therapy combination products containing human cell and other tissue-based products as well as other

advanced therapy devices, is generating questions among member states as to whether such combination products

should be considered devices or pharmaceuticals. Implementation of the registration is expected in 2007. g

 EU representatives note this is likely to change to PMOA once pending medical device directive revisions are

implemented.
 18 Diller, “Healthcare: Products and Supplies: Europe,” 25–26.

 19 European Commission officials, telephone interviews by Commission staff, March 6–10, 2006; and EU

notified body official, interview by Commission staff, United States, May 4, 2006.

 20 European Council Directive 93/42/EEC of 14 June 1993 concerning medical devices, OJ L 169,

12.7.1993. 

 21 European Council Directive 90/385/EEC of 20 June 1990 on the approximation of the laws of the

Member States relating to active implantable medical equipment.

 22 European Council Directive 98/79/EC of 27 October 1998 on in vitro diagnostic medical devices. 

 23 Horton, European Union Pharmaceutical & Medical Device Regulation, 44–50.

 24 Ibid.

 25 Under the EU system, manufacturers usually have a choice between having their products approved

through a quality management systems approach or one of several specific product testing and approval

approaches specified in the relevant directives. For larger firms, the quality systems approach is often

preferred because by having their quality management systems certified by a notified body to the ISO 13485

international standard, a number of firms' products may be made eligible for marketing in the EU by a

supplier’s declaration of conformity by the manufacturer. At the conclusion of a conformity assessment, the

notified body either issues a certificate of conformity or provides an explanation of the problems that

preclude certification. EU notified body official, interview by Commission staff, United States, May 4, 2006;

and European regulatory officials, interviews by Commission staff, Belgium, Germany, and France,

October 19–29, 2006.

 26 Diller, “Healthcare: Products and Supplies: Europe,” 25–26.

6-8

European Union

The EU medical device regulatory approval process is unique among the three major

markets. Although it includes many of the same features – such as premarket review of

devices based on risk and postmarket surveillance activities – as those contained in the U.S.

and Japanese regulatory systems, the manner in which these activities are conducted and the

entities that perform them differ in the EU system. Independent third-party test laboratories,18

rather than government reviewers and inspectors, generally are the key entities responsible

for determining if new medical devices and their manufacturing processes meet essential EU

requirements of safety, thus allowing them to be placed on the market.19

EU requirements, or technical regulations, for different types of medical devices are

specified in several European Council directives: the medical device directive (MDD),20 the

active implantable medical device directive,21 and the in vitro diagnostics directive (figure

6-1).22 Each of these directives contains a legislative statement of EU “essential

requirements,” which are further defined by technical standards for each directive.23 Medical

device manufacturers are responsible for meeting and documenting how they meet these

essential requirements. 

For certain less risky medical devices, including most EU class I products (table 6-3), a

declaration of conformity by the producer is sufficient. For higher risk products – ranging

from class II “me too” devices, such as diagnostic imaging devices, that require evidence

comparing them to devices already on the market, to the highest risk class III devices, such

as implantable cardiac pacemakers or drug-eluting stents – firms are required to obtain a

third-party assessment from a registered EU notified body regarding their conformity to

regulatory requirements.24 In general, the manufacturer may choose among different methods

of assessing the conformity of a product or manufacturing system.25 The conformity

assessment determines whether the product complies with the applicable directives and

technical standards.26 Once conformity is demonstrated, the manufacturer may apply a

European conformity mark (CE mark) to the medical device to indicate that the device meets
6-9

Figure 6-1: European Union medical device regulatory approval system

EU

Other Relevant EU 

Directives:

WEEE

(Waste, electrical and

electronic equipment)

REACH (Reg)

(Registration of

Chemicals)

Others. . . .

Medical Devices

IVDD MDD AIMDD

In-Vitro Diagnostics 

Device Directive Medical Device Directive

Active Implantable 

Medical Device Directive

Member State Competent Authorities

(25)

Notified

body Notified

body Notified

body

Notified

body

Notified

body

Notified

body

Source: European Commission, 2006.
 27 Ibid.

 28 EU notified body official, interview by Commission staff, United States, May 4, 2006.

6-10

Table 6-3 European Union medical device classification system and regulatory clearance requirements

EU class Device types and requirements Regulatory clearance procedure

I Class I medical devices are those that pose a

low risk to the patient and, except for sterile

products or measuring devices, such devices

generally do not enter into contact or interact with

the body.

Examples: Stethoscopes, EEG and ECG

electrodes, body liquid collection devices,

syringes without needles, wheelchairs.

Class I devices can be placed on the market, as a

general rule, under the sole responsibility of the

manufacturer in view of the low level of risk associated

with these products. The devices can be self-certified

by the manufacturer as meeting relevant EU directives.

IIA Class IIA devices are of a medium risk that are

invasive in their interaction with the human body,

but that interact with the body only through

natural body orifices. The category may also

include therapeutic devices used in diagnosis or

in wound management.

Examples: Syringes and tubing intended for use

with infusion pumps, blood transfusion devices,

nonmedicated gauze dressings, urinary

catheters, CT devices.

Class IIA devices require that an EU notified body

assess the compliance of medical device

manufacturers’ quality systems to the ISO

9000/EN46000 standards. 

IIB Class IIB devices are of a medium risk that are

either partially or totally implantable within the

human body, and may modify the biological or

chemical composition of body fluids. 

Examples: Dialysis apparatus, medicated gauze

dressings. 

Class IIB devices require third-party certification by a

EU notified body with regard to the design and

manufacture of the devices, as well as an assessment

of quality systems to ISO 9000/EN46000 standards. 

III Class III devices are of high risk, and generally

affect the functioning of vital organs and/or

life-support systems.

Examples: Cardiac pacemakers and

defibrillators, drug-eluting stents, breast implants,

hip, knee, and spinal implants.

Class III devices require explicit prior authorization

certifying conformity to required technical regulations

to be placed on the market. All third-party product and

system certification must be conducted by an EU

notified body (or designee through formal agreement).

They require design/clinical trial reviews, product

certification, and an assessed quality system.

Source: European Commission, Enterprise Directorate-General, 2006.

EU safety and manufacturing quality standards and, thus, may be marketed throughout the

European Union.27

In the EU, third-party conformity assessment is carried out by independent conformity

assessment bodies that member state health ministries, known as “competent authorities,”

have accredited as having the required technical competence to review specified types of

medical devices.28 Each member state must notify the European Commission of all third-
 29 However, government regulators are involved in the premarket review and approval of combination

devices. EU notified body official, interview by Commission staff, United States, May 4, 2006; and

European regulatory and third-party testing body officials, interviews by Commission staff, European Union,

September 19–29, 2006.

 30 Horton, European Union Pharmaceutical & Medical Device Regulation, 44–50.

 31 U.S. and EU industry officials, interviews by Commission staff, United States, June 5–16, 2006, and

Belgium, France, Germany and the United Kingdom, September 18–27, 2006.

 32 Horton, European Union Pharmaceutical & Medical Device Regulation, 47; and Lacerda de Queiroz,

EU-China Cooperation Seminar.

 33 U.S. and EU industry officials, interviews by Commission staff, United States, June 5–16, 2006, and

Belgium, France, Germany and the United Kingdom, September 18–27, 2006.

 34 EU industry and member state government officials, interviews by Commission staff, Belgium, France,

Germany, and the United Kingdom, September 18–27, 2006.

6-11

party testing and certification bodies (notified bodies) it has accredited to review specific

categories of medical devices under the different directives. Unlike in the United States or

Japan, where third-party bodies may only make recommendations to the FDA or MHLW

regulatory officials regarding conformity assessment approvals, in the EU, neither the

European Commission nor the competent authorities in individual member states play a role

in the premarket review of medical devices.29 The third-party notified body conducts the

entire review and certification. However, even though they are not as deeply involved in the

premarket authorization stage of medical device regulation as their counterparts in the United

States and Japan, competent authorities in EU member states are responsible for approving

and overseeing the notified bodies, regulating medical device clinical trials, and overseeing

postmarket surveillance, including adverse event reporting, product recalls, and enforcing

penalties when required.30

Although most U.S. and foreign industry officials continue to favor the EU regulatory

system, they have concerns that the European Commission is considering increasing its

regulatory scrutiny.31 In 2005, for example, the European Commission issued a directive that

reclassified hip, knee, and shoulder implants from class II to class III, at the behest of the

healthcare authorities in France and the United Kingdom despite the objections of many

industry participants. Moreover, revisions that clarify and tighten the MDD are currently

under review in the European Parliament and European Council. These revisions would

require clinical data to support all medical device applications (except where demonstrated

to be inappropriate) and clarify when notified bodies must sample such data of the devices

reviewed.32 

Some EU regulators are also considering options for more extensive premarket evaluation

of medical devices, particularly in the area of new and emerging technologies, where there

is a concern that technological developments have outpaced regulatory review (box 6-2).33

However, the opinions of industry and regulatory officials in the EU vary on the question

of how to improve the evaluation of the newest technologies; some assert that premarket

review by competent authorities may be necessary, while others believe that enhanced

scrutiny should be implemented by designated third-party notified bodies.34 Those taking the

latter position indicate that requiring “competent authority” approval could undermine the

fundamental philosophy and strength of the EU system – e.g., its reliance on qualified third

parties who act in a timely manner and possess particular strengths and expertise.
 35 Guide to Medical Device Registration in Japan, 1; and PMDA, Annual Report FY 2005, 1.

 36 Gross and Loh, “Medical Device Regulatory Update: China and Japan,” 112–114; and Diller,

“Healthcare: Products and Supplies: Asia,” 25. 

 37 MHLW, “Statement by the Government of Japan on Trade Issue Concerning Medical Devices,”

posthearing statement, 3. 

