It is no secret that the NHS is going through a seismic shift. The £30bn black hole in its budget combined with an increasingly old and overweight population means the pressure is on to find new, sustainable ways of working. The current set up – one which sees healthcare facilities at the centre and patients as satellites that dip in and out as needed – is about to be turned inside out. A more patient-centric, holistic system is on the cards, one that requires individuals to take much more responsibility for their own health and which will be supported by innovative and disruptive medical technology.

While medical technology improves the productivity and efficiency of healthcare systems, its development does not always come quickly or cheaply. Such technologies can require many years of investment and R&D before products finally hit the market. Even when they do arrive, there can be challenges with take-up – the legacy of previous NHS IT projects combined with the natural cynicism of many healthcare professionals towards whizzy, new technology means that adoption can be slow.

So what does the government need to do to ensure that the NHS not only remains a world leader in terms of patient outcomes but that the UK is also able to capitalise on the opportunities healthcare technology presents for the wider economy?

A history of innovation

For centuries UK medical engineering has been the driving force behind much of the world’s health advances. From Darwin’s theory of evolution to the invention of the vaccine to the discovery of DNA, our rich heritage of design and development has delivered many improvements in prevention, diagnosis and treatment of illness.

But while we rank highly for invention, our ability to innovate does not always score so well. As NHS medical director, Sir Bruce Keogh himself acknowledged at the NHS Innovation Expo in Manchester in September, “we don’t always maximise the opportunity for exploiting [innovation] and not infrequently I see innovations that are taken up in other countries that have been developed here”.

The government knows there is much potential to be realised here. Speaking at the same event, George Freeman MP, minister for life sciences, said: “The challenge is, can we unleash the power of this extraordinary organisation as a test bed for innovation – not paying retail price, but being a partner in developing innovations? Health will be the biggest industry in the 21st century, we have to make sure that…we create real economic value from our health system.”

There are two key ways in which the government is hoping to capitalise on this opportunity. First, it is itself making significant investment into healthcare technology. A £260m Integrated Digital Care Fund opened in 2013 to fund the digitisation of patient information and medicine prescription systems across the health and care sector, while the Nursing Technology Fund is making £65m available to provide digital services that will support nurses, midwives and healthcare assistants. Then there is the Innovative Medicines and Medical Technology Review aimed at improving the speed at which medical innovations such as precision medicines, digital devices, diagnostics and therapeutic technologies reach patients; and the Innovation Accelerator and the Innovation, Health and Wealth strategy, which both aim to accelerate the adoption and diffusion of innovation at pace and scale throughout the NHS.

However, in times of austerity when public spending is at a minimum there is only so much the government can do. And clearly while its role is to help stimulate the growth of new industries and companies, it is not its responsibility to fund them in their entirety.

Instead, the emphasis is on inward investment, and in a UKTI brochure Unlock Your Global Business Potential: The UK Medical Technology Opportunity, that is available to download at the government website, much is done to highlight how “the UK ranks highly in comparison to its global competitors with many funding schemes, competitions and government policies developed to encourage investment and growth”.

The value of the UK medical technology market and supply chain overall is considerable. The NHS alone spends around £128bn each year, while the social care market, which is also dependent upon many assistive technologies, is set to grow from £2bn in 2012 to £6bn in 2020 – an increase driven by demand for independent living services. Add in the private healthcare market, which has an estimated value of £35bn, along with the UK’s strong trade links with Europe, Japan and the US, and it begins to make an attractive proposition for investors.

Indeed, the UK medical technology sector has grown considerably over recent years. Between 2009 and 2012, the number of companies increased by 12 per cent, and their combined turnover by 50 per cent. Growth is predicted at 7.3 per cent per annum reaching a value of £9.1bn by 2018, according to Unlock Your Global Business Potential. This makes the UK medical device domestic market the sixth largest in the world and the third largest in Europe.

We’re already seeing increased investment in healthcare tech from the likes of Cisco and Philips.

“There is a very strong converging vision between us as an industry player and where the NHS is going in its five year plan,” Jeroen Tas, chief executive officer of Informatics Solutions and Services at Philips Healthcare, told the New Statesman recently. “Philips has a strong background in device-related technologies. We’re the number one patient monitoring company and a strong player in many other fields, such as imaging and ventilators. These devices can offer a great deal of value with regards to the challenges UK healthcare faces and we have a number of best practices from around the world that we can bring to our relationship with the NHS.”

Healthcare technology has the attention of other investors too, such as those in PE (private equity). “Healthcare continues to be an attractive but challenging area for PE (private equity) investment,” wrote the authors of Bain & Company’s 2015 Global Healthcare Private Equity Report. “By sector, medtech and related services was the clear leader, as large corporate carve-outs helped deal values soar to nearly five times the level seen in 2013. Diagnostics continued to be the most popular medtech segment, with high activity in developed markets as well as China.”

