Electromedical and Electrotherapeutic Apparatus

SIC 3845

Industry report:

This classification comprises establishments primarily engaged in manufacturing electromedical and electrotherapeutic apparatus, such as magnetic resonance imaging equipment, medical ultrasound equipment, pacemakers, hearing aids, electrocardiographs, and electromedical endoscopic equipment. Establishments primarily engaged in manufacturing electrotherapeutic lamp units for ultraviolet and infrared radiation are classified in SIC 3641: Electric Lamp Bulbs and Tubes.

Industry Snapshot

The electromedical and electrotherapeutic apparatus manufacturing industry underwent tremendous growth during the last three decades of the twentieth century. Rapidly improving technology led to a wide range of high-quality devices for imaging diagnostics and therapeutics. By the mid-2000s, growth had slowed, but the industry still retained many avenues for expansion as technological advances continued. This industry contains some of the most important life-saving equipment and technology in modern medicine, including electrocardiograph (EKG) devices, ultrasound scanning devices, magnetic resonance imaging (MRI) equipment, pacemakers, and defibrillators. As the applications for diagnosis expanded, the number of imaging tests requested by physicians and patients was at a record high.

In 2008, industry shipment values totaled more than $27.6 billion for electromedical and electrotherapeutic apparatus manufacturing. After experiencing a dip in the workforce in the early 2000s, the industry regained more than 1,000 workers in 2006 to reach just short of 55,000 employees. By 2008, employment in the industry had grown to 65,309. In irradiation apparatus manufacturing, industry shipment values totaled more than $11.5 billion in 2008 with a workforce of about 16,800 employees.

Organization and Structure

Approximately 660 companies in the United States manufactured electromedical or electrotherapeutic devices as their primary business in the late 2000s, according to the U.S. Census Bureau. About 21 percent of all firms had 100 or more employees. Larger establishments (those employing more than 100 people) accounted for a majority of the industry's total shipment values.

Although classified as a distinct industry by the U.S. government's Standard Industrial Classification Manual in the early 1990s, the electromedical industry was not always regarded as such, functioning for roughly the first 25 years of its existence in an ancillary position to the then-larger X-ray apparatus and tubes industry. From the early 1960s to 1987, electromedical industry statistics were combined with those of the X-ray apparatus and tubes industry. During that time, the electromedical industry evolved from a group of manufacturers representing a modestly sized market into a genuine industry of it own. The reclassification by the Standard Industrial Classification Manual, however, came more than a decade after the electromedical industry had eclipsed the X-ray apparatus industry in magnitude. Consequently, during the electromedical industry's prolific rise to the fore in the 1970s, all the statistics that tell the story of its growth are somewhat inflated due to the inclusion of the statistical information generated by X-ray apparatus manufacturers.

Background and Development

In the half-century following World War II, the electromedical industry recorded greater growth than the four other industries composing the medical and dental industrial category, outpacing the revenue growth of the surgical and medical instruments industry, the surgical appliances and supplies industry, the dental equipment and supplies industry, and the X-ray apparatus and tubes industry. The rise of the electromedical industry to a position of prominence within the medical and dental category was attributable primarily to the revolutionary nature of the products manufactured under its purview, a diverse selection of technologically sophisticated medical devices that greatly ameliorated the art of medicine not only in the United States but throughout the world.

Truly a product of a technologically modern society, the electromedical industry owes its emergence largely to research and development conducted in the 1950s by scientists and manufacturers in the then-nascent semiconductor and computer industries. From these two technological staging grounds, combined with advancements in the electronic field resulting from the enormous effort put forth by the nation's space program, the process by which electronic technology developed was greatly accelerated. The knowledge gained from these three components of American industry, each heavily dependent on electronic technology, proved to be a boon to other industries as well, strengthening some, while enabling the outright creation of others. Such was the case with the electromedical industry, which emerged during the 1960s.

