Growth opportunities abound in massive realignment of anesthesia products market; surge in outpatient procedures, free-standing surgical centers reflects changes
Managed health care has brought about many changes in health care delivery in the United States, and one of the markets most affected has been anesthesia workstations and related monitors. As managed care looks for less-expensive ways to perform surgery, the growth of outpatient and same-day surgery in hospitals, free-standing surgical centers (FSSCs) and doctors’ offices has exploded, as shown in Table 1 on page 163.
More than 57% of all surgical procedures now are performed on an outpatient basis, and estimates are that this figure will increase to 70% by the year 2000.
This trend to outpatient surgery demands new types of anesthesia. In response, inhaled agents which allow more rapid emergence and shorter recovery periods (like Desflurane and Sevoflurane) have been developed, and there has been wider use of IV anesthesia with agents like Propofol. Increasingly two or more agents are used in combination – either two inhaled agents, or a combination of IV and inhaled agents.
Those trends, plus the introduction of two new inhaled anesthetic agents, have changed the configuration of everything from the anesthesia workstation and its vaporizers to the electronic gas monitors used to track gas concentrations. Coupled with safety issues related to older configurations, these factors resulted in the wholesale replacement of gas machines in the late 1980s and early 1990s, and in electronic gas monitors in the early 1990s.
In 1985-86, concern grew over the safety of the existing generation of gas machines, and the American Patient Safety Foundation (APSF) began to draft new standards for anesthesia workstations that were later adopted by the ASTM in 1988. Those standards called for gas machine capabilities which included oxygen monitoring, hypoxic guard, ascending bellows ventilators and calibrated vaporizers, among other things. In 1989, the American Society of Anesthesiologists’ (ASA; Park Ridge, Illinois) Intra-operative Monitoring Standards were approved, which also included minimum patient monitoring standards to include pulse oximetry and capnographic monitoring.
Ohmeda (Liberty Corners, New Jersey) and North American Drager (NAD; Philadelphia, Pennsylvania), the two companies which dominate the U.S. market (collectively representing a 95% market share), were quick to offer new units with the safety enhancements, and to run trade-in and other programs in the late 1980s to encourage customers using existing products to remove those older units from operation. The units both companies took back were destroyed, but some units were sold by hospitals to used equipment dealers and found their way into use in non-U.S. markets overseas. Others were moved into animal drug research. That, however, did not end the used equipment market, not in a managed care environment. The used/refurbished gas machine market continues unabated in the U.S., supplying approximately 400 to 500 machines to U.S. customers in 1995. In some cost-sensitive settings, those machines compete with new machines for orders.
Replacement cycle has varied widely
As a result of these changes, the replacement cycle for anesthesia workstations has varied substantially over the last decade in the U.S. market. By 1985, the market had a 9-year to 10-year replacement cycle, but this replacement cycle first shortened to 6 to 7 years in 1990, and then lengthened again to more than 13 years by 1995. At its peak, more than 4,500 gas machines a year were being replaced, but that number has dropped by about 25%. During the remainder of this decade, however, the replacement cycle will again shorten, moving toward historic cycles of 10 to 11 years by the year 2000. That will have the effect of creating a recovery of sorts in the anesthesia workstation market.
Those changes, however, have not been limited to their effects on gas machine companies. They also greatly impacted the makers of electronic gas monitors, companies like Datex (Boston, Massachusetts), Criticare Systems (Milwaukee, Wisconsin), Datascope (Paramus, New Jersey) and vital signs monitoring companies including Hewlett-Packard (HP; Andover, Massachusetts), Marquette Electronics (Milwaukee, Wisconsin), Spacelabs (Redmond, Washington), and others. One of the major impacts was a merging of those heretofore separate product segments into one segment. Another was the formation of alliances between several of these former competitors.
The first alliances were those formed between the gas machine companies and the vital signs monitoring companies, led off by the mutually successful alliance between HP and Ohmeda. That was followed by a short-lived alliance between Engstrom and Marquette Electronics, which Engstrom saw as a means of entering the U.S. market, and which Marquette saw as a means of answering the HP-Ohmeda alliance. Unfortunately, Gambro (Lund, Sweden), which owned Engstrom, got cold feet about the entire segment and sold Engstrom to Instrumentarium (Helsinki, Finland), which merged it into its highly successful Datex division (the U.S. market leader in operating room gas-monitoring instrumentation). That created an opening for NAD, which already had begun to work with Marquette, obtaining components of its integrated workstations from Marquette. Now that Engstrom is out of the way, perhaps the relationship between NAD and Marquette will have the opportunity to mature and ripen.
Meanwhile the gas and vital signs monitoring firms realized that each niche alone was not big enough to support them, and that customers were looking increasingly for integrated solutions. As a result, Datascope, historically an anesthetic agent company, introduced two portable monitors: the very successful Passport (configured portable monitor), and the Point-of-View (modular, high-end monitor). Likewise, gas monitoring market leader Datex introduced the high-end, modular AS/3 series of monitors, which included both gas and vital signs. Criticare introduced new combination units, as did Marquette and Spacelabs.
Anesthesia information market rebounding
Because its goal is lower cost and controlled outcome (in essence, better resource management), the trend to managed care has begun to revitalize and integrate the struggling anesthesia information systems market as well. Again, integration has been the hallmark of the change. HP developed its own anesthesia information system, as did Datex, Criticare, and now Marquette. Arkive, an independent, went into bankruptcy because its systems primarily focused on creation of an electronic anesthesia record (no longer the focus of the market’s interest). Interestingly, that product ultimately ended up with Draegerwerk AG, the German major stake holder of North American Drager, the number two supplier of gas machines to the U.S. market, who may change its focus and revitalize it at a later time.