Bain & Company’s report also identified how trends in wellness and prevention will create “opportunities in areas such as data and analytics, population-related business and supplemental insurance products, as well as stoke interest in historically popular segments like lower cost sites of care”.

Global competition

Of course, while there is much opportunity for the UK, this does not mean it is without its challenges. As the reference from the Bain report above hints at, global competition means the UK needs to work even harder at attracting foreign investors. Asia is a key market for PE, while Swedish Medtech has been reporting how global demand for healthcare products is resulting in a growing number of domestic and foreign investors putting their money into its sector.

Meanwhile, the United States remains the focus of much attention, not least due to Obama’s stimulus package of $30bn (some of which was to digitise electronic medical records in hospitals), which was used to leverage investment from the private sector.

The need within some investment communities to play it safe is also putting a break on R&D opportunities in the UK, says Dan Mahony, partner at Polar Capital and portfolio manager for its healthcare fund. He explains how getting a new product off the ground requires many millions of pounds of investment – which may be lost if the tech fails. Currently, the Financial Services Authority is placing pressure on fund managers to demonstrate they take precautions to avoid too many losses, something that is creating an aversion to risk and restricting the amount of funding available. “I go round the country talking to different wealth managers. Everyone understands the opportunity but it’s still difficult to raise the level of investment required, he says.”

The good news is that in recognition of the challenges medtech companies face when trying to commercialise innovations, the government has introduced a suite of fiscal incentives. These range from R&D tax credits, to schemes such as the Patent Box, which enables companies to apply a lower rate of Corporation Tax to profits from patented inventions, through to the £300m UK Research Partnership Investment Fund.

Regulation also has a role to play in making the UK attractive to investors, and so the government is removing some of these barriers. The MHRA (Medicines and Healthcare products Regulatory Agency), for example, has launched an “innovation office” to help organisations navigate the regulatory processes so they can progress their products or technologies more quickly.

Cross-sector support is also important. The Association of British Healthcare Industries (ABHI) believes that the process for testing and rolling out new technologies could be enhanced by providing opportunities for larger pilot schemes that can trigger rapid deployment, should the trials be successful, says Neil Mesher managing director of Healthcare at Philips UK & Ireland and a member of the ABHI.

“Regardless of success, it’s important that the lessons learnt and insights from this research are shared widely. The trial process is especially important because, whatever the proposed model, we need to demonstrate clinical benefit, positive user/clinician experience and appropriate tariffs,” he said, adding how the process also needs to be able to facilitate a move away from a one-size-fits-all position to one of being able to offer tailored solutions by working with a wider number of partners, including SMEs.

Public appetite

Consumer demand will also help drive investment. All around the world, governments are beginning to sit up and take note of the fact that the public expects to have access to this technology as it becomes available. Impact of Advances in Medical Technology on Healthcare Expenditure, a report for the Australian government, for example, stated how “Increasingly patients are empowering themselves through media such as the internet, which allows them to carry out their own research and then request particular treatments to be made available and to be subsidised through Medicare. In addition, it is argued that private spending on new technologies leads to pressure for public spending to expand and to include these new advances.”

In the United States, a similar trend is also happening. The high street chemist CVS has joined forces with two healthcare apps TeleDoctor and Doctor on Demand (the US versions of our Push Doctor and Babylon) to help diagnose and treat patients without them needing to see a doctor. “It might be that someone has a minor rash on their arm,” explains Polar Capital’s Mahony, “The doctor at the end of the app diagnoses it and the patient goes to the chemist for the cream – costing them much less than a trip to their GP surgery would have done.

“Even though we don’t have to pay to see our doctor here in the UK, there is no reason why services such as that can’t happen over here. I’d much rather pay a small amount of money to use an app to help me diagnose whatever minor ailment I was experiencing than to have to take a morning off work to see my GP, which is what I have to presently,” he added.

Mahony believes this will drive a lot of the change healthcare needs to see. “If the demand is not met by the healthcare system then people – particularly millennials who have grown up with this stuff - will go elsewhere if they can pay for it,” he says. He predicts it will start with services such as the Push Doctor and Babylon apps, which provide online diagnosis, and products, such as a dementia bracelet that tracks the movements of people with the disease, which can be purchased by concerned relatives.

The world is changing. To keep up, investment is essential. Aging populations, therapeutic advances, chronic diseases, disruptive technologies and the search for scale should all drive growth, while products and services that engage patients and leverage advanced technology and analytics should improve access to and quality of care. With the right combination of public and private sector investment, inter-industry collaborations and willingness within both the health service and the public to engage, the sustainability of our health system can be protected.

This article is part of a thought-provoking series on living health, brought to you by the New Statesman in association with Philips, which looks at how technology, innovation and big data are helping to improve your health and our health-care system.