To be sure, there were precursors to electromedical devices before the 1960s. Electrical pulsing as means to treat a variety of ailments had been employed since before the turn of the twentieth century, but these early devices were more curiosities than representative of a genuine industry. Instead, perhaps the first piece of equipment that could justify prognostications for the emergence of a future electromedical industry appeared in the late 1950s, when Earl Bakken, chairman of a biomedical company named Medtronic, and cardiologists from the University of Minnesota developed one of the first workable cardiac pacemakers.

Nothing more than an automobile battery resting on a dolly and attached to the patient's chest through wire cables, this first pacemaker was rather primitive, but led to further advancements and the emergence of much smaller versions that soon were regarded as viable medical devices suitable for implantation. As improvements were made in pacemakers, additional products that would later compose the electromedical industry, such as ultrasonic medical equipment and cardiographs, were developed as well. Their development would take time, but the developmental challenges, though formidable, were not the major obstacles barring the appearance of the electromedical industry. Instead, marketing these new products posed the greatest challenge to the fledgling electromedical manufacturers, as industry participants found it difficult to convince the medical community that electromedical devices provided in many cases a preferable alternative to extant medical equipment. This took time as well, but eventually doctors and hospital administrators embraced the electronic equipment, and by the end of the 1960s, the industry began to emerge as a recognizable economic force.

For electromedical manufacturers, the rewards were worth the wait. The industry quickly flourished, its growth fueled by the widespread acceptance of all kinds of electromedical equipment throughout U.S. health care institutions. Sales amounted to $233 million in 1967, particularly small considering electromedical manufacturers were responsible for generating only a fraction of the total, overshadowed by X-ray apparatus manufacturers. But the electromedical industry would not be cast in this supportive role for long, and indeed from this point forward, growth of the electromedical industry would outpace that of the X-ray apparatus industry and thereby fuel the growth of the industry as whole. Five years later, when total sales climbed to $429 million, the leap was even more pronounced for electromedical manufacturers, which accounted for a large part of the nearly $200 million increase.

By 1974, the electromedical industry drew even with revenue production from that of the X-ray apparatus industry, with each segment accounting for half of the $650 million in sales recorded that year. With slightly less than 100 X-ray apparatus and electromedical device manufacturers in the country at that time, the number of manufacturers eventually would swell to nearly 240, a dramatic increase once again reflective mainly of the electromedical industry's rapid rate of growth. From 1974 to the end of the decade, the electromedical industry's revenue volume skyrocketed at a compound annual rate of 31 percent, an increase that dropped to a less prolific 16.4 percent when adjusted for inflation, yet still representative of robust vitality.

Still benefiting from further improvements and from the continued acceptance of their products, which by the mid-1970s had firmly established the electromedical industry as a major player in the broadly defined medical industry, electromedical manufacturers had made great strides since the first awkward and rudimentary pacemaker appeared in the late 1950s. No longer attached via cable or measuring as large as a hat box, pacemakers were now roughly the size of a fingertip and enjoyed widespread demand. In 1970, 53,000 pacemakers were implanted, and by 1976, the yearly implants had increased to 175,000, representing a quarter of a billion dollars in sales. At this time, the prospects for further sales appeared almost guaranteed, as a development of great significance augured a dramatic increase in the number of pacemakers installed each year. Powered by mercury-zinc batteries, pacemakers typically needed to be replaced at least three times during a patient's life span, but the use of lithium-powered batteries, a development that promised to reshape the market for pacemakers, reduced the average replacement expectation of pacemakers to one per patient. Although the switch to lithium-powered batteries sharply reduced the industry's replacement sales, the prospect of undergoing fewer surgical procedures induced more patients to opt for pacemaker implants, which drove sales upward.

By 1976, the electromedical and X-ray apparatus industry's aggregate revenue neared the $1 billion mark, then shot past it the following year, increasing 86 percent to reach nearly $1.9 billion. Underpinned by strong pacemaker sales and even stronger ultrasonic equipment sales, which were increasing 18 percent annually, the electromedical industry approached the end of its decade of prodigious growth nearing $2.5 billion in sales. Success came slower in the early 1980s, but only in contrast to the dramatic growth of the 1970s. Sales eclipsed $5 billion in 1984, then began to suffer in the ensuing years, falling 2.7 percent in 1985 and increasing only marginally thereafter, as flat demand, a buildup of inventories, and strong competition from imports combined to arrest the industry's expansion.

