Cooperation and Competition

6 October 2008 (Last Updated October 6th, 2008 18:30)

The medical imaging markets in the US and Europe offer an ideal opportunity to compare how regional markets coexist. Frost & Sullivan analyst Shriram Shanmugham discusses the differences and similarities between the two markets.

Cooperation and Competition

Europe and the US are among the more attractive markets for any medical equipment vendor owing to their size and level of healthcare spending. At the same time, these markets are characterised by very different adoption patterns, making marketing a customised operation for these regions.

The medical imaging modality market can be broadly classified into the following subsets: magnetic resonance imaging (MRI), computed tomography (CT), nuclear medicine imaging, ultrasound, X-rays, positron emission tomography (PET), single photon emission computed tomography, picture archives and communication systems (PACS), and mammography.

Medical imaging equipment plays a vital role in modern medicine for effective diagnosis. However, hospitals investing in such equipment have to define their priorities and the outcomes they hope to achieve through acquisition, because medical imaging equipment is one of the most capital-intensive investments hospitals can make. For example, top-end 3T MRI machines cost up to a couple of million dollars to set up. However, because of the tremendous return on investment (ROI) in terms of workflow management, efficiency and time saving they offer, the hospital can recover its costs within a matter of a few years.

Depending on a country’s healthcare expenditure and government healthcare initiatives and regulations, factors such as ROI and insurance reimbursements policies take priority and sometimes dictate the type of imaging equipment purchased. This holds true for the US and Europe.

"Three global companies earn more than 75% of the revenues in the US and Europe."

Both continents hold the first and second ranking in the world in terms of market revenues from medical imaging products. According to Frost & Sullivan’s analysis, the forecasted revenues in 2008 from sales of medical imaging products are $8.3bn in the US, with a growth rate of 9.7%. Europe’s market is projected to generate $4.7bn, with an overall growth rate of 11%. The total world market for revenues from medical imaging products is estimated at $17.9bn. Figure 1 illustrates the global revenue breakdown.

Market similarities

GE Healthcare, Philips Medical and Siemens have a prominent presence in the US and Europe. Due to the market domination of these companies, many parameters in these medical imaging markets are similar. Frost & Sullivan’s analysis shows that these three global companies earn more than 75% of the revenues in the US and Europe. The major drivers and restraints governing the US and European markets are shown in Figure 2.

The prominent similarities in these regional markets are as follows.

Innovation in imaging. Both the US and Europe place great emphasis on innovation in the medical imaging sector. Hospitals and clinics show interest in adopting modern technology and most of them replace their equipment every six to nine years. The vested interest expressed by hospitals in adopting new technology serves as a driver to continually evolve imaging equipment.

Regulatory authorities addressing safety. Safety in terms of exposure to electromagnetic radiation is an increasingly important consideration. In the US, all imaging equipment is subjected to scrutiny by the US FDA. During the R&D phase for new imaging equipment, vendors also have to adhere to the strict regulations imposed by the Institutional Review Board for human subject testing on the basis of radiation exposure levels.

There are similar governing bodies in Europe that impose strict regulations on manufacturers of medical imaging equipment. All medical imaging equipment – whether it is made in Europe or imported – must be certified with the CE mark before it can be marketed in Europe. The CE mark is standard across all European nations, with minor changes that cater for the specific requirements of each country. The radiation exposure levels vary only marginally between nations.

Purchase of multiple modalities. A common trend in the US and Europe is for hospitals and clinics to purchase multiple types of imaging equipment (such as MRI, CT and ultrasound) from one vendor at the same time. Hospitals often employ negotiating strategies for equipment purchases that include maintenance contracts over a specified period with manufacturers. As a result, hospitals safeguard their workflow and ensure operation of the equipment. Frost & Sullivan believes this is a primary reason why the top three companies hold a dominant market share and make it difficult for smaller medical imaging manufacturers to survive.

Adoption of PACS. PACS is an information technology-enabled software solution that allows hospital staff to store, manage and retrieve images generated by all medical imaging modalities. Hospitals in Europe and US are quickly adopting digital images for diagnosis over traditional film-enabled images. The most commonly performed procedures for diagnosis are X-rays and CT, which are increasingly becoming digitised. The number of digitally stored images is expanding at a rate of 50% each year in both continents, forcing hospitals to double their storage capacity. PACS is the fastest-growing modality in these regions.