These mergers, corporate alliances, and product expansions have fundamentally formed the entire U.S. anesthesia market into only two segments: gas machines and everything else. And there are strong indications that merger of those two segments is proceeding. That will result in an OR product market with three or four companies, definitely including Ohmeda/HP, NAD/someone, perhaps Marquette and Datex/Engstrom, and someone else. All of these companies will offer a soup-to-nuts array of products, including: gas machines, patient monitors, gas monitors, and anesthesia information management computer systems. The application of this range of product will be across the entire perioperative setting, from pre-op for surgery to operating room to post-anesthesia recovery. The systems will collect data used to evaluate care and outcome and create the clinical pathway required to more cost-effectively handle the delivery of surgery in the U.S. under managed and capitated care.
Indeed, new products already are in design by HP and Ohmeda which will result in smaller, more portable, more integrated devices specifically designed for the new managed care, outpatient-oriented U.S. market. Several European companies are looking at the U.S. market as an attractive one, as its replacement cycles are substantially shorter than many markets in Europe and elsewhere. Those companies have some new ideas, and may be willing to risk bringing new technologies and approaches to bear to address the specialized needs of the U.S. market.
Those suppliers will emerge not only in the inpatient and outpatient hospital setting, but also in the rapidly emerging free-standing surgical center setting, where the real growth has occurred. To appreciate the opportunity for growth in surgical systems outside the hospital, refer to Table 2 for growth of FSSCs and operating suites over the last five years.
The number of centers and surgical suites is increasing every year. As a point of reference (not shown in Table 2), in 1988, when the Association of Operating Room Nurses (AORN) did its private survey of OR nurses, there were only 2,703 day-stay ORs. The number has almost doubled over the last seven years in the U.S., and that growth is likely to continue, since the number and types of procedures done in the outpatient setting is increasing. Outpatient surgery is addressing an ever-increasing range of procedures (Table 3).
More procedures in outpatient setting
As more and more procedures previously performed on an inpatient basis move into the outpatient setting, the growth of those centers will continue unabated at least for the next three to four years. The full details of these market changes and all their components and implications are available in a new market study just released by Medical Strategic Planning Inc. (Lincroft, New Jersey), which contains market sizes, unit sales and revenue forecasts for the segment.
The changes are dramatic. The stakes are high. Companies which have historically done well in the separate niche markets of gas monitoring and vital [TABULAR DATA FOR TABLE 4 OMITTED] signs monitoring will be challenged to find new ways to successfully resist the managed care forces moving to integrate these separate markets. Companies not yet aligned with viable gas machine suppliers are at some risk of losing market share in this segment, based on such changes. Those companies include: Datascope (although it has an interface with Ohmeda), Criticare Systems, Novametrix (Wallingford, Connecticut), Nellcor Puritan Bennett (Pleasanton, California), BCI (Milwaukee, Wisconsin) ThermoElectron/MDE (Boston, Massachusetts), and others.
Surgical Procedures Performed in the FSSC Setting
Surgical Procedure Type 1991 1992 1993 1994 1995
Total OP Procedures – 11.71 12.31 12.69 13.15 NA
ALL Settings (Millions)
Total Procedures in NA 2.341 3.198 3.642 4.282
FSSC Setting (Millions)
Ophthalmology 30.2% 28.1% 28.1% 30.8% 28.8%
Gynecological Surgery 15.2% 15.7% 14.1% 9.1% 8.0%
Ear, Nose, Throat 9.6% 9.4% 8.8% 6.1% 5.9%
Orthopedic 9.5% 9.4% 9.2% 6.1% 5.9%
General Surgery/Other 8.7% 8.0% 7.6% 6.2% 6.2%
Plastic Surgery 7.1% 7.7% 7.6% 14.8% 15.9%
Podiatry 4.0% 3.9% 4.0% 7.3% 8.2%
Urology 4.0% 4.0% 4.0% 3.4% 3.2%
Gastroenterology 7.7% 9.5% 11.2% 11.9% 13.7%
Dental (Surgery) 1.0% 1.0% 1.2% 1.1% 1.3%
Pain Block 2.8% 3.1% 4.0% 3.0% 3.0%
Neurology 0.2% 0.3% 0.2% 0.2% 0.1%
Totals 100% 100% 100% 100% 100%
Source: SMG Marketing Group, with some data from AHA
One factor working in favor of these companies is that the replacement cycle for the vital signs and gas monitoring devices has been substantially different and shorter than for gas machines, as shown in Table 4.
This fact tends to encourage buyers to purchase these items independently. That could change, however, as more integrated products make their way through the FDA regulatory process and into the U.S. market. Watch for Datex/Engstrom, Draegerwerk AG, and other viable, established non-U.S. suppliers to enter this market with new and novel products. Once such products become available, particularly if they are priced aggressively as well as being well integrated and easy to use, the market preference will shift to the purchase of integrated solutions, and piecemeal independent product solutions will be less attractive.
The other factor which works in the interests of the small, independent niche suppliers, is that this market, in particular the anesthesiologist, is a risk-avoidance practitioner, one who will investigate and ponder new devices and approaches, but who will adopt them at a measured pace (which may be too slow for those companies eager to change the course of the market overnight). The stage is set. Managed care is fostering real change, not only in the delivery of health care, but in the devices used to deliver it. Few markets show the impact of such changes more than the surgical markets in the U.S.
COPYRIGHT 1996 A Thomson Healthcare Company
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