In 1987, the electromedical industry was separated at last from the X-ray apparatus industry, their respective statistics no longer pooled together. In the last year of their combination, total sales were estimated to be $5 billion; their separation gave, for the first time, a clear indication of their individual magnitude. The electromedical industry emerged as a $3.57 billion industry, employing 29,200 workers, while the X-ray apparatus industry's value of shipments amounted to $1.55 billion and its workforce totaled 8,700.

As the electromedical industry entered the late 1980s, manufacturers attempted to effect a recovery from the mid-1980s, a downturn that was exacerbated by the increasingly cost-conscious health care industry. By 1989, price increases at the manufacturer level averaged only three percent in the previous four years, as increased competition and production overcapacity limited the manufacturers' ability to raise prices. Profits suffered as a result, but revenue continued to grow, sending many manufacturers overseas to forge joint ventures with other companies to lessen the financial constraints of a capital-intensive business.

After recording double-digit growth between 1987 and 1990, the electromedical industry entered the early 1990s watching its inspiring growth shudder to a stop, particularly in 1993, when sales were flat. In 1994, the industry's revenue total was an estimated $6.23 billion. The industry-wide stagnation of the early 1990s was attributable largely to a sharp decline in MRI shipments, which plummeted nearly 20 percent compared to shipment increases of pacemakers and ultrasonic scanning devices of three and five percent, respectively. The decline in MRI shipments, more capital-intensive than pacemakers or ultrasonic scanning devices, was attributed primarily to recessive economic conditions during the early 1990s, coupled with uncertainty regarding the future of health care as a result of President Bill Clinton's health care reforms.

Tattoo removal became a large market for the electromedical industry in the late 1990s. For instance, Laser Photonics, Florida, signed a three-year deal for $5.4 million in 1996 to provide a dermatological laser for removing tattoos, pigmented skin, and unwanted hair to American Laser Corp.

A solid U.S. economy, growing at a steady pace throughout the late 1990s, benefited this industry. In the late 1990s, a total of 542 establishments produced electromedical and electrotherapeutic apparatus. Revenues were $11.36 billion, almost doubling those of the early 1990s. The value of industry shipments increased from $12.16 billion in 1999 to $13.57 billion in 2000. However, employment in the industry decreased from 55,000 in 1997 to 52,300 in 2000.

At the close of the twentieth century, medical device manufacturers were subject to product-liability claims in state court. The U.S. Supreme Court found Medtronic Inc., the world's largest pacemaker manufacturer, liable for design defects, a ruling that influenced the 11 million people in the United States with such implanted medical devices as pacemakers, silicone breast implants, hearing aids, penile implants, hip replacements, and knee replacements. However, the company had 1999 sales of $4.1 billion, which 10 years later had ballooned to $15.8 billion. Employment rose during the same time period from about 22,000 people to 43,000.

In the mid-2000s, the electromedical equipment industry continued to expand, fueled by growing demand and technological advances. In 2003, total industry shipment vales equaled $12.5 billion, up 28 percent from 1998. Defibrillators were one of the largest single categories within the industry in terms of shipment values, with 155,871 units shipped for a total value of $1.65 billion, up 15 percent from the previous year. Ultrasound scanning devices shipped 37,944 units for a total value of $1.34 billion.

Medical imaging services reached record highs in the mid-2000s in terms of both revenues and the number of tests provided. As the technology continued to advance at a break-neck pace, diagnostic applications for MRI and ultrasound technology continued to proliferate, leading more doctors and patients to request tests. According to the BlueCross BlueShield Association, diagnostic testing was one of the single most important factors in the rising cost of health care in the United States during the 2000s.

Due to their popularity and revenue-generating potential, MRI machines were being purchased not just by hospitals but also by outpatient centers, clinics, and physicians' offices. Growth was occurring at a rate that was three times faster than the population. In 2005, the United States had 19.5 MRI machines for every one million people, compared to an average of 6.1 per million people in most developed countries. Only Japan, with 35.1 units per one million people, topped the United States.

