Healthcare Spending Up, Medical Production Down

Since the fall of 2013, healthcare spending has been growing at a rapidly accelerating rate. Healthcare spending, which increased 4.7 percent year over year in August 2015, was growing at its fastest rate since early 2003. In fact, the current rate of growth in healthcare spending was virtually the fastest rate of growth ever. And, according to the advance GDP report from the Bureau of Economic Analysis, healthcare spending accounted for nearly 30 percent of total consumer spending in the third quarter of 2015.

Based on the trend in healthcare spending, medical device production should be growing at an accelerating too. However, medical device production seems to have gotten out of sync with its historical cyclical pattern. In 2014, medical equipment production should have grown at a decelerating rate. However, I believe the roll out of healthcare through the Affordable Care Act caused medical device manufacturers to increase production in anticipation of higher demand. So, instead of decelerating growth in production there was accelerating growth in production. Now, it appears the medical manufacturers are slowing production to bring it back in line with healthcare spending.

In addition to these trends, the GBI: Medical shows that new orders and production at medical manufacturers have decline rapidly since March 2015. And, because new orders have been relatively weaker than production, backlogs within the industry have collapsed.

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