Economic News Blog
Posted by: Steven Kline, Jr. 5. January 2016

Is Medical Equipment Production Poised for Growth?

Prior to 2000 medical equipment production generally grew at a faster rate than real medical care spending. Since 2000 production and spending have grown at quite similar rates. While it is hard to identify any specific legislation at this time that would have caused the change, several groups in the healthcare industry set about to expand coverage for the uninsured.

But, even though the general rates of growth changed and there was a greater emphasis by industry to cover the uninsured, the medical equipment market continued to function according to its historic cyclical pattern. In general, production of medical equipment would lag medical care spending by six to 12 months. And, medical equipment production would see a peak in growth rates every two years, almost like clockwork.

However, since the passage of the Affordable Care Act in 2010, the normal cyclical patterns have broken down, making it much more difficult to see the future direction of the medical equipment industry. In the chart, note how the regular ups and downs of medical equipment production (the blue line) have become not so regular since 2010. What was once a lag time of six to 12 months between medical care spending and medical equipment production seems to have become a two to three year lag time. And, the complete market cycle between peak growth rates in production every two years is nonexistent.

Throughout 2013, real medical care spending grew at a decelerating rate. I believe that the decelerating growth in medical equipment production in 2015 is correlated with the decrease in spending in 2013.

As the ACA expanded insurance coverage, real medical care spending has skyrocketed. (Who is actually paying for all this new spending is an entirely different matter.) The annual growth rate of medical care spending has accelerated unabated since the end of 2013. Only one time in the last 30 years has the annual rate of growth in medical care spending been faster than the current rate of growth.

If my assumed correlation above is true, then medical equipment production should begin to grow at an accelerating rate sometime in 2016. It has been about two years since the slowest rate of growth in medical care spending. Therefore, we should expect the slowest rate of growth in medical equipment production at any time since the new lag time between spending and production seems to be two to three years. That is, the blue line on the chart should stop going down and start going up at any time.

Our medical business index is providing some indication that this is happening. The overall index seems to indicate that the medical equipment industry has been contracting at a slower rate since the middle of 2015. The new orders index grew in November and December for the first time since May 2015. The production index grew in November and was flat in December, as it seems to have bottomed back in July 2015. And, a number of the other sub-indices also seem to indicate that the industry has reached a bottom and is beginning to improve.

So, 2016 could be the beginning of the next accelerating growth cycle in the medical equipment industry.

Go to our medical page to see all of our data on the medical equipment industry.

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