Medical and dental instruments and supplies - 1991 U.S. Industrial Outlook

Michael J. Fuchs

Medical and Dental Instruments and Supplies

Manufacturers of medical and dental instruments and supplies are forecast to increase their shipments by 7.3 percent in 1991 (in terms of 1987 dollars), compared with 9.1 percent in 1990. This total includes a gain of 8.6 percent for surgical and medical instruments (SIC 3841), 7.6 percent for surgical appliances and supplies (SIC 3842), 5.9 percent for dental equipment and supplies (SIC 3843), 4.9 percent for x-ray apparatus and tubes (SIC 3844), and 5.5 percent for electromedical equipment (SIC 3845).

The outlook for the medical and dental instruments and supplies industries remains mixed. U.S. health care expenditures, which increased 10.4 percent to a record $540 billion in 1988, have contributed to the strong growth of these industries. However, hospitals, the largest end-users, are facing extreme pressures by the U.S. Government and other third-party payers to curtail these rising health care expenditures. Hospitals account for 52 percent of the $25 billion medical equipment market (Figure 46-1 and Table 1). These cost containment efforts have affected the overall financial status of the hospital industry. Total hospital margins - the difference between total hospital revenue and total hospital costs - have declined from 7.6 percent in 1984, the first year the Government's Prospective Payment System went into effect, to 3.8 percent in 1988. [Tabular Data Omitted]

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to this chapter, see chapters, 44 (Health and Medical Services), and 45 (Drugs).

Despite this financial hardship, hospitals have been increasing capital expenditures for construction to expand their outpatient facilities to generate new revenues from this strongly growing health care market segment. As these capital expenditures are completed in 1991, hospitals will need to increase their equipment spending to outfit newly expanded facilities.

High-quality medical devices that reduce or eliminate costly surgery and long hospital stays will be used more frequently. According to the Prospective Payment System, hospitals will save almost $100 million in 1990 through using medical no-surgical technologies such as endoscopic lasers, lithotripsy, angioplasty, and valvuoplasty.

Outside the hospitals, the use of cost-reducing medical devices are gaining wider acceptance in patient's homes. These low-cost devices include infusion pumps for medication, portable monitors for high risk pregnancies, and ventilators for infants.

The aging population in the United States and abroad represents an important market for U.S. suppliers of medical and dental instruments and supplies. The proportion of the population aged 65 and older in the United States is projected to rise from 9.8 percent in 1970 to 13.0 percent by the year 2000. This growing elderly population will expand its demands for diagnostic and therapeutic services.

Demand for medical products is growing because of the continued increase in the incidence of certain diseases such as AIDS. In 1987 AIDS ranked as the 15th leading cause of death in the United States. The increase in infectious diseases in general has spurred development of a wide range of infection-control products, such as test kits and intravenous equipment and supplies.

Medical Device Legislation

Medical devices remain one of the most regulated manufacturing industries. Regulations covering issues from a more stringent Food and Drug Administration (FDA) review process to the disposal of medical waste are being proposed at the federal and state levels and will affect selected segments of the industry. According to the industry, such regulations could substantially reduce the long-term growth prospects of medical devices.

Among the most important proposals affecting the industry are Congressional efforts to modify the Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act. In 1990, Congressman Henry Waxman, chairman of the Subcommittee on Health and Environment, introduced HR 3095 to add safeguards for using medical devices. Currently, manufacturers of medical equipment are responsible for reporting deaths or serious injuries related to the operation of their devices. Among other things, the bill would require hospitals, clinics, and other end-users also to report these incidents. Some manufacturers and end-users argue that the proposed legislation would create redundant reporting requirements and would add on additional burdens to the already strapped resources of the FDA. Legislators contend that these changes are needed to better regulate the safe use of medical devices.

Technology

Research and development (R&D) expenditures have shown an upward trend in recent years, rising from 5.5 percent of net sales in 1986 to 6.2 percent in 1989. This is nearly double the national industrial rate of 3.4 percent. Firms active in medical electronics invest even more in R&D. Despite these investment levels in R&D, U.S. firms are beginning to lose their edge against foreign competitors. While the industry is still ahead of the European Community (EC) and Japan in R&D expenditures, it is expected to lose ground to these foreign competitors in introducing new products into the world marketplace in the coming decade.

INTERNATIONAL COMPETITIVENESS

International trade is playing an increasingly important role in medical equipment sales. Exports now account for 21 percent of product shipments, the highest ratio to date. These exports are primarily geared to developed countries that spend a significant share of their per capita income on health care.

