Over the last 50 years, Korea’s economic and social progress has transformed it from a poor agrarian state to a first-world country and an important economic power. Today, Korea ranks among the world's leading economies, with a population of close to 50 million and its overall GDP at an estimated US$1,212 billion in 2013 (equal to US$24,843 per capita) among the top 15 in the world. Hence, a majority of the country’s population expects to receive a high level of medical care.
The country’s health system is a reflection of its history of rapid industrialization, quick shift towards democracy and market economy. Korea has the highest healthcare expenditure among all the 'Asian Tigers' and the country’s health care spending reached 7.4% of GDP in 2011, up from 7.1% in 2010. However, the share of GDP allocated to healthcare remains below the OECD average of 9.3%.
An estimated 59% of Korea’s healthcare expenditure is funded by the public sector. Almost all the country’s citizens are covered by its public health insurance system. Health service delivery mechanisms have contributed to a dramatic improvement in mortality and avoidable morbidity, with Korea now having life expectancy that is equal to the OECD average.
Korea’s health care spending is estimated to reach 8.8% in its GDP in 2015. The country’s growing older population, rising average income, growing demand for sophisticated medical technology and dependence on imports for high end devices creates significant opportunities for medical device companies. However, as healthcare costs continue to rise, the country's rapidly aging population is adding further pressure to total spending. As a result of a large deficit in the healthcare system, the government has begun implementing cost-cutting measures.
From the regulatory and legal perspective, the Korean medical devices market is viewed as difficult. Government policies generally lack transparency and domestic manufacturers enjoy considerable favoritism.
The Korean medical device market was valued at US$5.1bn in 2013, making it the 13th largest medical device market globally and the third largest in the Asia Pacific (APAC) region after Japan and China.
Around 2,000 medical device manufacturing companies exist in Korea, with particular strength in ultrasound apparatus, dental products, therapy apparatus and consumables. About 60% of the market consists of imported products (in 2013, imported medical devices made up about 70% of all reimbursed devices and diagnostics). The country remains dependent on imported medical devices on account of its low competitiveness resulting from lack of technology, capital, and awareness.
As a result, hospitals are forced to import devices which are not manufactured in Korea, including cancer treatment related products such as linear accelerator, and digital X-ray, clinical pathologist diagnostic devices, endoscopes, and microscopes.
The domestic manufacturing industry remains fragmented, though the number of producers has more than doubled in recent years. Domestic output of medical devices is expected to growth steadily as Korea is aiming to reduce its dependence on imported products and increase its exports.
Current market scenario
In 2014, the demand for imported advanced and innovative medical devices in Korea slowed down due to the global meltdown. Korea’s total medical device imports for 2014 were estimated to be US$3.2 billion, out of which with the U.S. contributed over US$1.3 billion, representing about 40 percent of the import market. The top 10 medical devices imported by Korea include stents, CT systems, MRI systems, knee implants, soft contact lenses, kidney dialysis devices, lenses for eye glasses and medical probes.
The Korean medical device market still remains sluggish, as the country’s economy is yet to return to its pre-global financial crisis levels. However, the market fundamentals remain strong due to a rapidly ageing population and growing demand for sophisticated medical technology.
By 2030, people aged over 65 will account for 25% of Korea’s total population, as a result of which, the focus of the medical device industry will shift from treatment to prevention, thereby driving a continued demand for diagnostic devices.
Moreover, by 2015, the government aims to establish 17 trauma centers to strengthen its capability for handling trauma, like traffic accidents, and natural and industrial disasters. Also, over the next five years, the government plans to invest resources worth a total of KRW 1,000billion for implementing its ‘Emergency Medical Service Preliminary Plan.’ This is expected to create significant sales opportunity for products catering to emergency medical services and trauma treatment.
Additionally, the aging of major high-end devices like CT and MRI will make replacement inevitable, resulting in strong sales opportunities for manufacturers of high-value medical devices. Further, the growing trend of operations using laparoscopy and endoscopy due to minimal patient scars and reduced hospitalization will continue to drive the demand for minimally invasive operation products.