 38 Advamed/American Chamber of Commerce in Japan (ACCJ), “Japan Medical Technology Issues.”

6-12

Japan

The Pharmaceutical Affairs Law (PAL), enacted in 1943, is the principal law for regulating

medical devices and pharmaceuticals in Japan, although legislative amendments taking effect

in 2005 have significantly restructured the regulatory approval process.35 The MHLW is the

agency responsible for administering and ensuring compliance with medical device

regulations in that country in concert with the new independent regulatory agency, the

Pharmaceuticals and Medical Devices Agency (PMDA), which was created in 2004.36 On

July 25, 2002, the Japanese legislature enacted major amendments to reform and improve

the efficiency of the regulatory approval system for medical devices and drugs.37 The reform

included over 150 new regulations and guidance documents that were to be fully

implemented by April 2005. Major changes focused on the introduction of a four-tier,

risk-based classification system, the adoption of a third-party review system for class II

devices, the implementation of quality systems requirements, and the enhancement of

postmarket surveillance requirements.38

Box 6-2 New regulatory challenges in the EU

New regulatory challenges in such areas as advanced therapies and nanotechnology have sparked debate in the

EU among stakeholders – including device makers, clinicians, regulators, notified bodies, and patient advocates

– about how to achieve the best balance between promoting innovation and ensuring patient safety. 

• Advanced therapies include gene therapy, somatic cell therapy and human tissue engineering. These therapies

are based on innovative manufacturing processes that seek to modify genetic or structural properties of cells or

tissues. Important therapies that presently or in the future are expected to rely on tissue engineering include

treatments for skin, cartilage, and bone disease and the latest heart valve and blood vessel replacements. Gene

and somatic cell therapies are classified as medicinal products, and thus subject to more stringent regulation than

medical devices. The treatment of human tissue engineered products (hTEPs) has not yet been decided. The lack

of EU regulation in this emerging area has resulted in divergent national approaches that may impact innovation

because the path for product approval is uncertain. The European Commission proposed a new regulatory

framework for advanced therapies in November 2005, after sponsoring three years of debate on the issue. A new

Committee for Advanced Therapies would be set up at the European Medicines Evaluation Agency (which currently

regulates pharmaceuticals but not medical devices in the EU market) to evaluate the products. The proposal is

under consideration in the European Parliament, where its progress also has been delayed.

• Risk assessment of the potential environmental and health impacts associated with nanomaterials is receiving

increasing attention at the European Commission, in the member states and in European and international

standards bodies. Nanotechnology involves working with matter on an extremely small scale. New medical

technologies incorporating nanotechnology include bone replacement materials that incorporate nanostructured

materials for better integration into the body and wound dressings that include antibacterial nanoparticles. As with

advanced therapies, industry advocates a level of regulation that protects safety while still promoting innovation.

Sources: Horton & Giles, “Changing Regulatory Landscape in the European Union”; EurActiv, “Advanced

Therapies”; EurActiv, “Nanotechnology;” Eucomed, “Nanotechnology”; Diller, “Healthcare: Products and Supplies

-Europe”; and EU industry, government and notified body officials, interviews by Commission staff, Belgium,

France, Germany, and the United Kingdom, September 18–27, 2006.
 39 Nakai and Yahiro, “Japan’s New Organization and Review Process,” 1–4; Guide to Medical Device

Registration in Japan, 1; and PMDA, Annual Report FY 2005. 

 40 Advamed/ACCJ, “Japan Medical Technology Issues,” 1.

 41 PMDA, Annual Report FY 2005, 1.

 42 PMDA’s use of the term “generic medical devices” is different from usage of “generic” for drugs.

Generic devices are devices that are similar to those already on the market. They are comparable to 510(k)

medical devices in the United States.

 43 Japanese regulatory experts, interviews by Commission staff, Japan, July 31-August 9, 2006; and

MHLW, “Statement by the Government of Japan on Trade Issue Concerning Medical Devices,” posthearing

submission, 3. 

 44 Nakai and Yahiro, “Japan’s New Organization and Review Process,” 1-4; and Guide to Medical Device

Registration in Japan, 1.

 45 The definition of a "new medical device” is a product whose structure, usage, efficacy, effectiveness, or

performance is clearly different from that of products that have already been approved. It is most comparable

to those products requiring PMA approval in the United States.

 46 The definition of an "improved" device is a product whose structure, usage, efficacy, effectiveness, or

performance are improvements on already approved products.

6-13

In 2004, to prepare for the April 2005 implementation of the amended PAL, an independent

agency, PMDA, was created to consolidate three previously separate functions served by

different organizations in the MHLW regulatory approval process (figure 6-2).39 With the

consolidation, PMDA is now the cornerstone of Japan’s medical device and pharmaceutical

regulatory system. This quasi-governmental body is financed by a combination of general

government revenues and industry "user fees" for product reviews and postmarket

surveillance activities and consultations. Funds are intended to augment staff size (for both

premarket reviews and postmarket activities) and expertise, including the utilization of

external experts.40

While PMDA now has the primary responsibility for conducting medical device reviews

(and overseeing other related activities), MHLW retains final authority for approval of drugs

and medical devices.41 Thus, PMDA will make approval recommendations to MHLW based

on its reviews. MHLW also will maintain a council of outside experts to advise it on the

most difficult reviews. One of the most significant PAL revisions includes the introduction

of third-party certification by registered bodies for certain controlled “generic medical

devices”42 of moderate risk, while maintaining governmental reviews of higher-risk medical

devices.43 Like PMDA, third-party bodies will make recommendations to MHLW based on

their reviews, with MHLW retaining final approval authority. 

Similar to the United States and the EU, Japan has a regulatory classification system based

on potential risk of devices (table 6-4). PMDA is responsible for evaluating the quality,

safety, and effectiveness of all class III and IV premarket approval (PMA) applications for

“new medical devices” and for developing standards for class II medical devices to be

reviewed by third-party testing bodies.44 Currently, there are three application categories for

medical devices, which include (1) "new" devices,45 (2) "improved or modified" devices,46

and (3) generic or "me-too" devices (box 6-3). Each year some 3,000 medical devices are
6-14

Figure 6-2: Reform of Japanese medical device regulatory approval system

PREVIOUS SYSTEM NEW SYSTEM

Drug

Manufacturers

Medical Device

Manufacturers

Drug and Medical

Device

Manufacturers

Inquiry, instructionand answer

Application Inquiry, instruction

and answer

OPSR1

Drug’s equivalency

investigation.

Clinical trial

consultation. 

Reliability

inspections. 

GCP, GLP and

GPMSP inspections.

PMDEC2

Review of drugs

and

medical devices

JAAME3

Medical devices’

equivalency

investigation

MHLW

Report of review results

MHLW4 Council

Consultation

Recommendation

Approval

Application

Inquiry, instructioand answer

New Independent

Pharmaceuticals and 

Medical Devices Agency

(PMDA) 

Review of drugs and medical

devices (including clinical

trial consultation and

Inspections)

Report of review results

MHLW Council

Consultation

Recommendation

Approval

Certification by third party for low-risk medical devices Source: Ministry of Health, Labour and Welfare, 2006. 

1 OPSR = Organization for 

Pharmaceutical Safety and Research.

2 PMDEC = Pharmaceuticals and Medical 

Devices Evaluation Center.

3 JAAME = Japan Association for the 

Advancement of Medical equipment.

4 Ministry of Health, Labour and Welfare.
6-15

Table 6-4 Japanese medical device classification system and regulatory clearance requirements

Japan

Class Device types and requirements Regulatory clearance procedure

I Uncontrolled device:

If malfunction or side effect occurs, risk to patient

is insignificant.

Examples: Stethoscopes, syringes without

needles, wheelchairs.

No regulatory approval or marketing authorization

needed.

II Controlled device:

Malfunction or side effect creates low possibility

of serious or life-threatening injury to patient. 

Examples: Syringes with needles, blood

transfusion devices, nonmedicated gauze

dressings, urinary catheters, MRI, CT.

Third-party certification required.

Only those class II devices for which PMDA has

completed standards may utilize the third-party

certification process. Third-party certification body

reviews application and compliance with PMDA

essential requirements and new GMP regulation. If

found in compliance, the third-party body recommends

approval to MHLW. 

III Highly controlled device:

Very high risk in the case of malfunction.

Examples: Dialysis apparatus, artificial bones,

medicated gauze dressings. 

Requires PMDA review of application and check of

factory compliance to essential requirements and good

manufacturing practices through documentation or

factory inspection. If found in compliance, PMDA

recommends approval to MHLW. 

IV Highly controlled device:

Invasive devices; malfunction could cause life

threatening effects.

Examples: Cardiac pacemakers and

defibrillators, drug-eluting stents, breast implants,

hip, knee, and spinal implants.

Requires PMDA review of application and check of

factory compliance to essential requirements and good

manufacturing practices through documentation or

factory inspection. If found in compliance, PMDA

recommends approval to MHLW. 

Source: Ministry of Health, Labour and Welfare, 2006.
6-16

Box 6-3 Important Japanese terms for regulated medical devices 

Exempt Medical Devices: Medical devices that pose minimal risk to the human body, such as class I devices that

have been designated by MHLW as exempt from the approval regulations. 

New Medical Devices: New medical devices whose structure, intended use, indications, effects or performance differ

significantly from previously approved devices. Similar to products requiring premarket approval, by the FDA in the

United States, new medical devices are the most stringently regulated devices, and companies applying for approval

of such devices are often required to submit extensive clinical testing data and other evidence demonstrating the safety

of such devices. 

Generic Medical Devices: Devices that are comparable to already approved medical devices, or predicate devices.

The devices are evaluated for equivalence in terms of structure, intended use, indications, effects and performance

similar to FDA’s 510 (k) process. In most instances, the process for gaining approval of a generic medical device is

much less lengthy than that for new medical devices. It usually only requires a manufacturer to provide information

demonstrating the device is comparable to the other approved devices so as to pose no special safety concerns.

Generic medical devices in Japan are commonly referred to as “me-too” medical devices. The use of the term “generic”

in the Japanese regulatory process has no relationship to the meaning of the term “generic” in the case of drugs. 

Improved Medical Devices: Improved medical devices are defined as devices whose structure, effects, or

performance are improvements on previously approved products.