Although MRI and ultrasound equipment was finding its way into more venues, the bulk of sales were system upgrades and divisional expansion. The market for external defibrillators, on the other hand, was expanding significantly during the mid-2000s. With the development of smaller, simple-to-use units, external defibrillators were being purchased by an array of consumers, including airlines, doctors' offices, and commercial and industrial enterprises. In September 2004, the FDA approved Philips Electronics' HeartStart Home Defibrillator, the first external defibrillator available on the market without a prescription. In 2005, office products giant Office Depot announced the purchase of 42 defibrillators for placement in its corporate headquarters, distribution and call centers, and sales offices for the safety of employees. The price of an external defibrillator fell from approximately $5,000 in 2000 to about $2,000 by 2005, making the life-saving device more affordable.

In 2007, automated external defibrillators (AEDs) got a huge boost from an Ohio doctor, and a lawmaker followed suit. After announcing in November 2007 that he was successful in getting AEDs placed in all schools in Ohio, Dr. Terry Gordon announced his goal of putting AEDs in all schools nationwide, a project he said would cost about $129 million. The Ohio legislature committed $5 million to place 4,574 AEDs in schools.

As defibrillators have become more widespread, products associated with them gained momentum as well. In light of a series of recalls of external defibrillators, one of the most popular was a precision instrument released in September 2007 by Fluke Biomedical, of Everett, Washington, that tested nearly all external defibrillators on the market. In August 2007, Welch Allyn recalled some 1,722 AEDs manufactured between 2003 and 2005 that displayed an error message from an "intermittent electrical connection" that could lead to device failure. Earlier in 2007, Defibtech LLC, of Guilford, Connecticut, issued a voluntary recall of 42,000 defibrillators worldwide because of flawed software that could lead to an erroneous battery reading. Recalls of a significant number of AEDs also were made in 2005 and 2006.

Current Conditions

According to Dun & Bradstreet's Industry Reports, manufacturing electromedical equipment was a $26.4 billion industry in 2009. California led all other states in electromedical device production in terms of employment in the industry, with roughly 20 percent of the industry's total workforce. Minnesota, however, home to 17 percent of industry employees, accounted for 75 percent of all revenues. Other important states in the industry included New York and Massachusetts.

The electromedical equipment industry continued to grow at a faster pace than other manufacturing sectors in the United States into the early 2010s, due to constantly changing technology and improved methods and products.

Industry Leaders

One of the largest manufacturers in the electromedical industry during the late 2000s and early 2010s, General Electric's Medical Systems Group based in Milwaukee, Wisconsin, stood as a classic example of the electromedical industry's efforts to further penetrate the international electromedical market and reduce the production costs of its products. With joint ventures scattered across Asia, General Electric's Medical Systems Group entered into a joint venture with a personal computer manufacturer, Wipro Ltd., in India in 1990 to produce and sell a wide variety of ultrasound devices. By forging such ties, the Medical Systems Group became one of General Electric's most profitable divisions in the mid-1990s, recording more than $5 billion in sales in 1993. In 1998, the Medical Systems Group, subsequently renamed GE Healthcare, recorded sales of $4.8 billion, an increase of a half billion dollars over 1997. In December 1999, General Electric purchased OEC Medical Systems Inc., creating GE OEC Medical Systems, located in Salt Lake City, Utah, as a business division of GE Healthcare. GE Healthcare continued to expand its market in the late 2000s when it opened plants in Brazil, Russia, and China. In 2009, GE Healthcare reported revenues of $17 billion.

Other important manufacturers in the electromedical industry included Medtronic Inc., of Minneapolis, Minnesota, which provides a broad range of medical devices, including defibrillators and pacemakers. Medtronic reported revenues of $15.8 billion in fiscal 2009 and employed 43,000. Philips Healthcare of Andover, Massachusetts, acquired Marconi Medical Systems in 2001. Philips Healthcare, which had 2009 sales of $10.7 billion, was a subsidiary of Royal Philips Electronics, based in the Netherlands. Finally, St. Jude Medical Inc., based in St. Paul, Minnesota, was the world's leading manufacturer of mechanical heart valves. Medtronic recorded sales of more than $4.6 billion in 2009, employing approximately 14,000 people.