Medical-equipment exports reached approximately $5.8 billion in 1990, representing an increase of 19 percent from 1989. These exports have grown at double-digit rates for five years and are expected to remain high, as U.S. industry seeks to expand into foreign markets.

U.S. imports of medical equipment in 1990 increased 9 percent to $3.3 billion. This is the second consecutive year that imports have grown at a slower rate then exports. The sharp growth in exports contributed to a fourth consecutive annual increase in the U.S. trade surplus. In 1990, the surplus was $2.4 billion, up 37 percent from the 1989 level.

The European Community (EC), comprising the economies of 12 Western European countries, accounts for 40 percent of U.S. exports, and supplies 43 percent of U.S. imports. The EC is developing directives that will determine how medical devices will gain entry into this important market. In 1990, the EC adopted the active implantable medical device directive covering items such as pacemakers. Another directive covering other medical equipment is expected to be adopted in the near future. These directives are based on international standards, an area where the United States historically has not been influential.

As Eastern Europe undertakes steps to restructure and modernize its economy, U.S. medical equipment companies are beginning to pursue emerging trade and investment opportunities there. While U.S. exports to Eastern Europe are less than 1 percent of worldwide exports, this figure is expected to grow significantly in the next 10 years. Substantial decontrol of high technology medical devices, will significantly enhance export prospects to these non-EC market countries.

SURGICAL AND MEDICAL INSTRUMENTS

Manufacturers of surgical and medical instruments (SIC 3841) increased shipments to an estimated $9.5 billion in 1990, representing a 10.2 percent increase (in 1987 dollars). Industry shipments of these primarily non-electric diagnostic and therapeutic devices have grown consistently since the sharp increases of the mid-1980s, fueled by health concerns over the spread of AIDS and other infectious diseases.

Total employment stood at 84,950 in 1990, an increase of 3.5 percent over the 1989 level of 82,080. Production workers made up 61 percent of the work force.

Exports reached almost $1.9 billion in 1990, increasing 23 percent from 1989 owing to strong foreign demand for disposable products. Exports accounted for about 19.6 percent of product shipments. Imports in 1990 are estimated to have increased 12 percent to $756 million, resulting in a trade surplus of $1.1 billion, a 31 percent increase over the previous year (Table 2). [Tabular Data Omitted]

Outlook for 1991

Industry shipments of surgical and medical instruments are projected to increase 8.6 percent in 1991, measured in 1987 dollars. Due to the sharp increases in the number of AIDS cases, manufacturers of disposable devices - ranging from test kits for infectious diseases to disposables used in blood transfusion - should continue to contribute heavily toward industry growth. In particular, products emphasizing safety against infection for those who administer treatment are expected to do well.

Pressures to hold down costs are making hospitals look more readily to prime vendors for procuring many types of medical instruments and supplies. Hospitals can reduce their supply costs by limiting the number of manufacturers and distributors they deal with. Even the largest manufacturers have been providing an ever-growing share of their products through distributors. This trend is expected to continue in 1991.

Non-hospital surgery centers and individual physicians, accounting for 23 percent of outpatient surgeries, are expected to demand more surgical instruments. Physician office surgery alone increased 20 percent in 1990 to about 1.25 million procedures and is expected to remain high in 1991.

Exports should level out in 1991 to about 15 percent growth over 1990 results. As in the past, currency fluctuations will affect export, growth, as well as the success of the large manufacturers, who as a group derive significant revenue from exports.

Long-Term Prospects

During the 5-year period ending 1995, industry shipments of medical and surgical instruments are forecast to increase about 5 percent (in 1987 dollars).

Domestically, medical devices used in infection control of contagious diseases are expected to plateau after the sharp growth in the late 1980s. The market may be rekindled if Congress approved a bill providing $4 billion to health care institutions for treating AIDS patients. The bill must gain approval from President Bush, who opposes specific funding for AIDS. As a result, some of the prominent U.S. multinational manufacturers of AIDS test kits and other related supplies are expected to make strong bids to expand the distribution of these products in foreign markets.

Disposal of medical waste will remain a primary concern of the medical instruments and supplies companies. While the industry prefers to resolve the problem of solid waste disposal by an integrated and comprehensive system for waste processing and disposal, states are focusing on legislation requiring manufacturers to use biodegradeable plastics to reduce the large and growing volume of solid waste.

