The downturn took a sizable toll on many segments of the United States economy, with lingering effects that can be seen in the still-unstable employment market and sluggish revenue growth for a wide range of businesses. However, the medical technology industry has weathered the recession surprisingly well and will be able to continue its successes by developing new technologies to meet the nation's health needs.

According to a June report prepared for the Advanced Medical Technology Association (AdvaMed) by the Lewin Group, through 2008 the industry shipped $135.9 billion worth of products, employed 422,778 employees and paid $24.6 billion in earnings.

The recession had a smaller effect on medical technology companies than on the general economy, with overall manufacturing employment falling 4.8 percent between 2007 and 2008, while med tech employment decreased only 1.1 percent. Moreover, manufacturing payrolls fell 1.4 percent while med tech payrolls dropped 0.7 percent, and U.S. product sales increased 2.8 percent while med tech sales grew 3 percent.

"This report paints an impressive picture of an industry that is a world leader in medical technology and a key economic engine for America in terms of job growth, payroll and sales," Stephen J. Ubl, president and CEO of AdvaMed, said in an announcement of the findings. "However, our world leadership cannot be guaranteed in the future. It is essential that regulatory and payment policies support innovation while ensuring public health and safety and moving us toward a more efficient and quality-driven health care system."

Despite a relatively strong emergence from the economic recession, the U.S. med tech industry faces challenges in remaining competitive in the future. As in many industries, innovation in med tech has slowed, but the development of new technologies will be crucial in maintaining economic health.

"Today, our medical technology sector seems to have become mired in a lengthening period of creative menopause which not only threatens its economic foundations, but its global leadership position," the Harvard Business Review explains. "What happened to the medical technology field? It certainly hasn't been a shortage of cash, or of research investment. It seems like the process of commercialization of medical innovation has broken down."

The Harvard Business Review cites three main reasons for the slowdown in med tech innovation:

• Risk-Averse Management Policies — Shifting from a focus on science and engineering into marketing means that resource allocation has become "less strategic and more formula driven." Med tech companies today are less willing to take a possibly game-changing risk rather than pursue safer, proven strategies.
• Excessive Size — Many of the major med tech companies may have grown too large to effectively harness their creative potential. Having large bureaucracies inhibits the creation of intellectual property. A possible solution is to reorganize research and development departments into smaller business units focused on specific problems.
• Talent Retention Issues — U.S. med tech firms must strive harder to retain existing talent or attract new talent if they are to remain competitive. Retention can be aided by creating a more open innovation environment as a viable alternative to startups or academia.

Health care reform and the changing business landscape also emphasize the need for new technological innovations to provide cost-effective solutions for the future.

According to the Institute for Health Technology Studies (InHealth), "Experts believe that in order to ensure a steady stream of U.S.-based innovation in the new healthcare environment, the medical technology industry will need to focus on delivering technology that is better than what exists today and demonstrate its superiority through expanded research and clinical trials."

On an international level, health care costs are rising faster than overall economic growth in most developed countries. According to a June report from the Organisation for Economic Co-Operation and Development (OECD), the average ratio of health spending to GDP among member nations climbed from 7.8 percent in 2000 to 9 percent in 2008. The U.S. has by far the largest expenditures, spending $7,538 per person on health compared to the average of $3,000. Med tech, particularly high-tech diagnostic equipment, is one of the key drivers of higher cost, but it may also provide the solution to rising health expenses.

Health care provisions remain highly labor-intensive, and that often leads to mounting long-term costs. But the development of more advanced medical technologies may reduce labor requirements and thereby trim expenses.

In the future, increasingly tighter labor markets will drive up unit labor costs in health care, "unless there soon emerges a major thrust toward new medical technologies that can directly or indirectly economize on the use of labor in health care," the New York Times' Economix blog explains. "It is the main challenge the world now poses to the medical technology industry."

Small businesses are another major source of financial health in the med tech industry, and are likely to drive many of the future innovations that will improve the health care sector's business prospects.

"Even large companies in the medical technology space tend to be smaller than large companies in many other sectors," Ubl said last month in testimony to the U.S. Senate. "Small, venture capital funded firms are particularly critical to the future of U.S. scientific and technology leadership, because they are the source of most of the breakthrough technologies that drive medical practice and industry growth."

Earlier: Pulse of the Med Tech Industry

Resources

State Economic Impact of the Medical Technology Industry
Advanced Medical Technology Association / The Lewin Group, June 7, 2010

Report Shows the Medical Technology Industry is Strong Contributor to U.S. Economy
Advanced Medical Technology Association, June 9, 2010

Has the U.S. Health Technology Sector Run Out of Gas?
by Jeff Goldsmith
Harvard Business Review, April 12, 2010

Medtech Industry Leaders Discuss Reform Challenges, Opportunities
Institute for Health Technology Studies, June 16, 2010

Growing Health Spending Puts Pressure on Government Budgets...
Organisation for Economic Co-Operation and Development, June 29, 2010

Can Medical Technology Solve the Health Care Problem?
by Uwe E. Reinhardt
Economix (The New York Times), July 2, 2010

Testimony: A Healthy Medical Technology Industry and a Healthy America
by Stephen J. Ubl
Advanced Medical Technology Association, June 22, 2010