6 min readHas the Global Financial Meltdown Reached its Boiling Point? European High Acuity Monitoring Segment Outlook
“With the global financial crisis spreading, Europe is encompassed by a dangerous downfall. The continent is poised to face a full fledged economic slump in the near future.”
The above trend may be conceived by very many around the world on European healthcare but reality may not be so. The healthcare industry in general and the high acuity patient monitoring segment in particular has not been that vulnerable to the precarious economic environment prevailing over Europe.
High Acuity Patient Monitoring Industry – Market Structure and Segments
High acuity areas monitoring systems are those that are used to monitor vital signs and other extremely critical parameters like temperature, respiratory rate, blood pressure, oxygen saturation in arterial blood, and other invasive pressures. These help in keeping a continuous track of the patient’s medical condition, and aid in early diagnosis and prompt recovery. High acuity care areas are those that face the complex challenge of caring for acutely ill patients across the medical/surgical spectrum. Advances in medicine and technology have the added pressure within critical care units to accommodate more complex critically ill patients. The result is a growing number of acutely ill patients on high acuity units who require more advanced monitoring and care. Furthermore, because of the critical nature of care, patients in the high-acuity care setting are the most vulnerable, and pose the greatest patient safety risks.
The high patient monitoring industry can be broadly segmented into critical care unit [CCU] monitors, non critical care unit [NCCU] monitors, central station monitors [CS], operating room[OR] monitors [including induction room] and post anesthesia care unit [PACU]. The total European market for high acuity patient monitoring systems was valued at $743.2 million in 2008.
Chart 1.1: The revenues by market segments in 2008. Source: Frost & Sullivan
Increase in Revenues Despite Dipping Growth Rate
The European high acuity monitoring systems market was valued at $ 701.8 Million in 2007 and $ 743.2 Million in 2008.
Chart 1.2: The revenues and growth rate in 2007 and 2008.Source: Frost & Sullivan
Patient monitoring systems, especially those in high acuity areas are very well developed and have become an indispensable part of all hospitals in Europe. The awareness among medical professionals for use of these systems coupled with the increasing incidence of diseases has driven the market for these systems. Despite certain segments expecting high growth rates, the patient monitoring systems markets as such are in the mature phase characterized by high replacement rates of systems and low volumes of equipment sales. As a result of high replacement rates, more importance is being placed on maintenance and service of these systems.
The high-acuity cluster, which includes the emergency department (ED), the operating room (OR), and the intensive care units (ICU) is the fastest-growing area of the hospital. Already representing up to 60 per cent of a hospital’s total cost and revenue, high-acuity care was expected to continue to grow as baby boomers become senior citizens. Hospitals across Europe and the United States were adding more monitored critical care beds, and were experiencing an increase in the number of surgical procedures. In addition, ED visits were up by more than 20 per cent in the last decade.
This was the trend observed for the most part of this decade until the financial meltdown swept through in 2008. The market was growing at a rate of 6.9 per cent in 2007 and this growth rate has dipped down to 5.9 per cent in 2008.
Chart 1.3: Growth rates by market segments in 2008. Source: Frost & Sullivan
Impact of Meltdown on the Industry
The global economic meltdown has had a cascaded effect on the high acuity patient monitoring industry. Chart 1.4 below depicts this phenomenon where a series of factors resulting from the meltdown affect the revenues in the succeeding year.
Chart 1.4 – Source: Frost & Sullivan
Current Industry Challenges in European High Acuity Monitoring Market
Reduced Investment into R & D
The average investment into R & D in the patient monitoring segment was 8.5 per cent till 2008. Owing to recession the R & D investments have dipped down to 6 per cent as the current scenario is not conducive for research related activities. As a result of this, the industry has been deprived of high end technology and product innovations over the past year. This is in contrast to the flurry of innovations that took place till recession actually set in.
High Price Depreciation Rates Yielding Poor ROI
The Euro-USD depreciation rate has been fluctuating ever since the start of financial slowdown. In its prime, the value of Euro depreciated at a rate of 15 per cent to that of USD. This has had a retarding effect on the ROI for vendors and has in turn affected the revenue growth.