Source: PMDA 2005 Annual Report.
 47 Nakai and Yahiro, “Japan’s New Organization and Review Process,” 1–4; and Guide to Medical Device

Registration in Japan, 1.

 48 Nakai and Yahiro, “Japan’s New Organization and Review Process,” 1–4.

 49 Ludwig, hearing transcript, 13–14.

6-17

reviewed for approval by Japan's reviewing agencies, of which some 90 percent qualify as

me-too devices.47 PMDA is also responsible for postmarketing surveillance activities. While

prefecture governments previously were responsible for inspecting Japanese producers of

class II, III, and IV devices, under the new PAL they will now be limited to inspecting class

III domestic device manufacturers. Meanwhile, PMDA will perform the inspections of

foreign manufacturers of class III and IV devices, as well as inspections of class IV devices

of Japanese manufacturers.48 The amended law also requires companies conducting business

in Japan to physically separate manufacturing operations from marketing and safety

operations and to utilize an entity called a market authorization holder (MAH) (box 6-4) to

assume responsibility for safety of their medical devices.49

Box 6-4 New market authorization holder (MAH) requirement in Japan

Under Japan’s amended Pharmaceutical Affairs Law, medical device companies doing business in Japan are now

required to have a market authorization holder (MAH), who is responsible for the safety of the company’s products.

The MAH requirement significantly affects medical device producers entering the Japanese market or already

established there. Previously, an in-country caretaker system (ICC) allowed foreign firms without local Japanese

offices to register their products in Japan. That system required a producer to obtain a license (kyoka) and approval

(shonin) for each product. The manufacturer produced the medical devices and also placed them onto the market.

The MAH system replaces the ICC system by separating the two responsibilities. Now the manufacturer will be

responsible for producing the product and “the MAH will act as an enhanced regulatory control mechanism to give

final permission for product release.” Japan’s purpose in separating the two responsibilities was to “better regulate

the quality and safety of medical devices.” 

The MAH must be located in Japan and be able to purchase or import medical devices from a manufacturer, sell

products to sales organizations, and temporarily store products in a licensed establishment. Firms have the option

of (1) using a distributor or importer, (2) a third party, or (3) designating themselves as the MAH. In the last case, a

firm may name a subsidiary, branch, or representative in Japan, as long as the MAH meets the requirements specified

above.

All ICCs were given the option to go through a more simplified application process to become an MAH. An MAH is

required to name up to three people as controllers, who are responsible for overseeing product manufacturing and

distribution, and placing medical devices on the market. The first controller is a General Manager responsible for

overseeing overall product marketing quality and safety. The second, the quality assurance controller, is in charge

of good quality practice. It is responsible for ensuring that the manufacturer abides by the appropriate shipping and

receiving methods, notifying MHLW of any changes in manufacturing or in-process controls. The third, the

postmarketing safety controller, is accountable for good vigilance practice (GVP). This controller monitors the safety

of products released onto the market and reports to appropriate health authorities any adverse incidents or recalls

of its products. 

For class I products, only one controller is required to perform all of the functions. An MAH for class II products

requires two people to carry out all of the functions. Class III and IV products require three people, designated for each

of the responsibilities.

Source: Much of the information excerpted or adapted by Commission staff in part or whole from information provided

in Gross and Weintraub, “Regulatory Updates for Drugs, Devices & IVDs in Asia;” and Whitacre, “What Manufacturers

Need to Know.”
 50 Blair, Downs, and Ndayisenga, “The Potential Gains of Deeper Canada-U.S. Regulatory Cooperation,”

230.

 51 Ibid.

 52 Comments by industry official, AdvaMed conference on Globalization of Medical Devices Policies,

October 31, 2006.

 53 FDA, ODE, 2005 Annual Report; JETRO, Japanese Market Report: Medical Equipment, 6–40; and

U.S., Japanese, and EU industry officials, interviews by Commission staff, United States, June 5–16, 2006;

Japan, July 31–August 9, 2006; and EU, September 18–29, 2006.

 54 U.S. industry officials, interviews by Commission staff, June 5–16, 2006, and officials of Japanese

affiliates of U.S.-based firms, Japan, July 31–August 9, 2006.

 55 U.S. industry officials, interviews by Commission staff, June 5–16, 2006.

 56 U.S. industry officials, interviews by Commission staff, June 5–16, 2006, and officials of Japanese

affiliates of U.S.-based firms, Japan, July 31-August 9, 2006.

 57 Ludwig, hearing transcript, 6–14; Agress, hearing transcript, 15–23; Hanawa, “Medical Equipment,”

1–10; and Diller, “Healthcare Products & Supplies,” 1–6 and 25–26.

 58 Ibid.

6-18

Qualitative Assessment of the Effects of the Japanese

Medical Device Regulatory System

Previous research on the topic of regulation and its economic effects was reviewed prior to

conducting the qualitative assessment of the possible effects of Japan’s regulatory approval

system on the medical device industry. Economists have noted the impact of regulatory

decisions on the amount and cost of innovation for both firms and consumers. For example,

differences in regulatory decision times directly affect the time to market, which, in turn,

affects the return on investment in product development.50 Additionally, differences in

national product standards and regulatory procedures can create impediments to both

domestic and foreign production (by requiring production runs to service different markets

or by diminishing the ability to promote products, secure investment, or service niche

markets) and the ability to export.51 Industry sources also indicated that differences in

regulatory approval times can raise costs of servicing a market by requiring companies to

maintain dedicated service lines for older generations of products still being produced for

Japan that are no longer being sold to other major markets (which are being supplied with

the latest generations of the products).52

The estimated length of the approval process for medical devices averages 3-10 months in

the United States, 6 months in the EU, and anywhere from 1-3 years for Japan.53 For each

market, the length of time for product approval depends on the classification of the device;

lower risk products similar to other products on the market take less time to approve than

higher risk, newer devices.54

Almost all U.S. medical device firms interviewed by Commission staff, including U.S.

subsidiaries of EU and Japanese firms, suggest that their sales and exports are negatively

affected by the more demanding and lengthier Japanese product approval process.55 U.S.

industry officials acknowledge that Japanese and EU firms also are adversely affected by the

longer average review times in Japan.56 However, they indicate that given the competitive

advantage U.S. firms have in innovative, higher-risk products relative to their foreign rivals,

they are more affected given the lengthier period of time required to gain approval and the

relatively shorter product life cycles of innovative devices.57 For example, it took 3 years

to obtain approval for a drug-eluting stent in Japan, although it had already been approved

in the United States in one year.58 
 59 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006; and Japan,

July 31–August 9, 2006.

 60 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006.

 61 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006.

 62 The Medical Device User Fee and Modernization Act (21 U.S.C. § 379j), enacted in October 2002,

amended the U.S. Federal Food, Drug, and Cosmetic Act of 1938, and established user fees to fund the

process for the review of medical device applications by FDA. The 2002 amendments to the PAL, effective

April 2005, similarly provided for the implementation of user fees to fund the review of medical device

applications in the Japanese regulatory approval process. Such fees are a major source of funding for the new

PMDA in Japan. 

 63 U.S. and Japanese industry officials, interviews by Commission staff, United States, June 5–16, 2006

and Japan, July 31–August 9, 2006. 

6-19

Manufacturers of other types of products, such as MRI, CT, X-ray, and electrosurgical

devices, report that they also face more difficult and lengthier regulatory product approval

processes in Japan than in the United States and the EU.59 However, because most of their

products can be demonstrated to be similar to medical devices already on the market, they

experience relatively short regulatory approval processes in all of their principal markets,

including Japan, and are less likely to be required to conduct costly clinical trials required

of high-technology, newer products.60 Such mature products also have longer product life

cycles than most innovative, higher-risk products entering the market today. Thus, such

products, even when they face relatively longer regulatory approval processes in Japan than

in the United States or the EU, may be affected less adversely in terms of profitability and

sales, and exports to the Japanese market than higher technology, innovative devices.61

The following two sections review and compare medical device review costs and approval

times, as published annually by the FDA and PMDA. These comparisons will focus on the

United States and Japan because official regulatory approval and cost information is

unavailable for the EU due to a greater dependence on third-party testing laboratories whose

data on costs and approval performance are proprietary.

Medical Device Approval Costs in the United States and Japan

Medical device approval costs consist of (1) user fees paid by applicants to help fund

regulatory agencies’ product approval activities, (2) opportunity costs if product approval

in a particular market takes significantly longer than in other global markets, (3) costs of

conducting clinical trials, and (4) capital restructuring costs that firms may incur to meet new

regulatory requirements. Both the U.S. FDA and Japanese PMDA have been authorized by

legislation to require user fees from medical device product approval applicants to

supplement the agency budget to improve the efficiency of their product approval

operations.62 Ostensibly, new user fees are meant to make the regulatory approval systems

less dependent on the vagaries of annual national budget decisions and improve the

efficiencies of the medical device review process. Medical device firms generally have

accepted and supported increases in user fees as a means of increasing regulatory agency

resources to meet more rigid targets.63

Tables 6-5 and 6-6 show FDA 510(k) and PMA application user fees for fiscal years 2006

and 2007. PMDA has not published user fees in connection with its generic medical device

reviews (most comparable to FDA 510(k) reviews), reportedly because it expects most

generic class II device evaluations to be conducted by third-party bodies, for which fees will

be determined in the marketplace. However, PMDA fees have been established for reviews

of approvals of highly controlled class III and IV “new” medical devices” (most comparable

to FDA PMA reviews) (table 6-7). According to data presented in tables 6-6 and 6-7
 64 However, PMDA does charge fees for other services, including face-to-face consultations, that, if

requested, can cost as much as 1,594,700 Japanese yen ($14,000) for complex applications involving clinical

trials. PMDA also charges medical device firms about $2,000 each for on-site manufacturing licenses and

foreign manufacture accreditation reviews.

