What are the current challenges and opportunities in the US medical equipment industry
Hello! Thanks for your question about the current challenges and opportunities in the U.S. medical equipment industry.
The short version is that there are more challenges than opportunities. Taxes and regulations, cybersecurity, product commoditization, competition from consumer tech, better business environments abroad, foreign markets, and a high cost of product development are the main challenges in the US medical equipment industry. Opportunities include a growing elderly population, mergers and acquisitions, data technology, AI technology, and the expansion of the wearable device market.
Below you will find a deep dive of my findings.
THE US MEDICAL EQUIPMENT INDUSTRY
There are more than 6,500 medical device companies in the United States. This country has the largest medical device market in the world, which is estimated at $155 billion, and it represents about 43 % of the global medical device market. The medical device market will continue to grow, but its rate of growth will be modest over the next five years at 2.8%.
According to data from Euromonitor, the US population over the age of 65 increased 18%, and this is expected to continue for the next 20 years, and this will create opportunities for companies in the medical device market.
Due to lower reimbursement rates, many medtech companies have enhanced their products with service offerings that provide additional value, such as increasing operating room efficiency or reducing visits to the hospital. Also, medical device companies are combating higher development and commercialization costs through the use of data technology, and this has allowed for the increase of productivity at each stage of a product's development. New technologies like 3-D printing have been the cause of major transformations in several segments of medical device manufacturing. Recently, large companies like IBM have invested significant capital in technology for medical devices, and in 2017, smaller companies are expected to experiment with AI products.
The wearable device market around the world was valued at $13.2 billion in 2016. Devices like glucose monitors and exercise trackers are expected to generate double the revenue growth of the entire device market.
In recent years, medical device OEMs have merged to boost growth, and this trend will continue in 2017. In the year 2015-2016, there were over 150 major medical device company acquisitions and mergers.
TAXES AND REGULATIONS
Since 2013, the Affordable Care Act has implemented a 2.3% excise tax on gross sales. This not only put US medical device producers at a disadvantage with respect to foreign competitors, but it also forced companies to reduce resources for manufacturing improvements and R&D activity. In addition to this, the medical equipment industry is under growing regulatory scrutiny, and this has resulted in an increased cost of compliance for manufacturing companies that wish to do business in the US.
The Donald Trump administration is expected to make an effort to repeal the Affordable Care Act (ACA) and the associated medical device tax. They will also give a hearing for medical device companies that want to see a reduction in the user fees associated with the Food and Drug Administration (FDA).
Due to the increase of cybersecurity threats aimed at medical device companies over the past few years, the U.S. Department of Homeland Security has more than 20 open investigations. PC World recently reported that in Europe researchers were able to intercept signals between a heart pacemaker-defibrillator and the programmer. Recently, Johnson & Johnson (J&J) admitted that the Animas OneTouch Ping insulin pump had been susceptible to hackers, and these hackers could have forced the pump to deliver an excess of insulin to the wearer.
A report by AdvaMed showed that Medtech companies have been pressured to drop their prices on available devices. The prices for
artificial knees, pacemakers, and drug-eluting stents dropped by 17%, 26%, and 34%, respectively. As medical devices continue to become more portable, offshore companies will bring similar offerings to the market faster and at a lower price. In order to prevail, US companies need to differentiate their products and demand premium pricing based on their capabilities.
COMPETITION FROM CONSUMER TECH
Technology firms have noticed that traditional medtech players have been slow to incorporate mobile analytics and cloud solutions; as a consequence, they have entered the medtech field. Google is investing in smart contact lenses, and other companies with a similar strategy include Apple, AT&T, Canon, Intel, Motorola, Reebok, Qualcomm, Samsung, Sony, and Verizon. These firms are focused on functionalities such as portability, wireless communication, personalized care, and seamless integration with other devices. They have a head start on the medtech industry due to their brand recognition and familiarity.
BETTER BUSINESS ENVIRONMENTS ABROAD
The corporate tax rate in the US of 35% is not as competitive with the tax rates of many countries in Europe--mostly Germany, Switzerland, and Ireland. Several large-profile corporations have switched to offshore operations, as is the case with Medtronic. The US is also losing competitiveness in areas like property rights, economic freedom, and expediency of the approval process.
Japan is the second-largest medical device market in the world. Through initiatives like the new Pharmaceutical and Medical Device Law (PMDL), the government is looking to increase the accessibility of foreign products and technologies. China is the third-largest medical device market and also the fastest growing. The U.S. is China's leading supplier of medical devices. However, U.S. companies face many barriers in China; these include challenging regulatory procedures, inconsistent reimbursement policies, complex tendering for purchasing medical devices and tariffs.
Imports of medical devices to the US increased by 4.6% to reach a record USD $37,751 million in 2013. Over the 2008-2013 period, imports increased at a CAGR of 4.3%. The running annual total reached almost USD $40 billion in the twelve months leading to February 2015.
COST OF PRODUCT DEVELOPMENT
The medical device market is one of the most expensive industries for new product development, and this will continue to rise due to technology and regulations. An article in MDDI stated that 100% of hospitals used value analysis committees and that the most important part of the committee’s assessment of value was the product's price.
To wrap it up, there are more challenges than opportunities. Taxes and regulations, cybersecurity, product commoditization, competition from consumer tech, better business environments abroad, foreign markets, and a high cost of product development are the main challenges in the US medical equipment industry. Opportunities include a growing elderly population, mergers and acquisitions, data technology, AI technology, and the expansion of the wearable device market. Thanks for using Wonder! Please let us know if we can help with anything else!