Medtech price inflation is a complex matter that affects the members of SAMED and other medtech suppliers as well as South African health service providers and patients.

Globally, inflation in the medical/healthcare sphere including the medtech segment and the health service funding more broadly, is a rising concern. We are not alone in worrying about the sustainability of medtech companies and this sector. Other industries, including the food, resources, motoring, IT and those in the energy-generation sector, are paying the heavy toll of the disruptive COVID-19 pandemic, followed closely by the disruptive Russia-Ukraine conflict. The global medtech network is just as affected as any other industry by rising oil prices, shipping backlogs, labour shortages and other capacity constraints affecting manufacturing and international trade.

Like its peers including medtech associations in Europe and Asia, SAMED is acting on this challenge so that with all the role players in the health sector, we attempt to minimise disruptions that will jeopardise the supply of essential health products and put our patients at risk. Often, medtech prices are regulated by governments or negotiated with public and private funders in advance. There is little flexibility in our sector to adjust to market conditions. We must seek solutions so that manufacturers, suppliers and funders can ensure adequate supplies of essential medtech.

In Korea, Canada, Spain, Germany and other countries, medtech industry players and associations are calling for “shock plans”. They are urging governments and other influential parties to recognise the industry’s vital role in saving lives and livelihoods in the last three years – and to work with the medtech industry to ensure it continues to enable other role players who are part of the health system to operate. In other words, we are in this together.

Here is a brief look at some of the interwoven factors and macroeconomic pressures affecting the medtech industry.

Rising energy and raw material costs have directly or indirectly resulted in higher manufacturing costs.

  • In a year, international oil prices have gone up by about 81% (from USD68 per barrel of Brent crude on 15 March 2021 to USD123 per barrel on 7 March 2022)[1].
  • The prices for metals and plastics have increased in the last two years by at least 50% and in some cases have more than doubled and manufacturers of medical devices made from metals or plastics are facing considerable additional costs. The prices of paper, paperboard and corrugated cardboard are directly related to the costs of manufacturing, purchasing, packaging and delivery of products. The costs for these raw materials obtained predominantly from wood have increased in the last two years by 64% and 37% respectively[2]. The producer price index for metals and metal products – some of which are widely used in medtech – has increased by 61% in two years (from 214.300 in May 2020 to 345.243 in May 2022)[3].
  • Key components and supplies such as semiconductors, packaging, resins, plastics and surgical-grade alloys are in short supply. One such are micro controller unit (MCU) chips. This price of this core semiconductor used in electronic medtech has risen more than six-fold, from USD8 in 2020 to USD50 in 2021[4].

Rising logistics costs related to sea and air fares, container cargo, port management and land-related transport have dramatically impacted the availability and reliability of freight, and everything needed for adequate product movement and storage. Many medtech products and components need specific transport conditions to ensure their safety and performance.

  • Freightos Global Container Freight Index which was 100 in March 2020 stood at 800 in March 2022[5].
  • According to Business Unity South Africa (BUSA), in the last week of November 2022, South African port operations experienced a variety of problems – equipment breakdowns and shortages, adverse weather, backlogs, network challenges and congestion. These caused 11 hours lost on a single day in Cape Town and two hours in Durban. BUSA cautions that as other economies follow Britain into a recession, the container industry is in for turbulent times, with expectations that recovery will be prolonged.

Rising regulatory costs have ensued due to supply chain or systemic logistical challenges that force manufacturers to redevelop or redesign products, which often requires recertification to prove the same level of safety and performance[6]. The new EU Medical Device Regulation (MDR) has tightened and extended the

legal requirements which require companies to incur costs of € 300,000 – 500,000 per certification file[7].This increased cost will affect the landed cost of products in other jurisdictions.

Rising labour costs specially for high-skilled employees who are also sought after in the engineering, IT, transport, regulatory and other specialist industries. Labour costs in South Africa increased to 172.30 points in the first quarter of 2022 from 165.8 points in the January 2020[8]. Wage inflation has affected warehousing, logistics and distribution.

We firmly believe that supporting the medtech sector through joint planning with others involved in the delivery of care and greater consultations and collaborations is necessary. As the pandemic has shown, its work is strategic and essential for the health of the population and our national socioeconomic trajectory.

 

Links:

[1] https://www.statista.com/statistics/326017/weekly-crude-oil-prices/

[2] https://www.swiss-medtech.ch/sites/default/files/2022-09/Faktenblatt_Kostendruck_EN_20220831.pdf

[3] https://fred.stlouisfed.org/series/WPU10

[4] Korea Medical Devices Industry Association policy proposals in response to the rapid hike in all costs related to the production and supply of medical technologies

[5] https://www.imf.org/wp-content/uploads/2022/03/COTW-shipping-costs.jpg

[6] MedTech Europe Continuous Cost Pressures Affecting Medical Technology Manufacturing

[7] https://www.bvmed.de/download/bvmed-factsheet-steigender-kostendruck-auf-die-herstellung-von-medizinprodukten-eng

[8] https://tradingeconomics.com/south-africa/labour-costs