6-20

outlining user fees for FDA PMA and comparable PMDA “new medical device”

applications, it appears that the costs of FDA approval are substantially more than those for

PMDA.64 

Table 6-5 FDA 510(k) user fees, fiscal years 2006 and 2007

Fiscal year Standard fee Small business fee

FY 2006 (Oct. 1, 2005–Sept. 30, 2006) $3,833 $3,066

FY 2007 (Oct. 1, 2006–Sept. 30, 2007) $4,158 $3,326

Third-party 510(k)

Exempt from FDA fee, but liable

for third-party market-based fee

for review. 

Exempt from FDA fee, but liable

for third-party market-based fee for

review. 

Source: U.S. Food and Drug Administration, Center for Devices and Radiological Health, 2006.

Table 6-6 FDA PMA user fees, fiscal years 2006 and 2007

Type of application

Standard fee

 2006

Standard fee

2007

Small business fee

2006a

Small business fee

2007a

Premarket application (PMA,

PDP, BLA, PMR)b

$259,600 $281,600 $98,648

(One time-waiver for

first PMA by firm with

less than $30 million

in sales)

$107,008

Premarket reporting $259,600 $281,600 $98,648 $107,008

Panel-track supplement $259,600 $281,600 $98,648 $107,008

Efficacy supplement $259,600 $281,600 $98,648 $107,008

180-day supplement $55,814 $60,544 $21,209 $23,007

Real-time supplement $18,691 $20,275 $7,103 $7,705

Source: U.S. Food and Drug Administration, Center for Devices and Radiological Health, 2006.

a

 Small business=Less than $100 million in sales.

b PMA=Premarket approval

 PDP=Product development protocol

 BLA=Biologics license application

 PMR=Premarket report (for a reprocessed device)

Table 6-7 PMDA estimated approval costs for “new medical device” reviews, 2005

Review activities PMDA user fees

Japanese yen U.S. dollars

New medical device review 3,077,000 26,800

Compliance 664,500 5,800

Good clinical practice 918,400 8,000

Good laboratory practice audit 2,282,600 20,000

Quality systems audit 933,500 8,100

Total fees 7,876,000 68,700

Source: PMDA.
 65 U.S., Japanese, and European industry officials, interviews by Commission staff, United States,

June 5–16, 2006; Japan, July 31–August 9, 2006; and the EU, September 18–29, 2006.

 66 The literature review only identified three research studies of potential relevance to examining

performance of countries' regulatory approval systems and none of them specifically pertained to the

Japanese system. Two of them included attempts to evaluate the performance of the EU and U.S. approval

systems and the third tried to evaluate the performance of the U.S. FDA system alone. Further description of

these studies and their findings is contained in box 6-5. Chai, "Medical Device Regulation in the United

States and the European Union," 74-80; GAO, "Medical Device Regulation," 1–10; and GAO, "Food and

Drug Administration," 16.

 67 PMDA took over medical device application reviews from MHLW in 2004.

 68 PMDA does not publish average review times for generic medical devices in its annual reports. 

 69 Both U.S. FDA and Japan’s MHLW and PMDA differentiate between “reviewer time” and “total

review time” for approval of medical device review applications. Reviewer times represent the time an

application is officially under review by the regulatory agency. Total time includes both reviewer time and

applicant time from when an application for review is accepted by the regulatory agency to when the final

determination on the application is made. Applicant time represents the time attributed to an applicant and is

off of the reviewer’s “time clock.” For instance, it includes time taken by the applicant to respond to

reviewers’ questions or requests to submit additional data related to an application. U.S. and Japanese

government officials, interviews by Commission staff, United States, May 31 and June 5–16, 2006, and

Japan, July 31–August 9, 2006.

 70 An important caveat in comparing MHLW to FDA average review times is PMDA's use of “median” in

contrast to FDA's use of “mean” in reporting average review times in comparisons such as in figure 6-7.

Thus, PMDA review times could potentially be significantly higher on “average” than FDA average times

for all years being compared if values of PMDA review times above the mean time are biased upward.

 71 While total Japanese "new medical device" review times declined in 2005, according to official MHLW

data, they cannot yet be compared to FDA PMA review times, as FDA PMA data are not available for 2005,

reportedly because a significant number of PMA submissions are still under review. PMDA Annual Report

FY 2005; and FDA, ODE, 2005 Annual Report. 

6-21

Medical Device Approval Times in the United States and Japan

Many U.S. industry officials report that the most significant costs imposed by the Japanese

regulatory approval system are not in its user fees and costs associated with meeting clinical

trial or business restructuring requirements but in regulatory delays of 1-3 years and

associated opportunity costs in gaining market approval for the most innovative medical

devices.65 To help it assess U.S. and foreign industry claims related to the efficiency of the

Japanese system, the Commission examined and compared approval time data published in

the annual reports of the U.S. and Japanese regulatory agencies. The Commission also

conducted a literature review to identify previous attempts to measure the efficiency of

regulatory approval systems in Japan and other countries (box 6-5).66

In reviewing FDA and PMDA approval data it appears that while FDA has made progress

in reducing its approval times in the past five years, Japanese regulatory approval times

increased over the same period before declining moderately in 2005. As figures 6-3 through

6-6 indicate, U.S. FDA average approval times declined fairly significantly over the past five

years for both PMA application reviews and 510(k) reviews. In contrast, MHLW and PMDA

average review times67 for “new medical device” applications in Japan increased

substantially from 2002-4 (table 6-8).68 According to official Japanese government data,

MHLW and PMDA review times of applications for new medical devices in Japan were

fairly comparable to those for FDA PMAs in 2001 (figure 6-7). However, average total 69

Japanese review times of new medical device applications began rising significantly over

those of total FDA PMA reviews between 2002 and 2003, when they more than tripled from

88 to 285 days. Review times continued to move upward in 2004, when the median70 time

of review reached almost 3 years (1083 work days).71
6-22

Box 6-5 Research studies concerning medical device regulatory performance

In one of the studies, the U.S. Government Accountability Office (GAO) investigated the EU medical device

approval system (including its significant use of third-party review) in 1995-6 as a potential model for the United

States after U.S. manufacturers had complained about the inefficiency and unfairness of the FDA's review

processes. The GAO concluded that it was too soon to evaluate the performance of the EU system. Chai also

compared medical device regulations in the EU and the United States. Although, as previously noted, Japan

has provisions for third-party evaluation, which were authorized in 2005 when the 2002 amendments to its PAL

took effect, these registration bodies are a recent phenomenon. Therefore, information to assess their

performance is limited, although they have evaluated some medical devices.

Another study evaluated the performance of the FDA in meeting new requirements of the Food and Drug

Modernization Act that added other objectives for the FDA, such as promptly reviewing product applications and

consulting with stakeholders and the public. Meanwhile, an EU report looked at EU efforts to streamline its

regulatory processes. Chai found that approval times for the FDA's 510(k) and PMA reviews both decreased

between 1997 and 1999, and the EU report suggests that its device approval times may be shorter than those

of the United States, although the comparison is not totally clear because different data gathering and analysis

tasks were performed.

More recently, the GAO conducted a study to assess the FDA's progress towards meeting the 2003 and 2004

performance goals required by the Medical Device User Fee and Modernization Act (MDUFMA) of 2002 (21

U.S.C. § 301 note, et seq.). The MDUFMA increased incentives for the FDA to improve its performance in

evaluating medical devices by authorizing the FDA to collect user fees from manufacturers that submit

applications. The MDUFMA directs the FDA to review product applications promptly and efficiently, to

collaborate with other countries to harmonize regulatory requirements and achieve reciprocal agreements, and

to consult with stakeholders and the public in accomplishing its mission. MDUFMA also required the GAO to

report on the FDA's progress towards meeting the 2003 and 2004 performance goals and whether the FDA

would likely meet the 2005 goals. Although the GAO stated that it lacked the data to evaluate the FDA's

performance completely, it found that the FDA had hired additional staff, consulted more frequently with outside

experts, and made some progress in evaluating applications more efficiently.

Source: Chai, “Medical Device Regulation in the United States and the European Union,” 74-80; GAO,

“Medical Device Regulation,” 1-10; and GAO, “Food and Drug Administration,” 16.
6-23

283 283

271 271

265

270

275

280

285

2001 2002 2003 2004

Fiscal Year

FDA Days

Figure 6-3 Average total FDA review timea for all original PMAs and PMA supplements, 2001–4

Source: U.S. Food and Drug Administration, Office of Device Evaluation, 2005 Annual Report (extracted by

Commission staff).

Note.—FDA data for 2005 are not available because a significant number of PMA submissions are still under

review.

a

 FDA time includes only time that can be attributed to FDA. Does not include applicant time such as

responding to requests for additional information from FDA.
6-24

376 356 357

290

0

100

200

300

400

2001 2002 2003 2004

Fiscal Year

Total days

Figure 6-4 Average totala elapsed days from filing to FDA approval for all original PMAs and PMA supplements,

2001–4

Source: U.S. Food and Drug Administration, Office of Device Evaluation, 2005 Annual Report.

Note.—FDA data for 2005 are not available as a significant number of PMA submissions are still under review.

a

 Includes both time attributed to FDA and time attributed to applicant (not on FDA’s time clock).
6-25

49

64

83 81 78

0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005

Fiscal Year

FDA Days

Figure 6-5 Average FDAa time from receipt of 510(k) to final decision, 2001–5

Source: U.S. Food and Drug Administration, Office of Device Evaluation, 2005 Annual Report.

a

 FDA time includes only time that can be attributed to FDA. Does not include applicant time such as

responding to requests for additional information from FDA.
6-26

69

105 101 104

92

0

20

40

60

80

100

120

2001 2002 2003 2004 2005

Fiscal Year

Total Days

Figure 6-6 Average totala time from receipt of FDA 510(k) to final decision, 2001–5

Source: U.S. Food and Drug Administration, Office of Device Evaluation, 2005 Annual Report.

a

 Includes both time attributed to FDA and time attributed to applicant (not on FDA’s time clock).
6-27

Table 6-8 PMDA new medical device approvals and median PMDA review a processing time, 2002–5 

Fiscal Year 2002 2003 2004 2005

Filed in and after

FY 2004, but

approved in FY

2005 b

Median PMDA review timea 88 days 284.5 days 386 days 232 days 55 days

Total review process time 176 days 564.5 days 1,083 days 678 days 308 days

Source: Japan Pharmaceuticals and Medical Devices Agency (PMDA), Annual Report FY2005.

a PMDA review processing time includes only time that can be attributed to PMDA. Does not include applicant time,

such as time taken to respond to requests for additional information from PMDA. b Does not include PMDA backlog cases.