SURGICAL APPLIANCES AND SUPPLIES

The surgical appliances and supplies industry (SIC 3842) is the largest in the medical and dental group, accounting for about 37 percent of the group's shipments. Industry shipments increased 8.8 percent to an estimated $10.7 billion. The industry has registered consecutive increases measured in constant dollars since 1977.

The industry manufacturers a wide range of products including walkers, wheelchairs, orthopedic supplies, bandages, hearing aids, and protective clothing. Product areas showing strong growth in 1989 were orthopedic implants and hospital respiratory care equipment.

The industry employed an estimated 87,230 people in 1990, up 2.7 percent from 1989. Production workers numbered about 54,420, or 62.4 percent of the total work force.

INTERNATIONAL COMPETITIVENESS

While international trade historically has been limited for this industry, exports are beginning to play an important role. Exports accounted for 6.2 percent of product shipments in 1980. Ten years later this rate had increased to 12.0 percent. U.S. exports of surgical appliances and supplies rose 26 percent in 1990 to $1.2 billion, the third consecutive year of double digit growth. Principal export items remain internal fixation devices and orthopedic equipment and supplies.

Similarly, total U.S. imports of surgical appliances and supplies accounted for only 5.6 percent of domestic consumption in 1990, the lowest in the medical products group. The value of these imports was about $530 million in 1990, an increase of 27 percent over 1989. Principal imports were mechano-therapy and oxygen therapy apparatus, and hearing aids.

The EC purchased 38 percent of U.S. exports of these products and supplied 35 percent of U.S. imports in 1989. Exports of these items increased sharply to Canada, France and Japan in 1990. This trend reflects aging of populations and the growth of public expenditures on health care in these countries (Table 3). [Tabular Data Omitted]

Outlook for 1991

The value of U.S. shipments of surgical appliances and supplies is expected to increase about 7.6 percent in 1991, measured in constant dollars. Demographic trends and anticipated moderate growth in health expenditures worldwide will continue to support sales. However, public and private sector cost containment efforts are expected to lead to further industry consolidation.

California manufacturers of certain medical supplies may be adversely affected by recently enacted state legislation requiring ethylene oxide emissions to be sharply curtailed. Most medical plastics products need be sterilized before delivery to end-users. The regulations could cost manufacturers $60 million initially and $15 million per year thereafter.

If past trends hold true, exports will surpass $1.3 billion in 1991, and increase of 15 percent. Export items expected to grow in importance include basic patient-care products such as gauze, adhesives, and respiratory apparatus. Imports should rise only about 2 percent to $541 million, increasing the trade surplus by 20 percent.

Long-Term Prospects

Industry shipments of surgical appliances and supplies are projected to rise at an annual constant-dollar rate of 8 to 10 percent from 1990 to 1995. As the domestic market for orthopedic products growns incrementally due to market saturation, the international market will become even more important for this industry. Europe traditionally has had a lower orthopedic implant rate than the United States. As a result, U.S. suppliers may find new market opportunities there. In addition, U.S. manufacturers will begin to compete for market share in Eastern Europe and the Soviet Union, where international sales should be stimulated by the aging of their populations.

DENTAL EQUIPMENT AND SUPPLIES

The 6.9 percent growth in shipments by the dental equipment and supplies industry (SIC 3843) measured in current dollars was countered by the nearly 4.4 percent price increase at the manufacturers level, leading to a net increase of 2.0 percent in real terms in 1990. The industry is the smallest in the medical group with about 5.3 percent of total shipments.

The dental industry employed approximately 15,320 people in 1990, a 0.7 percent increase over 1989, compared to the 1.4 percent gain the previous year. Production workers still account for about 60 percent of all employees in this industry.

INTERNATIONAL COMPETITIVENESS

U.S. exports of dental equipment and supplies increased 26 percent in 1990 to $334 million, as overseas growth rates exceeded those in the United States. This represented the strongest growth rate of the medical group. Leading destination countries were the European Community, Canada, and Japan. Exports accounted for 25 percent of product shipments, up from 21 percent in 1989.

U.S. imports of dental equipment and supplies reached $162 million in 1990, up 15 percent from 1989 (Table 4). Imports accounted for 14 percent of consumption. This foreign share of the domestic market has been increasing steadily since 1980. Leading imports consisted of dental instruments and dental cements and fillings, predominantly from the European Community and Japan. [Tabular Data Omitted]

Outlook for 1991

The value of shipments is expected to increase almost 6 percent in 1991, measured in 1987 dollars. Slow growth is expected for traditional dental instruments, as this market segment is affected by stagnant patient demand and low cost imports. Growth will be concentrated on items for preventative care, such as infection control products and dental cements and other non-metallic filling materials.

