Medical, Dental and Hospital Equipment and Supplies

SIC 5047

Companies in this industry

Industry report:

This industry classification comprises establishments primarily engaged in the wholesale distribution of instruments, apparatus, and equipment to medical and dental practitioners, clinics, and hospitals. Products of the industry include surgical instruments, artificial limbs, operating room equipment, X-ray machines, hospital beds, medical and dental laboratory equipment, and professional supplies. The industry also includes wholesale distributors of industrial safety devices, such as first-aid kits and face and eye masks.

According to the U.S. Census Bureau, there were a total of 8,602 establishments operating as medical, dental, and hospital equipment and supply wholesalers in 2009 with 178,237 employees earning an annual payroll of nearly $15.2 billion. A majority of companies in these businesses were small, with about 70 percent employing fewer than 20 workers.

During the early 1990s, rising health care costs led many hospitals to form alliances and make group purchasing decisions. Critics of the policy claimed that the situation created an adversarial relationship between the medical community and its suppliers because the purchasing groups left distributors with unprofitable margins. In addition to concern over cost containment, the medical community faced increasing pressure to reduce its impact on the environment. Costs related to the disposal of medical waste, including toxic and hazardous materials, were mounting. Medical administrators called upon manufacturers and distributors to help provide products able to serve patients' needs and also reduce waste.

Through the 1990s, suppliers engaged in cutthroat competition and managed care placed additional pressure on the industry. Hospitals began to complain about declining standards of service, even from the major national suppliers. As a result, suppliers found themselves competing to provide improved service at lowered prices. "Activity-based costing," in which prices are based on actual costs rather than a negotiated price with a set shipping cost, became popular. Some hospitals turned to regional distributors and even took back some functions formerly performed for them by distributors.

Not surprisingly, many small companies folded or were acquired by large companies. For instance, in 1994 Owens & Minor Inc. acquired distributor Stuart Medical. Even the largest companies suffered a decline in profits. The average pretax profit margin for hospital distributors fell to 1.8 percent in 1994. In the latter part of the 1990s and early years of the first decade of the 2000s, the remaining national medical-surgical distribution companies were struggling to maintain their standing, with regional distributors and drug distributors providing additional competition.

According to the U.S. Census Bureau, the entire medical, dental, and hospital equipment and supplies wholesalers industry posted sales of $126.8 billion in 2009. In terms of sales, the top segment in the industry was surgical and medical instruments and equipment (50 percent), followed by other surgical, medical, and hospital supplies (36 percent), dental instruments and supplies (4 percent), orthopedic and prosthetic appliances and supplies (3 percent), and dental equipment (3 percent). The remainder of sales came from "other" equipment and supplies.

One industry leader in the early 2010s was Dublin, Ohio-based Cardinal Health, Inc., which had sales of more than $102 billion in 2010 with about 31,900 employees. Other major companies were Thermo Fisher Scientific Inc. of Waltham, Massachusetts, which was formed when Thermo Electron and Fisher Scientific International merged in an $11 billion transaction in 2006. In 2010 Thermo Fisher Scientific had sales of $10.7 billion and 37,200 employees. FUJIFILM Medical Systems USA Inc. of Stamford, Connecticut, was a subsidiary of the Tokyo-based FUJIFILM Holdings Corp., which had sales of more than $25 billion in 2010. Other industry leaders included Owens & Minor Inc. of Mechanicsville, Virginia, with 2010 sales of $8.1 billion, and Henry Schein Inc. of Melville, New York, with $7.5 billion in 2010 revenues.

The U.S. Department of Labor's Bureau of Labor Statistics reported that employment gains for the overall industry would continue to improve. For the professional and commercial equipment and supplies merchant wholesalers (the main category for the medical, dental, and hospital equipment and supplies wholesalers industry), employment rose about 8 percent between 1994 and 2004, with an expected increase between 2004 and 2014 of nearly 14 percent. Meanwhile, the pharmacies and drug stores category (the main category for the all other health and personal care stores industry) also recorded an increase in employment between 1994 and 2004 of 13 percent with a projected increase of nearly 12 percent from 2004 to 2014.

One tool available to help medical supplies distributors locate specialized products was a CD-ROM database provided by MDI (Medical Data Institute) called EPIC Plus. The EPIC Plus system provided suppliers with an up-to-date database of more than 1 million products produced by more than 2,500 manufacturers and wholesalers. The system was used by the Health Industry Distributors Association (HIDA), a group designed for medical products distributors, and recommended by the Independent Medical Distributors Association (IMDA), an organization formed to facilitate the exchange of ideas among medical suppliers and to meet the needs of firms involved in the distribution of specialized medical products.

According to a 2011 report by IBISWorld, the medical supplies wholesaling industry grew almost 3 percent annually from 2006 to 2011. It was predicted to continue to expand, according to the report, because "The U.S. population is expected to grow older, leading to a higher average age and greater need for medical supplies." In addition "new cardiovascular and neurological devices will fuel demand for industry products, boosting revenue for wholesalers."

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