 
6-28

Figure 6-7 Comparison of reviewer times and total review times for new medical device applications

between Japan (median) and U.S. (mean), 2001–5

0

5

10

15

20

25

30

35

40

FY2001 FY2002 FY2003 FY2004 FY2005

Months

JP Reviewers US Reviewers JP Total Time US Total Time

Source: Japan Ministry of Health, Labour and Welfare, 2006.

Note: Both PMDA and FDA differentiate between “review time” and “total time” for the review of medical device applications for 

approval. Reviewer time represents the time an application is officially under review by either PMDA or FDA. Total time represents 

both reviewer and applicant time from when an application is accepted by PMDA or FDA and when the final determination on the 

application is made. Applicant time represents time attributed to the applicant, such as responding to reviewer’s questions or requests 

to submit additional information. FDA has not yet reported review times for FY2005.

An important caveat in comparing MHLW to FDA average review times is PMDA’s use of “median” in contrast to FDA’s use of “mean” 

in reporting average review times.
 72 Ludwig, hearing transcript, 12; and U.S. industry officials, interviews by Commission staff, United

States, June 5–16, 2006; and Japan, July 31–August 8, 2006.

 73 MHLW officials, posthearing statement, 5; and PMDA, Annual Report FY 2005.

 74 Ibid.

 75 Japanese government officials, interviews by Commission staff, Japan, July 31–August 8, 2006. 

 76 Ibid. 

 77 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006, and Japan,

July 31–August 9, 2006.

 78 Agress, hearing transcript, 17; and AdvaMed/ACCJ, Japan Medical Technology Issues, 15.

 79 Based on a survey of U.S. companies in a study sponsored by AdvaMed and the American Chamber of

Commerce in Japan. For further information on the survey methodology, see AdvaMed/ACCJ, Japan

Medical Technology Issues, 15.

6-29

U.S. industry officials expressed disappointment in Commisson hearing testimony that

PMDA had not yet met its own performance goal of completing and processing 90 percent

of the applications within 12 months.72 However, Japanese regulatory officials point out that

progress has been made toward this goal, with PMDA’s figure improving to 82 percent in

2005.73 The Japanese government also reported that 100 percent of applications filed in or

after 2004 were approved within the 12 month target time; however, this figure does not

include those applications filed before the reform that are part of the backlog. The officials

report that full achievement of PMDA processing goals has been hampered by a large

number of unworked applications submitted prior to creation of the new agency in 2004.74

Thus, it has had to review these simultaneously with new applications submitted after 2004.

PMDA reports that as it has been able to make progress on eliminating the backlog over the

past two years, it has been able to reduce its approval times for new applications.75 This is

reflected in its annual report data showing that review times came down by more than 60

percent in 2005, a year after PMDA replaced MHLW as the reviewer of medical devices. 

PMDA officials indicated that when the review backlog is eliminated in late 2006 or early

2007, as expected, it will begin to more consistently achieve its performance goals.76

However, U.S. industry officials counter that, notwithstanding the 2005 decline in PMDA

average total review time for new medical devices, it still represents more than triple the

average review times for such devices in Japan in 2002.77

Impact of Japanese Regulatory Approval on U.S. Firms

The Commission was unable to identify any quantitative analyses that empirically measured

the impact of regulatory approval systems on sales and exports of medical devices. Although

studies were identified that have used quantitative means to estimate foregone sales due to

regulatory impacts on pharmaceuticals, the medical device industry, characterized by

incremental innovation and shorter product life cycles than the drug industry, is much more

difficult to quantify. Consequently, Commission staff determined that a quantitative analysis

measuring the impacts of foreign regulatory approval systems on U.S. sales and exports

could not be adequately and reliably completed for purposes of this report.

However, U.S. industry officials estimate that complying with changes in Japan’s regulatory

system since 2005 has cost U.S. companies $350 million78 and that U.S. firms will incur an

additional $1.2 billion in compliance costs over the next five years.79 Specifically, innovative

U.S. firms incur three types of unique costs in Japan: forgone opportunity costs associated

with much longer product approval times; requirements for conducting additional clinical

trials to acquire safety data equivalent to that obtained in previous trials and accepted by

regulators in other markets; and new requirements for firms to separate marketing and safety
 80 U.S. industry officials, interviews by Commission staff, United States, June 5–16, 2006, and Japan,

July 31–August 9, 2006.

 81 Ibid.

 82 Ibid.

 83 Ludwig, hearing transcript, 13–14.

 84 Agress, hearing transcript, 22; and PMDA,Annual Report FY2005, 17.

 85 The number of comparable applications submitted by manufacturers to the FDA was 54 in 2003, 41 in

2004, and 49 in 2005. FDA, ODE 2005 Annual Report, 26; and OIVD, 2005 Annual Report, 49.

 86 Ludwig, hearing transcript, 10; and U.S. industry official, e-mail message to Commission staff,

November 22, 2006.

 87 Lugwig, hearing transcript, 9-10.

 88 Ludwig, hearing transcript, 10; and U.S. industry official, e-mail communication to Commission staff,

November 22, 2006.

6-30

operations from production functions, thereby requiring expensive organizational changes

and associated ongoing maintenance costs not required in other countries.

U.S. industry officials contend that the Japanese regulatory approval system adversely

affects the ability of U.S. firms to export or sell their medical devices into the Japanese

market in several ways.80 As demonstrated in the previous section, although regulatory

approval fees are higher in the United States, Japan's regulatory approval times still are

demonstrably slower than in the United States despite some improvement in 2005. The delay

in regulatory approvals is associated with significant opportunity costs to medical device

firms of not having products on the market while they are undergoing review.81 Thus,

companies lose sales that otherwise would have been made if the regulatory system had been

more timely in approving the product. Product approval denials, of course, have an even

more significant impact on companies’ revenues in that companies receive no return in

revenues for costs incurred in developing and trying to market their products. When

regulatory approval delays or denials result in forgone or lost sales, companies are also

deprived of an important source of funding for reinvestment in R&D to develop even better

products.82

As a result of the large costs and delays associated with placing medical devices on the

Japanese market, medical technology experts report that some firms may withdraw from the

Japanese market.83 Further, firms that continue to sell in Japan could withhold certain, newer,

more innovative medical devices that they sell in the rest of the world from the Japanese

market due to the difficulty and expense in obtaining approvals in Japan. There is evidence

that companies are submitting fewer applications for new medical device approvals in Japan.

In fiscal year 2003, manufacturers submitted 132 applications for new medical devices.84 In

2004, the number was down to 56, and only 8 such applications were submitted in 2005.85

Continuation of this trend in Japan could lead to fewer U.S. exports and sales to that market.

U.S. medical device firms reportedly incur additional costs as they must retain separate

manufacturing lines “for products that are obsolete throughout the rest of the world, but are

being supplied to Japan, while later generations of the product await approval by Japanese

regulators.”86 For example, according to a U.S. industry leader, “an advanced pacemaker for

cardiac resynchronization therapy available in the United States in 2003 will only become

available to patients in Japan [in August 2006].”87 Another problem for companies having

to keep production lines open for older products is that some components are more difficult

to source from their suppliers, or are no longer made.88

Finally, U.S. company officials report they have incurred significant reorganizational costs

to comply with the new requirement for firms marketing products in Japan to separate their
 89 Ludwig, hearing transcript, 13–14.

 90 Agress, hearing transcript, 15–23; and U.S. and Japanese industry officials, interviews by Commission

staff, United States, June 5–16, 2006, and Japan, July 31–August 9, 2006.

 91 Agress, hearing transcript, 20; JETRO, Japanese Market Report No. 69: Medical Equipment, March

2004, 1–40; and U.S. industry official, interviews by Commission staff, United States, June 5–16, 2006, and

Japan, July 31–August 9, 2006.

 92 U.S. government and industry officials have encouraged Japan to improve its transparancy by clarifying

when it will accept foreign clinical data from clinical trials. They also encouraged PMDA to accept clinical

data from outside Japan according to international standards, specifically to the requirements of ISO 14155

(Good Clinical Practices) and not requiring conformance with ICH guidance. U.S. Department of Commerce,

2006-7 Annual Reform Recommendations, Annex 15–16; and JETRO, Japanese Market Report No. 69:

Medical Equipment, 1–40.

 93 For more information on the Global Harmonization Task Force (GHTF), see chapter 5.

6-31

production from their marketing and safety operations in Japan. The president of a prominent

U.S. medical device company testified that it took about two years and cost millions of

dollars to comply with this new requirement.89 Smaller companies without a direct market

presence or who cannot afford to set up an MAH must hire, appoint, or designate an expert

in Japan. Neither the United States nor the EU require such separation of medical device

companies’ manufacturing and marketing operations.

Outlook

Many U.S. and foreign industry officials and analysts attribute the difficulties of the

Japanese regulatory system to several problems they believe need to be addressed before

further progress may be made (table 6-9).90 Among these are overly detailed administrative

requirements that industry officials contend are unrelated to the safety and efficacy of

medical devices; insufficient resources and manpower for PMDA to ensure timely approval

of new medical devices; lack of transparency in the process (limiting the ability of

companies to interact with regulatory officials to resolve product approval problems and

delays); and redundancy in clinical trial requirements by requiring companies to conduct

additional studies to produce equivalent safety data to those obtained in clinical trials in

other countries. While the United States and EU commonly use foreign clinical trial data for

use in their reviews of new medical devices,91 additional clinical trial requirements

significantly extend regulatory approval times and costs in Japan.92

In response, MHLW officials state that the PAL reforms include more rigorous premarket

and postmarket surveillance measures to ensure safety and quality of medical devices and

are similar to premarket and postmarket measures advocated by the Global Harmonization

Task Force93 and used in the United States and the EU. Moreover, they point out that PMDA

2005 annual report data demonstrate the significant use of foreign clinical data by Japanese

regulatory authorities (table 6-10).
6-32

Table 6-9 Industry views on sources of Japanese regulatory delays and difficulties and Japanese government responses

U.S. industry views PMDA Response

The Japanese regulatory approval system has not been

effective enough in ensuring that leading innovations approved

and used safely in other advanced countries, such as the United

States and Europe, are available in Japan. Thus, they are

depriving the Japanese public of the most recent medical

technologies, as well as preventing innovative medical device

companies from being rewarded sufficiently for medical

innovations.