Certain manufacturers are opposed to increased FDA regulation. The industry seeks to have certain dental implants placed in a lower risk category that does not require pre-market approval applications. The industry cites that adherence to FDA good manufacturing practices and medical device reporting rules provide sufficient safeguards for these products.

Long-Term Prospects

During the 5-year period ending in 1995, dental equipment and supply shipments are forecast to increase at an average annual rate of 4 percent (1987 dollars).

The changing dental needs of the U.S. population should foster moderate growth in the dental industry over the next few years. A sharp decline in the incidence of tooth decay will continue to shift demand toward preventative care. Cosmetic dentistry also is growing in popularity, and demographics indicate an expanding need for restorative procedures for the elderly. Mergers among manufacturers of dental materials and device manufacturers should provide some protection against low-cost imports and the loss of foreign markets to competitor nations.

While the EC is expected to remain the largest market for U.S. dental instruments and supplies, Eastern Europe, in particular the Soviet Union, is actively seeking joint ventures with U.S. firms in the field of dental instruments. Other countries active in promoting dental equipment are Japan and Saudi Arabia.

X-RAY APPARATUS AND TUBES

The value of shipments by the x-ray apparatus and tubes industry, which manufactures radiographic, fluoroscopic, and therapeutic x-ray devices for medical, research, and industrial applications (SIC 3844) increased at a constant-dollar rate of 11.8 percent in 1990 (reaching $2.2 billion). Part of this growth is reflected in increased hospital expenditures on capital items during the 1988-90 period, including those for x-ray based radiology products.

Recent growth has been focused on gamma cameras and other nuclear medicine equipment, digital cardiology units, as well as accessories for x-ray equipment. Despite these gains in growth, the industry has been facing increased foreign competition. Manufacturer prices remain unchanged from the previous year. For some products, prices have even declined. The x-ray apparatus and tubes industry employed about 12,000 people during 1990, an increase of 7 percent over the previous year. The number of production workers increased 5 percent and accounted for nearly 54 percent of total employees.

INTERNATIONAL COMPETITIVENESS

Exports of x-ray apparatus and tubes rose 9.1 percent in 1990 to $575 million. Imports rose 2.8 percent to $890 million. These developments pushed the trade deficit down to $315 million in 1990, compared to $339 million in 1989 (Table 5). Imports accounted for over 40 percent of domestic consumption, the highest in the medical group.

Outlook for 1991

Industry shipments of x-ray apparatus and tubes are forecast to increase 4.9 percent (1987 dollars) in 1991. Certain segments of the radiology market, such as digital cardiology units and special x-ray procedure units, should enjoy renewed growth after a stagnant period in the mid-1980's. Many of these items should be due for replacement during 1991. The industry is concerned about Federal Government efforts to reduce Medicare reimbursement. If successful, this reduction could limit future purchases of radiology equipment.

Internationally, U.S. exports are expected to increase 9 percent as manufacturers seek to broaden their sales bases. Potential exports of select x-ray devices may benefit from the relaxation of U.S. export controls. Demand from the Soviet Union and Eastern Europe is expected to grow as these markets begin to restructure. U.S. imports are forecast to grow at about 6 percent, as foreign suppliers attempt to increase their activity in the U.S. market.

Long-Term Propects

During the 5-year period ending in 1995, industry shipments of x-ray apparatus and tubes are projected to grow at a compound annual rate of 3.5 percent. Hospital demand for x-ray related products runs in a cyclical pattern, as older products become obsolete or are substantially upgraded. Development of imaging contrast agents for x-ray and computer tomographs, which provide better resolution and less discomfort, may rekindle demand for these products. Sales of traditional cancer therapy products, including those for chemotherapy and radiation therapy, may decline as less costly products and drugs with less severe side effects are developed.

While imports should remain low, they will nonetheless account for a significant portion of the x-ray apparatus and tubes market.

ELECTROMEDICAL EQUIPMENT

The value of shipments by the electromedical equipment industry (SIC 3845), which manufactures a wide range of powered medical devices (excluding irradiation equipment), grew at a constant-dollar rate of 8.5 percent in 1990 following an increase of 16.6 percent in the previous year. This industry has shown gains in the last 4 years, after declining in 1985 and 1986, reflecting the industry's cyclical nature.