Market differences

US and European markets have a number of differences, as follows.

Medical reimbursements. In the US, medical reimbursements are straightforward. The economy is large and the total healthcare market accounts for $2 trillion annually. Reimbursements are governed by the federal government’s Medicare/Medicaid plans, the FDA’s approval of equipment and the Health Insurance Portability and Accountability Act. A patient with a particular health insurance policy can receive treatment at any hospital across all 50 states.

As of January 2007, a Deficit Reduction Act (DRA) was passed in the US to cut down reimbursements for medical imaging-related diagnostics involving complicated procedures. As a result, many small, privately held clinics have closed their operations and hospitals are now faced with increasing patient load. The DRA does not impact on the consistent growth rate of the medical imaging market in the US due to the healthcare needs of the ageing population and equipment service contracts.

Europe, being a diversified continent, has many different policies on medical reimbursements. Although there are specialised private health insurance providers in this area, there is no common healthcare expenditure reimbursement policy. Such a scenario promotes uncertainty in the minds of imaging equipment manufacturers who might otherwise be able to generate greater revenues.

Lease of medical imaging equipment. Most hospitals in Europe face budget constraints. Hospitals traditionally relied on bank loans to purchase medical equipment, however this began to create difficulties when banks placed greater scrutiny on the hospitals and their revenues. Equipment manufacturers such as GE Healthcare, Philips Medical and Siemens exploited this by offering their own attractive finance schemes to hospitals. However, as time progressed, newer and functionally more capable imaging equipment with higher price tags was introduced. As prices increased, even financing from vendors became an expensive proposition for European hospitals.

The best alternative for a number of them is to lease the imaging equipment from the vendors and pay a standardised monthly fee that includes use of the equipment and its service charge. Many hospitals in the UK, France, Germany and Italy favour this leasing option. Across Europe, the growth in leasing medical equipment is estimated to vary between 11% and 15% each year.

In the US, 55% to 60% of medical imaging equipment is bought as capital purchases. However, the price increases for medical imaging equipment have begun to be felt by US hospitals as well. Over the past few years, the leasing of medical equipment has become a growing trend.

Consolidation of hospitals and radiologist scarcity. Frost & Sullivan has seen an increasing trend towards mergers and acquisitions of hospitals in Europe, particularly in Germany, UK, Scandinavia and Benelux. More hospital groups are finding it convenient and economical to run their IT-enabled services such as PACS, electronic medical records, electronic patient records, hospital information systems and radiology information systems from one common database. This trend towards multiple hospitals being governed by one management group has also caused medical imaging equipment manufacturers in Europe to lower their prices to attract orders from many hospitals under one management.

Consolidation of hospitals is not a prominent trend in the US. However, the scarcity of radiologists is affecting both the US and Europe. As a result, receiving appointment times with radiologists has become difficult and patients have to wait anywhere between four and ten weeks for an appointment.

Private healthcare providers on the rise. Long delays and the unavailability of physicians have also contributed to a growth in private healthcare providers in Europe. For example, in France there are more than 4,000 private hospitals and clinics. In the UK, a number of private clinics that offer medical imaging-related services have extended their working hours, with many remaining open for 24 hours a day. Patients prefer going to these private clinics as they can provide faster diagnosis.

This growing number of private healthcare providers will be a significant source of revenue for medical imaging equipment manufacturers.

"Across Europe, the growth in leasing medical equipment is estimated to vary between 11% and 15% each year."

However the European market has many tier-three imaging equipment manufacturers looking to sell into this sector, which means that the top players will be subjected to price pressures.

The growth of private hospitals and clinics is meagre in the US, however the adoption of contemporary and innovative medical imaging equipment technology is greater in the private healthcare sector. Vendors are able to sell expensive and highly technological imaging equipment to the small number of specialised private hospitals and medical research universities in the US.

United by resemblance

The market domination of the top three players in the medical imaging sector is what makes the US and European markets mutually coexistent. These companies impose the same emphasis on innovation in imaging technology in both regions, and they are subjected to similarly stringent regulations by the US and European governments.

The negotiating strategies employed by hospitals in the US and Europe when purchasing multiple imaging modalities are also similar, as hospitals in both regions are faced with the demand created by ageing populations. The increase in the number of medical imaging procedures is also evident in both nations, as is the challenge to upgrade image storage capacities.