In the amended PAL, the Japanese government reformed the

system to ensure that (1) the Japanese public and healthcare

professionals swiftly enjoy the maximum benefits of leading-edge,

yet safe, pharmaceuticals and medical devices that answer their

needs; and (2) pharmaceutical and medical device companies

are ensured the benefits “brought forth by such swiftness.” 

The PAL reforms, which went into effect in 2005, and creation

of an independent medical device agency (PMDA), have not

improved the efficiency of the medical device approval process.

In fact, many U.S. companies report that it now takes up to twice

as long to gain approvals than before. 

The reforms only went into effect in 2005, and the reorganization

has not been completed. The current increased delays are

principally due to the backlog of applications inherited by the new

PMDA, which have almost been completed. 

There are too few PMDA medical device reviewers (28 with

target of 35). This is about 10 percent of the number of the U.S.

FDA reveiws. Lack of sufficient manpower by PMDA slows the

regulatory approval process considerably.

The number of reviewers required is based on the level of

medical device applications received.a

 The appointment of a large

independent advisory panel of experts will greatly leverage

PMDA’s review staff. Further, the new provisions establishing an

independent third-party certification system allowed to review a

large portion of class II devices will enable PMDA reviewers to

focus more of their efforts on more complex new medical device

reviews, adding efficiency and speed to the entire approval

process. 

Reviewers at PMDA do not have requisite experience in medical

device technology. Because of the historical importance of

pharmaceutical reviews in MHLW, most reviewers transferred

over to PMDA are too narrowly specialized in pharmaceuticals.

PMDA criteria for recruitment of medical device reviewers have

broadened. PMDA is now recruiting employees with backgrounds

and expertise in mechanical, electronic, and bioengineering,

statistics, quality management, and other areas relevant to

medical device evaluation and appraisal. 

Required job rotations of MHLW reviewers every two years has

reduced retention of institutional knowledge in the Japanese

regulatory approval system. Such rotations also interrupt

completion of reviews of specific device applications when

reviewers working on them depart in middle of the process.

As an independent agency, PMDA is not required to rotate its

examiner staff and, in fact, PMDA employee retention is an

important objective of the revised regulatory approval system in

Japan. 

Transparency has been lacking in the Japanese medical device

regulatory approval process. Unlike in the United States and the

EU, companies have had a difficult time providing input to the

Japanese regulatory approval process. 

PAL reforms provide PMDA with more opportunities and

resources for reviewers and other staff to dialogue with industry.

In the past, MHLW has not had clear regulatory performance

goals or deadlines for processing and approving medical device

applications. 

PMDA is required to set clear targets for approval of medical

devices within specified deadlines and publish them in their

annual report. While PMDA may not reach all of the targets, such

targets give PMDA goals to move toward, measure progress

against, and be held accountable to. 

Source: Compiled by Commission staff based on interviews with U.S. and Japanese industry and government officials, JuneAugust 2006.

a

 Commission staff were unable to obtain sufficient data to allow them to compute the average number of applications handled

per number of FDA and PMDA reviewers, respectively.
 94 PMDA still appears to U.S. and foreign industry officials, including Japanese healthcare analysts and

economists, to be significantly understaffed. U.S. and Japanese industry officials and healthcare analysts, 

interviews by Commission staff, United States, June 5–16, 2006, and Japan, July 31–August 9, 2006.

 95 MHLW officials, posthearing statement, 5.

 96 U.S. and Japanese government officials, interviews by Commission staff, Japan, July 31–August 9,

2006.

 97 “USTR Schwab Calls on Japan to Accelerate Economic Reform,” 1; and U.S. Department of

Commerce, 2006–7 Annual Reform Recommendations, Annex 15.

 98 U.S. and Japanese industry officials, analysts, and consultants, interviews by Commission staff, Japan,

July 31–August 9, 2006.

 99 Ibid.

 100 The United States has recommended that the PMDA application backlog be eliminated by March 2007.

 U.S. Department of Commerce, 2006–7 Annual Reform Recommendations, Annex 15.

 101 MHLW, posthearing statement, 6–7; and U.S. and Japanese industry and government officials,

interviews by Commission staff, Japan, July 31–August 9, 2006.

6-33

Table 6-10 Number of cases approved in Japan by using foreign and domestic clinical data, FY 2001-FY

2005

Year

Foreign clinical

data only

Foreign and

domestic

clinical data Total

Domestic clinical

data only

2001 21 4 25 24

2002 9 0 9 11

2003 14 3 17 12

2004 11 1 12 8

2005 33 1 34 16

Source: Japan Pharmaceuticals and Medical Devices Agency (PMDA), Annual Report FY 2005.

U.S. and Japanese industry officials assert that a significant portion of the medical device

approval delays results from too few and inadequately trained medical device reviewers to

handle the increasing number of medical device applications received, and the backlog

inherited from the previous system.94 With a current review staff of 2895 compared to about

300 at the FDA, and a cap of 35, the staffing level in Japan is well below that in the United

States, even when taking into account the relative differences in size of the two economies.96

The United States recently recommended that PMDA review staff be doubled to 56 by

March 2008.97 However, Japanese healthcare economists, market analysts, and consultants

concur with industry officials that PMDA will be especially challenged in recruiting new

staff with requisite experience and expertise in competition with much higher paying major

U.S. and Japanese manufacturers who are also actively recruiting such expertise to help them

navigate the new regulatory landscape in Japan.98 To address this and the other challenges

PMDA faces in meeting the objectives envisioned by the PAL amendments to deliver more

advanced technologies and safer medical devices to the Japanese people more quickly, they

believe that PMDA will need to be funded at substantially higher levels than it currently is.99

Responding to these criticisms, MHLW and PMDA note that the regulatory reforms appear

to be working. PMDA officials state that they have several priority issues that need to be

addressed before they can fully achieve the PAL objectives. These include enhancing the

timeliness of reviews (including the authorization of 12 certified bodies to review class II

medical devices), eliminating the inherited backlog of applications,100 hiring an additional

seven reviewers with non-pharmaceutical specialized training (e.g., bioengineering), relying

on team-based reviews to enhance reviewer skills, providing customized consultation

services for individual firms, and participating in training and medical device conferences

with such groups as the JFMDA, AdvaMed, ACCJ, academics, and policy makers.101 To help
6-34

ensure that it achieves its goals to make advanced products available to the Japanese public

sooner and to reward innovation, PMDA is required to measure and report on progress made

against previously agreed upon and published targets. This makes the agency publicly

accountable to both Japan’s legislators and public, as well as to U.S. industry and

government officials in the high-level U.S.-Japan Regulatory Reform meetings.
BIBL-1

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APPENDIX A

REQUEST LETTER FROM THE HOUSE

COMMITTEE ON WAYS AND MEANS

103/09/2006 16:46 FAX LE. 

I> 

I. h 

I.. 

I 

BILL THOMAS, CALIFORNIA, 

CHAIRMAN 

E. CLAY SHAW. JR., FLORIDA 

WWV NANCY HERGER, L JOHNSON, CALIFORNIA CONNEtnCUT '9B.S. %owe of Representatiues 

JIM RAMSTAD. MINNESOTA i Dg@~~MMlTTEE ON WAYS AND MEANS JIM MCCRERY, LOUIIWU 

DAVE CAMP, MICHIGAN 

?:!AiER JIM NUSSLE. IOWA SAM JOHNSON.T€XAS 1 

! MARK FOLn, FLORIDA KEVIN BRADV.TEXAS 

L *Y r,i JPI 

G t m?:g 

Ictl. Irah 0% naissisn 

PAUL RYAN, WISCONSIN 

ERIC CAhTOR,VIAGINIA 

JOHN UNDER, GEORGIA 

BOB SEAUPREZ, COLORADO 

CHRIS CHDWLa INDIANA 

E. CLAY SHAW. JR., FLORIDA 

WWV NANCY HERGER, L JOHNSON, CALIFORNIA CONNEtnCUT '9B.S. %owe of Representatiues 

MMITTEE ON WAYS AND MEANS 

LONGWORTH HOUSE OFFICE BUILDING 

(202) 225-3625 

mashington, DE zoji~634s 

http://waysandrneans.house.gov 

March 7,2006 

JIM MCCRERY,LOUIIWU , 

DAVE CAMP, MICHIGAN 

JIM RAMSTAD, MINNESOTA 

JIM NUSSLE. IOWA 

SAM JOHNSON, TEXAS PHIL ENGLISH. PENNSYLVANIA 

J.D. HAWORTH. ARIZONA 

JERRY WELER. ILLINOIS 

RON LEWIS, KENlUCKY 

MARK FOLEY, FLORIDA 

KENNY c. HULSHOF, MISSOURI^ 

I 

G t m?:g I 

ERIC CAhTOR,VIAGINIA 

JOHN UNDER, GEORGIA 

BOB SEAUPREZ, COLORADO 

CHRIS CHDWLA, INDIANA 

DEVlN NUNES, CALIFORNIA __ - 

ALUSON H GILES, 

CHIEF OF STAFF 

ALUSON H. GILES, 

CHIEF OF STAFF 

11 2 LONGWORTH HOUSE OFFICE BUILDING 

(202) 225-3625 

mashington, DE zoji~634s 

http://waysandrneans.house.gov ----- 

,~ I March 7,2006 I 

I. 