Workforce

Throughout the electromedical device industry's history, total employment generally has paralleled revenue growth, climbing while sales increased and leveling off when revenue growth became less prolific. In 1974, when the industry already was experiencing a phenomenal surge of growth, and its total employment included employees involved in the production of X-ray apparatus, there were 13,000 employees composing its workforce. Two years later, total employment vaulted to 30,900, largely due to the growth of the electromedical segment of the industry. This figure continued to increase, reaching 41,500 by 1981, and then climbing to 48,800 by 1984, at which time total employment in the industry began to record successive annual declines as manufacturers streamlined their operations. Employment figures fluctuated over the next decade, but by 1998, total employment had fallen to 31,400. A decade later, that figure had more than doubled to 65,309.

Of the 65,309 people employed by the electromedical industry in 2008, about 39 percent were production workers earning an average wage of $21.22 an hour. This was an atypical ratio of production workers to salaried employees in the American manufacturing industry. The greater proportional representation of salaried employees, those performing managerial, administrative, or technical duties, was primarily due to the technological sophistication of the products manufactured by the industry, which, as the level of sophistication increased over the course of the industry's existence, winnowed the ranks of production workers in the industry. These trends continued into the later 2000s and early 2010s.

America and the World

Historically, the electromedical industry's international presence has been a major source of its strength, providing manufacturers with ample room to market their highly sophisticated products in markets bereft of similar equipment. In 1993, this presence continued to support the industry at a time when domestic conditions had soured. That year, U.S. exports of electromedical equipment increased eight percent to $2.4 billion, giving U.S. manufacturers a $1.1 billion trade surplus. Much of this business was attributable to the strong sales performance of electrodiagnostic devices, ultrasonic scanners, and patient monitoring systems. These products were sold chiefly to European Community countries, Japan, and Canada. In 1997, exports totaled $2.6 billion.

By the mid-2000s, U.S. exports in the industry totaled $4.15 billion and imports totaled $4.81 billion. U.S. manufacturers had a trade surplus for electrocardiograph equipment, ultrasound diagnostic and therapeutic scanning devices, dialyzers, and electrosurgical equipment but retained a trade deficit for MRI equipment, patient monitoring equipment, and especially for pacemakers (with exports for pacemakers totaling $361.7 million and exports totaling $1.3 billion). Important countries for U.S. exports included Canada, Japan, Germany, the Netherlands, and the United Kingdom. Countries with most imports into the United States included Germany, Mexico, and Japan.

As the first decade of the twenty-first century drew to a close, the value of U.S. exports of electromedical and electrotherapeutic apparatus outweighed that of imports. According to Supplier Relations US LLC, imports were worth $7.0 billion, whereas exports were valued at $9.2 billion.

Research and Development

Technological advances have led to the improvement of instruments, and new diagnostic tools and surgical devices were expected to benefit the industry and patients alike. One such device, a smaller, lighter, defibrillator, restores the heartbeat of cardiac arrest victims more quickly than the older version. Functional MRI (fMRIs) screening was being used to test for a variety of diagnostic purposes including Alzheimer's diagnosis and depression, and bigger magnets were being incorporated into MRI units to provide better images.

In 2010, researchers at the University of Illinois at Chicago's Center for Magnetic Resonance Research were granted a $3 million grant to develop a 3-tesla magnetic resonance imaging facility dedicated to research. 3-tesla imaging was an advance from the 1.5-tesla in that it provided better images faster. According to Diagnostic Imaging, "3-tesla MRI more precisely localizes areas of activation, enabling accurate mapping of brain function in patients more than 90 percent of the time."

Other advances in the field included a CAT scan machine by Toshiba America Medical Systems, Inc., that could image 16 cm in a single rotation lasing 0.35 seconds. The device, designed for the pediatric market, decreased the amount of radiation the patient is exposed to and lessened the need for sedation due to long imaging times.

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