During the heyday at the beginning of COVID Pandemic, the Indonesian government was in a rush to supply healthcare frontline workers with much needed supplies such as personal protective equipment (PPE) and face masks. The highly transmissible nature of the disease resulted in an unprecedented surge in demand, which the global medical device supply chain struggled to meet. Learning from this bitter experience, the Indonesian Government vowed that never again should similar situations occur: Indonesia need to have independence and resilience in their health care provision, including for medical devices.
This aspiration for resilience is based on Indonesia’s potential as a burgeoning market for medical devices, poised for substantial growth. Fitch Solutions estimates that Indonesia’s medical device market can reach IDR 29 Trillion (USD 1.9 Billion) in 2026, registering a robust annual growth rate of 10.8% since 2021. Several factors underpin this rapid growth, including an expanding higher-income demographic, heightened health awareness post-COVID-19, increased risks associated with an aging population, and enhanced health coverage through the national insurance program, JKN.
Despite this potential, Indonesia remains heavily reliant on imported medical devices. Looking at one parameter from the purchase of medical devices through the e-catalogue system by LKPP, imported devices overshadowed domestic ones in 2021, constituting 71% of purchases compared to 29% for domestic devices. While this marks an improvement from 2019-2020 (88% imported to 12% domestic), the dependence on foreign licenses (AKL) remains significant at 79%, with domestic licenses (AKD) accounting for only 21% as of November 2023.
The dependence to import products (not just for medical devices) by government agencies and state owned companies incensed President Joko Widodo who has been adamant in promoting domestic industry. The main instruments to realize this objective is using the local content requirement (TKDN) and obligating mainly government procurement to give preferential treatment to products with high TKDN percentage. The Ministry of Health echoes this vision with policies, most notably the freezing mechanism in the health sector e-catalogue for import products that can be produced domestically. Implemented since July last year, this protectionist policy resulted in increased share of local medical devices, with The Ministry of Health stating in October this year that the production of domestic medical devices increased by 78.81%.
However, TKDN should not be the only policy that the government provides to invigorate the medical device industry. One senior figure in the industry remarked that what’s more needed by the industry is how the government can facilitate and incentivize companies to achieve that TKDN target. The government can draw valuable lessons from a study regarding medical devices industry in South Korea, where the infant medical device industry has flourished owing to the significant increase in R&D investments by the government related to the health and medical department, ability to diversify to support revenue growth, and the strategic patenting of new technologies.
Another pertinent issue is the quality and safety of domestic medical devices, which should not be sacrificed for the sake of pursuing TKDN, especially as it relates to safety and quality of healthcare delivery to patients. While there may be stigma from medical workers toward domestic medical devices, there are still several instances where product defects happen. Conversely, TKDN might also increase domestic competition and with that companies are forced to quickly respond when cases of defects are identified. Thus, the Ministry of Health needs to implement a stronger mechanism in regulating and supporting post-market evaluation of medical devices.
Only providing a market for domestic industry through TKDN is insufficient. While it is true that two major stakeholders in medical device producers and buyers are addressed through TKDN measures, other parties along the medical device value chain are crucial to the success of the local medical devices industry. To truly create a thriving and resilient domestic medical device industry, a comprehensive approach that addresses all aspects of the ecosystem must be addressed. At least three issues need to be addressed: upstream raw materials, R&D effort, and skilled manpower.
Producing medical devices that meet the high threshold of safety, biocompatibility, and efficacy requires specific components. The so-called medical-grade raw materials are extremely hard to produce. In fact, most of the local medical device components are still imported such as the medical grade stainless steel for needles or plastic ores for syringes. Currently in Indonesia only a few companies can boast the capacity to produce such products. Hence, true resiliency remains a distant goal until production competency gap is closed. For now the government could obligate (and support) medical device companies to have a minimum level of stock to produce to be used during emergencies, along with finding the best way to stimulate the upstream industry. Similarly, in the pharmaceutical industry, where major Indonesian manufacturers dominate a significant share of the market, there exists a parallel challenge related to import reliance on medical-grade raw materials. The pursuit of resilience remains an elusive objective, a fact that became particularly evident during the COVID-19 pandemic.
Another crucial aspect in the development of medical devices is the development phase. In fact, according to research by Duke University on the global medical device industry, 80% of the profit of the company was derived from products that were recently developed in the last 5 years. Coupled with the finding that the life cycle of a medical device averages just 18 months, this makes the competition in finding the next breakthrough new medical devices among companies even fiercer. Therefore it’s concerning that Indonesia’s R&D spending only accounts for 0.2% of our GDP, far behind our neighbors like India (0.8%), Malaysia (1.06%), and Singapore (1.92%). Our local universities and research centers are actually capable of collaborating with industry and developing products as proven by the rapid innovation when needed to create alternative ventilator solutions during COVID-19, but they need financial support from the government. The support does not all have to come from the government, as schemes such as co-investment with companies can incentivize private participation in doing research.
Lastly, Indonesia is lacking skilled manpower related to medical devices. For example, a study by the Ombudsman in 2018 found that Indonesia only produced on average 700 graduates of electromedical engineers annually. The limited supply of talent constrains the ability to increase the number of calibration facilities which need to triple to be sufficient for the existing number of medical devices. These skilled workforces are important not just to repair medical devices but they can (and should) be involved in all stages of the devices, from aligning epidemiological needs with technological options, planning for proper maintenance, all the way to safe disposal when the lifecycle of the device ends. A policy by the government to formally delineate this expanded responsibility will help boost the credibility and position of these engineers, thus increasing their prestige and attractiveness. Medical devices are a costly investment. The absence of skilled engineers could lead to improper maintenance and operations–hence, shorter life cycle and unrealized value to the buyer of the devices.
Medical devices are a critical component in an effective delivery of healthcare, especially in the future due to the increasing role of technology in healthcare provision. Given this rationale, the Indonesian government’s vision in embedding medical devices as key pillars for healthcare transformation is a prudent approach. The preferential policies with TKDN have proven that Indonesia has a prospective market where the medical devices industry can grow, although more work remains to provide necessary local raw materials and to ensure the quality of domestic products. The ecosystem must be facilitated for the growth of the medical devices industry, enabling it to flourish and aligning with the resilience goals pursued by the Indonesian government.