The Honorable Stephen Koplan 

Chairman 

United States International Trade Commission 

500 E Street, S.W. 

Washington, D.C. 20436 

Dear Chairman Koplan: 

F 

CHARLES 8. RANGEL, NEW YORK. 

RANKING MlNORrrY MEMBER 

FOFITNEY PETE STARK, CALIFORNIA 

SANDER M. LEVW. MICHIGAN 

BENJAMIN L CARDIN, MARYLAND 

JIM MdlERMOlT, WASHINGTON 

JOHN LEWIS, GEORGIA 

RICHARD E. NEAL. MASSACCHUSETE 

MICHAEL R. MCNUCW, NEW YORK 

WkLlAM J. JEFFERSON, LDUISIANA 

JOHN %TANNER, TENNESSEE XAVIER BECERRA CALIFORNIA 

JOHN 8. LARSON. CONNECFIUJT 

RAHM EMANUEL ILLINOIS 

JANICE MAYS, MINORIN CHIEFCOUNSEL 

On behalf of the Committee on Ways and Means, and under authority o1 section 2@Jof55 

the Tariff Act of 1930, 19 U.S.C. 9 1332(g), I am requesting that the US. International Trade 

Commission institute a fact-finding investigation on competitive conditions affecting U.S. trade 

of medical devices and equipment in principal foreign markets. A number of important trade 

issues were raised at the September 28,2005, hearing held by our Committee on United StatesJapan Economic and Trade Relations, including regulatory and reimbursement policies affecting 

the U.S. medical device and equipment industry in Japan. Members of the Committee have a 

long-standing interest in thls matter as they expressed at the hearing. 

In order to gain a greater understanding of these issues, we ask that, in its investigation, 

the Commission closely examine the regulatory conditions of competition affecting US. sales 

and bade of medical devices and equipment in Japan, and other principal foreign markets, for the 

most recent five-year period. The investigation should focus on the main U.S. exports of 

medical devices and equipment to these markets during this period, and compare Japan's 

regulatory conditions to those of the other major foreign markets for US.-made medical devices 

and equipment. To the extent possible, we ask that the report also include for the most recent 

five-year period: 

an overview of the global market for medical devices and equipment, including 

production, consumption, and trade; 

profiles of the medical device and equipment industries in the United States and 

principal foreign producer countries; 

0 an analysis of U.S. trade in medical devices and equipment with major competitor 

A-3
Chairman Bill Thomas 

Committee on Ways and Means 

Page 2 of 2 

countries, including a description of trade practices, regulatory measures such as 

product approvals, and government and private expenditures on medical research; and 

an examination of bilateral and multilateral trade agreements that have addressed 

regulatory issues in major foreign markets, including Japan’s, and the implications for 

the U.S. medical device and equipment industry. 

The Committee requests that the Commission transmit its report no later than 12 months 

following receipt of this request. It is the Committee’s intent to make the Commission’s report 

available to the public in its entirety. Therefore, the report should not contain any confidential 

business or national security confidential information. Thank you for your consideration in this 

matter. 

Bill Thomas 

chairman 

A-4
APPENDIX B

FEDERAL REGISTER NOTICE

B-3

17496 Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices

INTERNATIONAL TRADE

COMMISSION

[Investigation No. 332–474]

Medical Devices and

Equipment:

Competitive Conditions

Affecting U.S. Trade in Japan

and Other Principal Foreign

Markets

AGENCY: United States International

Trade Commission.

ACTION: Institution of investigation

and scheduling of hearing.

EFFECTIVE DATE: April 3, 2006.

SUMMARY: Following receipt on

March 9, 2006, of a request from the

Committee on Ways and Means of the

U.S. House of Representatives

(Committee) under section 332(g) of

the Tariff Act of 1930 (19 U.S.C.

(332(g)), the Commission

instituted investigation No. 332–474,

Medical Devices and Equipment:

Competitive Conditions Affecting U.S.

Trade in Japan and Other Principal

Foreign Markets.

Background: As requested by the

Committee, the Commission will

conduct an investigation under section

332(g) and prepare a report assessing

competitive conditions affecting U.S.

trade of medical devices and equipment

in principal foreign markets.

In preparing its report, the

Commission will, as requested, closely

examine the regulatory conditions of

competition affecting U.S. sales and

trade of medical devices and equipment

in Japan, and other principal foreign

markets, for the most recent 5-year

period. The Commission will focus on

the main U.S. exports of medical

devices and equipment to these markets

during this period, and compare Japan’s

regulatory conditions to those of the

other major foreign markets for U.S.-

made medical devices and equipment.

This report will also include, to the

extent possible, for the most recent

5-year period: (1) An overview of the

global market for medical devices and

equipment, including production,

consumption, and trade; (2) profiles of

the medical device and equipment

industries in the United States and

principal foreign producer countries;

(3) an analysis of U.S. trade in medical

devices and equipment with major

competitor countries including a

description of trade practices,

regulatory

measures such as product approvals,

and government and private

expenditures on medical research; and

(4) an examination of bilateral and

multilateral trade agreements that have

addressed regulatory issues in major

foreign markets, including Japan’s, and

the implications for the U.S. medical

device and equipment industry.

The Commission will provide its

report to the Committee by March 9,

2007.

FOR FURTHER INFORMATION

CONTACT: Co-Project Leader,

Christopher Johnson (202–205–3488 or

christopher.johnson@usitc.gov).

Co-Project Leader, Heather Sykes

(202–205–3436 or

heather.sykes@usitc.gov). Industry specific

information may be obtained

from the above persons. For more

information on legal aspects of the

investigation, contact William Gearhart

of the Commission’s Office of the

General Counsel at 202–205–3091 or

william.gearhart@usitc.gov. The media

should contact Margaret O’Laughlin,

Office of External Relations at

202–205–1819 or

margaret.olaughlin@usitc.gov.

Hearing impaired individuals are

advised that information on this matter

can be obtained by contacting the TDD

terminal on 202–205–1810. General

information concerning the Commission

may also be obtained by accessing its

Internet server (http://www.usitc.gov).

The public record for these

investigations may be viewed on the

Commission’s electronic docket (EDIS–

ONLINE) at http://edis.usitc.gov/

hvwebex.

Public Hearing: A public hearing in

connection with this investigation will

be held beginning at 9:30 a.m. on

July 11, 2006, at the United States

International Trade Commission

Building, 500 E Street, SW.,

Washington, DC. All persons have the

right to appear by counsel or in person,

to present information, and to be heard.

Persons wishing to appear at the public

hearing should file a letter with the

Secretary, United States International

Trade Commission, 500 E St., SW.,

Washington, DC 20436, not later than

the close of business (5:15 p.m. e.s.t.)

on June 27, 2006, in accordance with 

the requirements in the ‘‘Submissions’’

section below.

Written Submissions: In lieu of or in

addition to participating in the hearing,

interested parties are invited to submit

written statements or briefs concerning

this investigation. All written

submissions, including requests to

appear at the hearing, statements, and

briefs, should be addressed to the

Secretary, United States International

Trade Commission, 500 E Street, SW.,

Washington, DC 20436. Any

prehearing statements or briefs should

be filed not later than close of business,

June 29, 2006; the deadline for filing

posthearing statements or briefs is close

of business, July 25, 2006. All written

submissions must conform with the

provisions of section 201.8 of the

Commission’s Rules of Practice and

Procedure (19 C.F.R. 201.8). Section

201.8 of the rules requires that a signed

original (or a copy designated as an

original) and fourteen (14) copies of

each document be filed.

In the event that confidential treatment

of the document is requested, at least

four (4) additional copies must be filed,

in which the confidential information

must be deleted (see the following

paragraph for further information

regarding confidential business

information). The Commission’s rules

do not authorize filing submissions with

the Secretary by facsimile or electronic

means, except to the extent permitted

by section 201.8 of the rules (see

Handbook for Electronic Filing

Procedures,

ftp://ftp.usitc.gov/pub/reports/

electronic_filing_handbook.

Any submissions that contain

confidential business information must

also conform with the requirements of

section 201.6 of the Commission’s

Rules of Practice and Procedure

(19 C.F.R. 201.6). Section 201.6 of the

rules requires that the cover of the

document and the individual pages be

clearly marked as to whether they are

the ‘‘confidential’’ or

‘‘nonconfidential’’ version, and that the

confidential business information be

clearly identified by means of brackets.

All written submissions, except for

confidential business information, will

be made available in the Office of the

Secretary to the Commission for

inspection by interested parties.
B-4

Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices 17497

In its request letter, the Committee

stated that it intends to make the

Commission’s report available to the

public in its entirety, and asked that the

Commission not include any

confidential business or national

security confidential information in the

report it sends to the Committee. The

report that the Commission sends to the

Committee will not contain any such

information. Any confidential business

information received by the

Commission in this investigation and

used in preparing the report will not be

published in a manner that would

reveal the operations of the firm

supplying the information.

Persons with mobility impairments

who will need special assistance in

gaining access to the Commission

should contact the Secretary at 202–

205–2000.

By order of the Commission.

Issued: April 3, 2006.

Marilyn R. Abbott,

Secretary to the Commission.

[FR Doc. E6–5021 Filed 4–5–06; 8:45 am]

BILLING CODE 7020–02–P
APPENDIX C

CALENDAR OF PUBLIC HEARING

C-3

 CALENDAR OF PUBLIC HEARING

Those listed below appeared as witnesses at the United States International Trade

Commission’s hearing:

Subject: Medical Devices and Equipment: Competitive Conditions

Affecting U.S. Trade in Japan and Other Principal Foreign

Markets

Inv. No.: 332-474

Date and Time: July 11, 2006 - 9:30 a.m.

Sessions were held in connection with this investigation in the Main Hearing Room

(room 101), 500 E Street, S.W., Washington, D.C.

ORGANIZATION AND WITNESS:

Advanced Medical Technology Association (“AdvaMed”)

Washington, D.C.

Edward J. Ludwig, Chairman of the Board, AdvaMed;

and Chairman of the Board, President, and CEO,

Becton Dickinson (a member of AdvaMed)

Philip R. Agress, Vice President, Global Strategy and

Analysis, AdvaMed

Pharmanet Inc.