The medical device market is estimated to clock a CAGR of 7.7% in US Dollar terms over 2013-2018 from US$5.1bn in 2013 to US$7.4bn in 2018. Domestic medical device production is expected to surpass US$4.0bn. However, the Korean government’s struggle with pricing and reimbursement measures under its national healthcare system could slow down medical device imports.
Korea meets about 60 percent of its requirement for high-end medical devices from the U.S., EU, and Japan. Currently, the U.S. has the largest share in Korea’s medical device imports, followed by the EU and Japan.
Domestic companies manufacture comparatively lower-end (mid-technology) medical devices, as they lack a high level of technology development, capital strength, and recognition. The trend in Korea’s purchase of medical devices shows that the purchase of domestic high-end advanced medical devices is relatively low and most locally purchased products are valued at less than US$10,000. On the other hand, a majority of devices with higher risk to the human body, or devices for precision diagnosis are imported. In other words, outpatient clinics purchases domestic devices, while intensive care units, diagnosis centers and operation rooms prefer imported devices.
A majority of domestic manufacturers of medical devices are classified as small businesses, with over 78% having a turnover of less than KRW 1billion and 70.7% employing less than 100 employees. However, Korean conglomerates specialized in the IT business, such as Samsung, SK and LG, are making advancements in the manufacture of medical devices. Going forward, an increase in locally manufactured products in certain sectors is likely to exert pressure on imports, particularly of price competitive products such as surgical lasers, digital x-ray systems, patient monitoring systems and centrifuges.
Korea’s medical devices market relies mainly on local distributors who either directly cover the entire country on an exclusive basis, or operate as a master distributor by entering into contracts with other regional sub-dealers for selling products across the nation.
Generally, continued communication with local subsidiaries, or between distributors/commission agents and physicians on an individual level creates sales leads for medical devices. Local representatives maintain a good relationship with physicians by meeting them on a frequent basis and providing information about products.
Foreign medical device companies interested in the Korean market are advised to appoint one reliable distributor to cover the country on an exclusive basis, as the country is geographically small, where general hospitals and university hospitals are the major users of high end products. Appointing more than one distributor can result in confusion among clients in terms of representation and pricing, and make the foreign supplier seem unreliable.
The Korean government requires testing reports of imported devices proving their safety and efficacy, as part of its pre-market approval requirements. All medical devices must obtain marketing clearance from the Ministry of Food and Drug Safety (MFDS) before being manufactured in Korea or imported into the country.
Presently, MDFS classifies medical devices into four categories depending upon their technical attributes and usage. MFDS requires pre-market notification for Class I devices and pre-market approval for Class II, III, and IV devices. Class III and IV devices are required to pass the most stringent technical review by MFDS, which uses authorized laboratories to prove the safety and effectiveness of the devices.
In order to import medical devices into the country, it is mandatory to appoint an importer or representative based in Korea for managing medical device approvals and ensuring regulatory compliance. As MFDS issues product licenses only to locally-based firms, all foreign suppliers are required to submit the necessary documentation and obtain the necessary approvals through their Korean importers, or the supplier’s corporation located in Korea. The typical lead-time for approval is six to 12 months, including the time required for a company to prepare the applications. MFDS has laid down the requirements for approval in relevant regulations, though specific detailed requirements can differ for each product item. As such, foreign medical device companies are advised to work closely with their Korean importers in order to fully understand the MFDS’s requirements on a product-to-product basis for obtaining approvals.
Foreign medical device companies are also required to negotiate pricing terms with the Korean Health Insurance Review and Assessment Service (HIRA) and the National Health Insurance Corporation (NHIC). Korea’s NHI system was introduced in 1977 and had completed covering the country’s entire population by 1989. The NHI system is compulsory for all the 50 million citizens of the country and the Korean government administers funds, coverage, coding, payment and pricing.
U.S. foreign medical device companies also need to consider the country’s tariff structure. As a result of the Korea-U.S. Free Trade Agreement (KORUS FTA) implemented on March 15, 2012, about 85–90 percent of medical devices imported into Korea from the U.S. are eligible for duty-free treatment within one year, while tariff on the balance products is eliminated over the next five years.