Fair to Average
The medical device market faces many unique challenges and opportunities. Overall, the outlook is positive. Analysts suggest this S&P market industry is strong with "long-term turnaround capability." With populations aging around the world, demand for machines should be sustained well into the middle part of this century. Increased competition from Asian markets will continue to put price pressure on American and European producers as low cost alternatives enter the market. These regions also represents large areas of growth due to their large populations, increasing needs for healthcare, and large labor forces from which to pull.
Government regulation in the U.S. and abroad is the single greatest supply factor influencing the medical device market today. Medicare reimbursement rates for equipment in the U.S., determined primarily by the Department of Health and Human Services-Center for Medical and Medicaid Devices (HHS/CMS), often influence the viability of a medical device in the marketplace. Recent reductions of this rate have had a profound impact on the market, increasing the quantity of used equipment market and negatively affecting sale prices. Additional reductions in the reimbursement rates will put added pressure on imaging centers already feeling the stress of reduced cash flow.
The U.S. is the largest producer and consumer of medical equipment in the world. Foreign governments impose rules and regulations on the export of devices from the U.S. to protect domestic manufacturing concerns and to generate increased revenues. Domestically, the Medical Device Manufacturers-Association (MDMA) works with the HHS/CMS to ensure proper reimbursement. Without availability of these funds, medical organizations are unable to purchase or upgrade new technology and must turn to older equipment or to low cost, low technology machines.
Competition from foreign markets has also had an impact on the production and sale of medical devices in the U.S. Leading competition comes from Europe and increasingly Asia, primarily China and India. The emergence of Asian competitors presents unique challenge for U.S. manufacturers who are facing increasing price pressure on exports but are also taking advantage of the low-cost labor through off-shoring. European manufacturers face similar challenges.
Technological improvements and continued research and development are vital to advancing the capabilities of very sophisticated medical devices. Therefore, continued downward pressure on pricing and narrowing profit margins may slow the evolution of improved technologies.
U.S. manufacturers invest an estimated $95 billion a year in medical research. Government controlled grants to small businesses enable continued research at the corporate level, but these grants have not been adjusted for inflation since 1992. The MDMA is currently lobbying Congress to reauthorize the Small Business Innovation Research (SBIR) bill with increases in grant sizes. Many of the businesses involved in the daily design of new medical devices are small businesses so this seed capital is vital. MDMA has also requested a return to previous standards allowing majority venture capital backed businesses to be eligible.
The single greatest factor influencing demand for the medical device industry is the continued aging of populations in the U.S., Europe, and Japan. The U.S. Census Bureau estimates that, by 2050, the percentage of people over the age of 65 will be 20.7%, up from 12.4% in 2000. This increase will put enormous strain on the medical industry as a whole and represents a significant opportunity for medical equipment providers. Over time people will require more treatment and increase the need for new technological devices which can improve the quality and duration of life. A government study produced in 2005 indicated a greater need for more sophisticated home health products allowing patients to care for themselves rather than by a health care worker. This same study also indicated an increased demand for defibrillators and pacemakers.
The current state of the U.S. economy also plays a role in the demand for medical devices. The weak dollar increases the purchasing power of European and Asian market participants who desire state-of-the-art medical devices produced in the U.S. Conversely, poor economic conditions reduce the number of elective procedures performed, decreasing demand for certain monitoring devices.
The market for used equipment has been supported by growth in healthcare but impacted by industry consolidation. The BDRA is also affecting the market for used equipment as larger volumes are available in the marketplace. A large percentage of used equipment is sold for export to regions such as the former Soviet Republics, India, Pakistan, Latin America, Asia Pacific, and the Middle East.