Impact of the stimulus package upon the medical supply resale market
September 23, 2009
This report originally appeared in the August 2009 issue of DOTmed Business News
The medical supply industry is poised to benefit from a substantial increase in the resale market as a trickledown portion of the multibillions in increased traffic from the American Recovery and Reinvestment Act of 2009 (ARRA), which is set to fund $20 billion plus into the Health IT (HIT) space. The legislation also puts $20 billion towards reaching the goal of 90% of doctors engaged in certified Electronic Medical Records (EMR) technology in 10 years-challenging in a strained economy when it can cost $50,000 for one practice to convert to electronic records, but promising for the sales market and consequentially, for the resale market. The implications of all this funding could be a trickle down effect into the medical supply resale market.
Regardless of ARRA impact, the resale market is expected to continue to show modest growth. The U.S. output of medical equipment and supplies expanded by more than 3% in 2008, according to data from the Federal Reserve Board. In 2009, growth for medical products is expected to be about the same, around 3%. The tendency for medical products to post positive growth year after year, even during a recession in the overall economy, has given the medical industry a reputation of being "non-cyclical." The reasoning is that most medical procedures and therapies are essential rather than discretionary; in times of economic duress, Americans might choose to forego a new car or refrigerator, but they will continue to sustain their levels of spending on health care, which requires continuous upgrades and updates of medical products.
The winners of the ARRA funding will most likely be the usual suspects, big vendors. Large medical technology leaders who participate in high performance products and commodities such as Abbott, Baxter, BD, Medtronic, J&J, GE Healthcare, Siemens, etc., are very much in the hunt for the funding and quite honestly, are likely to receive the majority. However, this can spell good news to value-added resellers (VARs) and used equipment resellers who might be able to take advantage of the consequences. So, if the large vendors are likely to receive the bulk of the grants, and their tendency is to market new equipment, how will the resale market be affected?
Answering this question requires a brief review of the channels required to bring medical products to market. First, at the top of the chain, are the large medical technology leaders who participate in high performance products and commodities, as mentioned previously, who are the ones most likely to receive the bulk of the grant funds. Next, the large supply chain specialists' distributors such as Owens & Minor, Cardinal Health and McKesson, dominate the high volume commodity products. After that, there are hundreds of midsized specialized device manufacturers who sell their products directly through agents, distributors and major gatekeepers. Next are the Healthcare Retailers and Pharmacies; then the multi-level marketing organizations such as Shaklee, Nuskin, etc., and finally, a new, rapidly growing direct-to-consumer television channel and on-line services pioneered by Polymedica and others.
Suppliers of medical products will enjoy an expanding customer base for the foreseeable future. Along with recognizing the demographics and the motivation to support life, the stimulus package will further impact this growth. Perhaps not fast enough, though, as some critics of the package maintain. A study, conducted by researchers, sponsored by electronic communications services provider IVANS Inc., found that more than half of providers believe that the billions of dollars set aside to promote health IT adoption will have little impact on that process. The biggest obstacle to adoption was "lack of budget," cited by 82%.
Providers, to adjust and position themselves for the growth, will find that the fiscally responsible decision might only afford the acquisition of used equipment. Will used equipment be available? Fiscal responsibility is not just limited to small practices. Large providers are certainly keeping it in
mind as well. In order to alleviate the pressure to purchase and acquisition the
newest, latest, and greatest equipment, finding the space and the money will require the sale of their old equipment.
The ARRA, in accordance with Tax Code Section 179, can strengthen buying power of new equipment bought in 2009. This could make 2009 an attractive year for facilities to purchase equipment. This brings us from the medical supply industry, where the sale of new equipment by suppliers to facilities means providers will be more likely to resell equipment. Here's where the VARs may observe an increased volume of resold equipment.
Voila! The supply and demand chain is established: large vendors receive grants and market new equipment, providers buy new equipment to meet new standards and then sell old equipment and finally, resellers see an increased volume in resale of old equipment.
Paul Keough, PhD, MBA is the President of Turnkeough Corporation (www.turnkeough.com).You can reach him at firstname.lastname@example.org.