Where Is the Medical Market Headed?

Data suggest industry is concerned about future healthcare legislation.

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We last looked at the medical industry in June 2016. A lot has happened since then. We had an election where the Affordable Care Act (aka Obamacare) was a significant topic of debate. Should it be modified? If so, then how? Or, should it be scrapped altogether? With Donald Trump winning the election, there has been talk that the Affordable Care Act will be repealed, even if the Trump administration and the Republicans have nothing significant with which to replace it. As a result, there’s an important question mark around the future of medical manufacturing.

With all that as a backdrop, let’s take a look at the data and see what it says about the direction of medical manufacturing. In 2016, real medical-care spending (i.e., adjusted for inflation) continued on its pace of large increases that it had been on since early 2014, which was most probably due to the Affordable Care Act. But after the first quarter and as the election drew near, real medical-care spending flatlined. This showed up in the annual rate of change in medical-care spending (the orange line on the chart). As absolute spending on medical care flatlined, the rate of growth decelerated significantly. While the annual rate of growth remained strong compared with the last decade, it is likely that it will continue to slow in the first half of 2017 as it approaches the historical average growth rate.

Medical-Equipment Production. Medical-equipment production tends to lag medical-care spending by 12-18 months (matching up the peaks and troughs between the orange and blue lines). With the dramatically accelerating growth in real medical-care spending in 2014 and 2015, it therefore came as no surprise that medical-equipment production increased dramatically in 2016. It fact, 2016 was the strongest period of growth in medical-equipment production since 2007. The rapidly accelerating growth in medical-equipment production should continue through at least the first quarter of 2017 and maybe well into the second quarter. But changes in medical legislation are likely to have a significant impact on the trend.

Gardner Business Index. The medical future business expectations index barely increased at all in November and actually declined in December. This is interesting because it is different from almost every other industry the Gardner Business Index tracks. In almost every other industry, the future business expectations skyrocketed in November on the heels of Trump’s victory and then took a smaller step up in December. This shows the medical industry is somewhat concerned about the future direction of legislation.

ABOUT THE AUTHOR: Steven Kline Jr. is part of the fourth-generation ownership team of Cincinnati-based Gardner Business Media, which is the publisher of Plastics Technology. He is currently the company’s director of market intelligence. Contact: (513) 527-8800 email: skline2@gardnerweb.com

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