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Implantable medical device manufacturing was once considered the last area of U.S. manufacturing dominance. Today, the U.S. is still a dominant player, and the implantable medical device industry is growing; however, many companies are experiencing reduced profits and are moving to a cost-cutting mode.
First, let’s define what makes up the implantable medical device market. The market can be classified into three segments:
Orthopedic: Most common products are knee, ankle and hip joints, but one can also include rods, screws and discs. These types of product are usually non-electronic and use specialty materials such as titanium and plastics.
Cardiovascular: Most common products are defibrillators, pacemakers and stints. Most are electronic and require regular patient monitoring. Flexible circuits and PCBs are a major component in many of these devices and have been used for more than 20 years. The reliability and testing requirements of this market segment are by far more stringent than any other.
Other: A large array of products fall into this category, including breast implants, IUD’s, ear tubes, and eye lenses. Most are non-electronic; some have sophisticated electronics such as cochlear ear implants. Many of these devices incorporate flexible circuitry.
Many consider the implantable medical device industry to have high profit margins and not much cost competition. One might believe that with our aging population (domestic and foreign) the demand for these products would be significantly increasing. While it is true that during the next decade this area should continue to expand, there are some conditions that are causing many medical device manufacturers to retrench as profit margins erode.
- Change in decision makers: The power has shifted from the manufacturer to the buyer because doctors are no longer the primary decision maker for these products. The decision has shifted to the hospitals where the implant is performed. Being under tremendous cost pressure themselves, hospitals are using cost as a major criterion for selection of device manufacturers. Contract negotiations are fierce. The result is that margins are going down faster than demand is increasing.
- Slower growth: While this market is still expected to see 4–6% growth over the next 2–3 years, this is less than the 8% growth rate in past years.
- Slower FDA approval process: Many U.S. manufacturers are complaining bitterly about how long it takes for FDA approval. The average time for a 510(k) to clear has gone from 55 days in the early 2000s, to 110 calendar days in 2006, to 166 days in 2013. This approval time has stayed flat or even declined slightly since 2010, but review times can put dampers on innovation and time to market, all critical elements for the medical device industry.
- Health care cost: Health care spending continues to outpace per capita income. Even with the Affordable Health Care Act, consumers will be forced to pay for a higher percentage of their own care, as both insurance companies and the federal government tries to control costs. The medical solutions will be there, but can the population afford them?
One important factor on the positive side is that the world market potential is enormous. China could be a major catalyst as it is just starting to get its arms around health care for its aging (and vast) population. While there are still obstacles for this market, many are optimistic that China could create a double-digit growth in medical products for years to come.
Even with the issues previously stated, most are optimistic about the future growth of implantable medical products. While health care cost is an issue, many argue that implantable medical devices reduce health care costs by allowing patients to be more productive and avoid long-term care. The opportunity will continue to be there, but as in other industries that reach the top of the growth curve, behavior changes need to occur to adapt to market changes. Medical device manufacturers will have to rethink their strategies and perhaps modify their product and service offerings to adapt to changing market conditions.