Industry employment rose 3.2 percent to about 31,580 during 1990. Production worker employment increased 0.2 percent, but still accounted for slightly less than 50 percent of total employees.

Price increases at the manufacturer level have averaged only about 0.5 percent since 1985, as firms have sought to provide lower cost electromedical equipment to health care end-user. Hospital expenditures for capital equipment has also benefitted certain portions of the electromedical equipment industry. Purchases of magnetic resonance imaging (MRI) devices and ultrasound devices have remained high as more end-users have become aware of the capabilities of these medical devices.

INTERNATIONAL COMPETITIVENESS

Exports of electromedical equipment increased 13.2 percent in 1990 to $1.8 billion after declining 5.5 percent in 1989 (Table 6). Imports increased 4.4 percent. The resulting 1990 trade surplus rose sharply to $792 million after two consecutive years of declines. [Tabular Data Omitted]

Exports accounted for 36.2 percent of U.S. shipments of electromedical equipment. This is the highest ratio of the five industries in the medical equipment group. As the most export-dependent in the medical group, the industry is especially sensitive to foreign exchange rate fluctuations and other external factors influencing trade.

Outlook for 1991

Industry shipments of electromedical equipment are forecast to increase 5.5 percent (1987 dollars) in 1991. Hospital spending for high-tech electromedical equipment is expected to remain strong as software upgrades and new technological developments fuel the growth of non-x-ray-based imaging devices. Many of these new developments will help hospitals reduce costs and improve efficiency. For example, echocardiography has gained acceptance as a safer and more economic method for imaging a patient's cardiovascular system, compared to other imaging modalities.

U.S. exports are expected to increase 8.5 percent and imports about 12 percent as the electromedical equipment industry becomes more global. Meanwhile, U.S. firms will gain a better understanding of the requirements to market in the European Community, as member countries begin to adopt the first medical equipment directive covering active implantable devices such as pacemakers. U.S. firms will also seek to expand in Eastern Europe, where little activity has taken place in this product sector.

Long-Term Prospects

During the 5-year period ending in 1995, industry shipments of electromedical equipment are projected to grow at a compound annual rate of 6 percent. Domestically, demographics will drive the electromedical industry, as the aging population utilizes a large share of electro-diagnostic and therapeutic devices. In addition, demand for these products by outpatient facilities will remain strong.

Internationally, competition will remain fierce in the electromedical equipment industry. Although U.S. firms have invested heavily in research and development, they must follow up by successfully commercializing their technology. European and Japanese competitors are becoming increasingly adept at introducing new high-tech medical products resulting from their R&D efforts. - Michael Fuchs, Office of Microelectronics and Instrumentation, (202) 377-0550, August 1990. [Tabular Data Omitted]

PHOTO : Figure 46-1 U.S. Estimated Medical Products Market, 1989

PHOTO : Figure 46-2 Per Capita Health Expenditures in the United States and Other Countries, 1987

PHOTO : During the five-year period ending in 1995, industry shipments of medical and surgical instruments should increase about 5 percent in 1987 dollars.

PHOTO : U.S. exports of dental equipment and supplies increased 26 percent in 1990 to $334 million. Overseas growth rates for the next few years continue to look promising.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Medical Instruments, Ophthalmic Goods, Photographic Equipment,

Clocks, Watches and Watchcases, SIC Industries 3841, 3842, 3843,

3844, 3845, 3851, 3861, 3873; 1987 Census of Manufactures, Industry

Series MC87-1-38B; Bureau of the Census, Washington, DC 20233. Electromedical Equipment and Irradiation Equipment (Including X-Ray),

Current Industrial Reports 1989, MA-36R(89)-1; Bureau of the Census;

Washington, DC 20233. Emerging Technologies: A Survey of Technical and Economic Opportunities;

U.S. Department of Commerce, Office of Technologies Administration.

Washington, DC 20230. Telephone: (202) 377-1397. Medical Device & Diagnostic Industry, Canon Communications, Inc.,

Santa Monica, CA 90403. Telephone: (213) 392-5509. Health Industry Today, The Business Word, Chicago, IL 60610. Telephone:

(312) 943-3200. Health Week, Health Week Publications, Inc., Manhasset, NY 11030.

Telephone: (415) 444-4234. Medicare Prospective Payment and the American Health Care System,

Report to the Congress June 1990, Prospective Payment Assessment

Commission, 300 7th Street, S.W. Suite 301 B, Washington, DC 20024.

Telephone: (202) 401-8986.

COPYRIGHT 1991 U.S. Department of Commerce
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