Mature Market Age of Central Station and Non-critical Care Monitors Has a Retarding Influence on Purchase of Systems
Most patient monitoring systems have been in use for several decades now and form an indispensable part of all hospitals and clinics. Although rapid advancements in technology have driven the industry further, most end-user segments are mature with well-established vendors. This acts as a challenge to the market, hindering further sales in different segments such as the central station monitors and non critical care monitors. In addition, the mature nature of markets characterizes a replacement and services market rather than a market driven by volume sales. The patient monitoring industry has been a fundamental part of the healthcare sector, especially in the high acuity care areas. While certain segments within this industry have developed rapidly and continue to advance at a very fast pace, there are still other segments that lag behind and have a low growth rate. For instance, the critical care unit and the operating room monitors markets are more advanced and rapidly progressing when compared to other segments such as central station monitoring systems.
Thus, vendors are keener on entering the growth segments such as the critical care unit and post anesthesia care unit monitoring systems markets compared to markets that are already mature. Even in the growing market segment, the smaller participants are unable to compete with the giants as they do not have the financial and manpower backup, which the major participants have been enjoying for a very long time. These factors have resulted in rugged growth of the patient monitoring systems market that further leads to the loss in a complete and total growth of the market. This market has always experienced significant consolidation through acquisitions, and emergence of dominant market leaders. Companies such as Philips, GE and Siemens offer full patient monitoring product lines that can satisfy demand across all the end-user categories. Smaller market participants are not able to compete with the market leaders in major markets such as critical care and emergency departments, and are forced to either merge with these leaders or compete in smaller, niche markets.
Decreasing Number of Hospitals in Eastern European Countries Dispirit Systems Manufacturers
Despite the medical treatment needs of an aging population and an increasing acuity of hospital patients, the number of hospitals, and subsequently, hospital beds is not increasing. The total number of hospitals in Eastern Europe was 11,731 in 2005; this number was reduced to 11,582 in 2006. Therefore, a ceiling exists for the number of patient monitors that can be installed in a hospital. As this ceiling is approached, the recycling of monitors and limited demand for new devices may rapidly erode unit prices.
Political Instability Has Led To an Unstable Market
Since Eastern European countries have come out of a communist culture only in the recent past, the government is really facing a tough time to support the healthcare equipment market. Hence, supplies to hospitals are mostly affected and ignored. Failure of the formation of a good government which makes firm policies is the reason for the market being visibly unpredictable. As a whole, the unsteadiness of the government hinders the resurrection process. To add to the agony, in Eastern Europe, there is no common standard or guidelines for the manufacture of patient monitoring equipment. Companies are working towards adoption of a common guideline to enable overcoming this challenge.
Product Innovations Despite Meltdown
A small number of product innovations have taken place in this sector amidst financial slowdown. These innovations have been mostly in the non-critical care/sub-acute care segment. Product innovations in these segments demand low investment into R & D in contrast to critical care and operating room segments.
The innovative products that have been standing out in this segment include: Med Ex 1000 from Integrated Med Systems, DL 900 from Braemar Inc, Fluid Status Monitor from Masimo Corporation and Nellcor OxiMax N – 600x from Covidien. These companies have indeed been exquisite in bringing out these product innovations.
Future Projections and Conclusion
Chart 1.5: Total revenues with the growth rate over the forecast period 2007-2012. Source: Frost & Sullivan
The high acuity monitoring systems market is expected to grow at a CAGR of 6 per cent for the forecast period 2007-2012.
The growth rate in 2008 was 5.9 per cent and is expected to dip down further to 5.5 per cent.
Price depreciation rates of 3.5 per cent are expected to continue in 2009, before getting revived in 2010.
Countries like Russia where the GDP tends to grow pretty well, would not be affected by meltdown.
Integration of monitoring devices with their therapeutic counter-parts would be an expected trend from a product innovation standpoint.
The high acuity systems have long replacement cycles. Replacement of certain high end monitors are expected to get prolonged due to constraints in hospital budgets.
Despite the dip in revenue growth, the unit shipment growth will not be affected as there is increased demand for monitoring systems due to an increase in the aging population and increased incidence of chronic diseases.
“By and large, the patient monitoring industry, especially the high acuity monitoring segment has not been the one worst hit by the global economic recession till date. Competition within market leaders and sporadic product innovations are expected to keep this industry afloat.”