Washington, D.C.

Joyce L. Frey-Vasconcells, Executive Director,

Pharmanet Inc.

-END-

APPENDIX D

GLOSSARY

D-3

GLOSSARY

Angioplasty - procedure to treat damaged or diseased arteries (or coronary artery disease) in which a

catheter with an inflatable tip is inserted into an artery, guided to the site of the disease, inflated to

redistribute plaque, deflated, and removed. 

Adverse event - a negative event experienced by a patient attributable to medical devices or drugs.

Ambulatory surgical center - a place performing outpatient surgery where patient stay is limited to a

few hours or one night.

Biologic - a preparation, such as a drug or vaccine, derived from living organisms or their products and

used to diagnose, prevent, or treat disease.

Biophenomena - vital signs such as blood pressure, respiratory rate, and temperature.

Bio-research - the investigation of the nature of living organisms.

Cardiac rhythm devices - devices used to treat cardiac rhythm disorders, including cardiac pacemakers,

implantable cardioverter defibrillators, and antiarrhythmic agents (drugs).

Cardiovascular catheter - small tubing system with an attached deflated balloon used in angioplasty

procedures (related terms: angioplasty catheters, balloon catheters, PCTA (percutaneous transluminal

coronary angioplasty), catheters).

Cash flow model - a method for financial evaluation of long-term, R&D-intensive projects; term is used

(secondarily) in this report to indicate the economic benefits of reduced regulatory delays in product

approval. 

Catheter - a small tubing system used to conduct the flow of bodily fluids such as blood and urine.

Competent authority - EU member state health authorities responsible for national level compliance of

medical device directives in connection with the EU regulatory approval system and appointment of

notified bodies.

Computerized tomography (CT) - type of diagnostic imaging procedure using X-rays enhanced by a

computer to generate cross-sectional images of body tissue (related terms: CAT (computerized axial

tomography) scanner, CT (computerized tomography) device).

Conformite Europeene mark (CE mark) - an insignia granted by EU member states to indicate

conformity to European safety standards, thus allowing marketing on the EU market.

Conformity assessment - the technical term given to the process of medical device evaluation and

approval.

Contract research organization (CRO) - in the context of the medical device industry, an organization

that contracts with medical device firms to provide a variety of services, including administration of 

clinical trials, preparation of regulatory materials, etc.
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Controlled device - in Japan, class II medical device products posing moderate risk to patients, usually

requiring third-party certification.

Coronary - pertaining to the arteries that channel blood to the heart.

Curette - a spoon-shaped surgical instrument used to remove tissue from body cavities or clean diseased

surfaces.

Defibrillator - an external paddle device used on the chest to shock the heart out of filibration

(ineffective pumping) and bring it back to its normal routine. Also, see implantable cardiac defibrillator.

Derivative devices - medical devices substantially similar to ones already on the market, often referred to

as precedent or "me-too" devices. 

Diagnostic imaging - various methods, including X-ray, CT, MRI, or ultrasound, used to create images

of the body or parts thereof to diagnose disease.

Diagnosis-related groups (DRGs) - a type of hospital procedure classification system developed by U.S.

Medicare and Medicaid program, and now increasingly used in other major foreign markets, that is used

to determine healthcare insurance reimbursement rates related to severity of the diagnosis.

Dialysis - a treatment to remove harmful materials from blood that has been contaminated due to kidney

failure.

Dialyzer - a semipermeable membrane used in dialysis through which small molecules can pass by

diffusion and be removed from the body.

Drug-eluting stent (DES) - a tiny, hollow metal or plastic tube inserted into an artery or blood vessel to

restore blood flow, which is coated with a drug to preventing scarring of the arterial tissue (related terms:

bare-metal stent, stent).

Electrocardiograph - a machine used to generate electrocardiograms (a continuous graph that depicts the

electrical voltage in the heart) often used to diagnose cardiovascular diseases.

Electromedical equipment - electronic medical devices, such as diagnostic imaging devices (X-ray,

MRI, CT), cardiac pacemakers, and medical lasers. 

Electrosurgical device - electronic medical devices for surgical purposes, such as cutting or vaporizing. 

Endoscope - a telescope or tube passed through a natural orifice or small skin incision used to directly

visualize a diseased area inside the body.

Essential requirements - EU requirements, or technical regulations, that medical device manufacturers

are responsible for meeting and documenting. The term is found in several European Council directives

for different types of medical devices, including the medical device directive (MDD), the active

implantable medical devices directive (AIMDD), and the in vitro diagnostics directive (IVDD). 

Gainsharing - incentive-based compensation that ties wages to increased productivity rather than profit

increases. 
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Good manufacturing practices (GMP) - FDA requirements outlining that manufacturers must have a

quality system for the design, manufacture, packaging, labeling, storage, installation, and servicing of

finished medical devices intended for commercial distribution in the United States.

Group purchasing organization (GPO) - a group of organizations (such as hospitals) that collectively

purchases medical devices to obtain discounts from vendors based on the their buying power.

Health technologies assessment - assessments to measure the impact of a new healthcare technology on

citizens, patients, and healthcare organizations (measurement of impact generally includes safety, cost,

efficacy, effectiveness and efficiency of a new technology, and the social, legal, and ethical consequences

of its introduction).

Implantable cardiac defibrillators (ICDs) - small pacemaker-like devices implanted beneath the skin

that monitor heart rhythm and correct abnormal heart beats by sending an electrical shock to the heart

(related terms: cardiovascular implantable defibrillators).

Implantable pacemakers - miniature electronic devices that provide electrical stimulation of the heart

muscle to regulate contractions of the heart muscle, implanted beneath the skin.

In vitro diagnostics (IVDs) - literally "in glass" diagnostics or tests of bodily substances such as blood,

urine, and tissues used to detect, diagnose, or monitor disease. 

In vivo diagnostics - tests performed on or in a body often using diagnostic imaging techniques.

Informatics - the sciences concerned with gathering, manipulating, storing, retrieving, and classifying

recorded information. 

Intrauterine devices - widely used form of reversible contraception where the uterine lining is altered

such that it becomes unfavorable for sperm implantation.

Lithotripter - an electromedical technology used for disintegrating kidney stones.

Magnetic resonance imaging (MRI) - type of diagnostic imaging procedure using radio waves and short

bursts of a powerful magnetic field to provide cross-sectional images of any portion of the body.

Medicaid - a U.S. program providing medical care for low-income patients that is jointly funded by

federal and state governments.

Medical device - instruments, tools, machines, implants, diagnostic tests, or software systems used to

diagnose, treat, monitor, or prevent diseases and other medical conditions. 

Medical Device Directive (MDD) - EU document containing rules and requirements that need to be met

for placing medical devices on the market.

Medical imaging diagnostics - expensive systems used to detect, diagnose, and monitor diseases that

cannot be characterized by in vitro diagnostics (related terms: imaging devices, diagnostic imaging,

diagnostic imaging instruments).
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Mutual Recognition Agreement (MRA) - agreement between national governments serving as a vehicle

for regulatory cooperation, which may be based on harmonization, equivalence, or external criteria such

as the host country's standards or other mutually agreed standards, or international standards. (In an

MRA, two or more governments agree to recognize and accept all, or selected aspects, or test to each

other’s regulations because they are harmonized or judged to be equivalent, or because they satisfy other

agreed-upon external criteria). 

Nanotechnology - technology development at the atomic, molecular, or macromolecular range of

approximately 1-100 nanometers to create and use structures, devices, and systems that have novel

properties (1 nanometer = 1-9 meters).

Neurostimulation - medical treatment for people suffering from chronic pain that uses an implanted

device to deliver small doses of drugs or low levels of electricity directly to nerve fibers.

Notified bodies (NBs) - standards, certification, and testing bodies designated by EU member state health

authorities for regulatory review of medical devices. 

Orthopedic devices - medical devices such as crutches; splints; and hip, knee, and spinal implants used

to compensate for a defect or disability of the body. 

Pacemaker - see implantable pacemaker.

Patient monitoring - eletromedical devices and systems used to monitor critical bodily functions, such as

temperature, blood pressure, and pulse.

Positron emission tomography (PET) - type of diagnostic imaging procedure using small amounts of

radioactive substances to produce images of activities in the body.

Postmarket surveillance - government or manufacturer established system to ensure that feedback from

the marketplace provides early warning of medical device quality problems.

Premarket approval (PMA) - type of application submitted to FDA for marketing approval of new class

III medical devices.

Premarket notification, 501(k) - type of application submitted by a manufacturer to notify the FDA of

intent to produce a medical device substantially equivalent to one already on the market.

Prosthetic - a device, either external or implanted, that substitutes for or supplements a missing or

defective part of the body (artificial limbs, breast implants).

Reagent - a substance used in in vitro diagnostics that reacts chemically to detect, measure, examine, or

produce other substances for purposes of analysis and diagnosis.

Restenosis - scarring and reblocking of the arterial tissue that occurs in some patients who have had

stents implanted in their arteries or other blood vessels to treat coronary artery disease.

Snare - a surgical instrument with a wire noose used to remove tumors and polyps. 

Stent - tiny, hollow tubes permanently inserted into clogged arteries to restore blood flow (related terms:

bare-metal stent, drug-eluting stent).
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Stethoscope - a device with a small bell-shaped end piece coupled to a flexible tube that splits to feed two

earpieces used by physicians to amplify the sound of and listen to the heartbeat. 

Ultrasound - the use of ultrasonic waves for diagnostic or therapeutic purposes, specifically to visualize

an internal body structure, monitor a developing fetus, or generate localized deep heat to the tissues.

Ultraviolet apparatus - electromedical devices using LEDs, fluorescent lamps, dichroic lamps, or very

bright, full-spectrum light for a prescribed amount of time to treat skins diseases such as psoriasis, acne,

and other medical disorders.

User fees - application and other fees paid to regulatory agencies to help cover the costs of the review and

approval of medical devices.