Imaging sales sag in Europe, but vendors expect an upturn

Sales of medical imaging systems in Europe will finish the yeareither flat or down slightly from 1992 on account of general economicsluggishness and the desire of government authorities to restraingrowing health-care budgets. Signs are, however, that the downturnis cyclical and will be limited in duration.

The amount of money available for health care is being strictlyrationed. Throughout Europe, governments are clamping down onreimbursement, including payments for medical imaging procedures,said Christopher J. Peabody, senior vice president of internationaloperations for Picker International.

"Hospitals and clinics have to focus more on how theyspend their money," Peabody said.

Over the long run, Europe's relatively low per capita densityof advanced imaging systems, its aging installed base of x-rayequipment and the presence of emerging markets in the East augurwell for imaging equipment demand in the region.

"We have two more difficult years ahead of us where wewon't have growth in Europe. After that, Eastern European marketswill arrive," predicted Werner Maly, group president forSiemens' worldwide medical systems business. Siemens anticipatesabout a 5% drop in the overall European medical imaging marketthis year, he said.

Market crosscurrents flow through a decidedly un-unified Europe.National authorities seek to stimulate medical entrepreneurship,while holding the lid tight on health-care expenditures.

"We hear mixed messages from government and third-partypayers," said Dan Inbar, vice president of marketing forElscint. "On the one hand, there is a privatization trendin Great Britain, Germany and other countries. On the other hand,as in America, there is pressure for cost containment and improvedaccess to health care. Sometimes these forces move in oppositedirections."

Significant devaluations of several national currencies followinga crisis in the European Community exchange-rate mechanism exacerbatedtight European health-care expenditures this year. Health-carebudgets set in sagging local currencies translate into even lessfunds available for equipment purchases.

"Currencies have been a terrible problem for us, withdevaluation of the British pound, Italian lira and Spanish peseta,"Maly said. In addition, the strength of the deutsche mark vis--a-visthe U.S. dollar has handicapped Siemens, which records its financialresults in German currency.

CURRENCY VALUES HAVE DROPPED in some European countries by asmuch as 25%, adding to downward pressure on medical systems salesvolume in Europe during the second half of the year, said MichaelP. Moakley, chief executive of Philips Medical Systems. PMS stillexpects to have an increase in worldwide sales volume this year,although growth will likely be in the single rather than doubledigits, he said.

While there has been progress in facilitating the free flowof goods in Europe, a single pan-European approval process formedical devices remains mostly a promise. A directive has beendrafted, however, that will implement a regional equipment certificationregime over the next few years. Eventually, all product approvalsfor the European Community must be based on European standards,Maly said.

"Starting in 1995 and at the latest by January 1998, ifa product is approved in France or Germany, it will be approvedfor all the European market," Maly said. "We will havea united market from a technology point of view."

Unified technical standards will help vendors save time andmoney bringing medical systems to market, he said. However, increasedmarket access is a double-edged sword for established Europeanvendors, such as Siemens and Philips. After 1995, new supplierswill be able to establish a low-cost base in Portugal, for example,and send products throughout Europe.

"Competition will be stronger. That is the intention ofthe authorities," Maly said.

Unfortunately, EC officials have not determined how to unifythe diverse national health-care systems of Europe, in terms ofboth government reimbursement and clinical practice. Issues ofsovereignty and culture may make this goal unreachable.

Vendors will take advantage of what efficiencies can be hadfrom the unification of production and distribution in Europe,while keeping their fingers on the pulse of national market requirements.Economic integration, however slowly it evolves, will make iteasier to gauge general trends in regional demand for medicalsystems.

"There is no such thing as (a single) Europe. Every countryhas its own standards, history and structure," said ArnoBohn, chief executive of GE Medical Systems Europe. "Butthey are all under constraints in terms of (reducing) public sectorcosts and (increasing) private sector productivity."

Progress in European unification will not automatically levelphysician incomes throughout the region, noted Maly, but it willallow a Portuguese doctor to move to Italy. Language differenceswill remain a factor in selling medical systems to Europeans,of course. Operating manuals, for instance, must still be writtenin 12 languages, he said.

UP-AND-COMING MARKETS in Turkey, Eastern Europe and the formerSoviet Union show promise but require time and socioeconomic stabilityto develop.

"This is the year of Turkey," said Mark de Simone,vice president of European marketing for GE. "Turkey is oneof five nations in Europe with more than 55 million in population.It is a very important country for us."

Turkey is a sound developing market, agreed Maly--if vendorsare paid cash on time. Delayed payments are costly for vendorswho must operate in the context of a 10% monthly interest rate.

"If the customer doesn't pay, all the profit is gone inabout three months," he said.

Spain, a hot market in the throes of health-care privatizationtwo years ago, is now having trouble finding the money to payboth doctors and its imaging equipment bills.

"The whole industry is very careful in Spain," Malysaid. "We are slowing down our (Spanish) deliveries."

Italy, once a substantial market for imaging systems, is lockedin its own unique difficulties. Italian sales aren't easy to naildown amidst a widespread government procurement and influence-peddlingscandal, Picker's Peabody said.

"Nobody wants to sign a purchase order for fear that someonewill say he is getting a kickback," he said.

Germany's health minister slapped a cap on expenditures, chokingoff the fuel to run what had been the engine of European medicalimaging demand. The Benelux countries are following Germany intheir attempts to trim the cost of medical reimbursement. Demandin France for CT and MRI equipment has been kept down by tightcertificate-of-need requirements.

SURPRISINGLY, A BRIGHT SPOT in Europe is the U.K. Although Britaincan stake a claim as the birthplace of MRI, disincentives in theBritish national health system previously hampered the proliferationof high-technology imaging systems. Purchasers are now being grantedmore freedom to choose the imaging technology that makes the bestclinical and economic sense for them as users.

"The whole situation in Britain is doing very well,"said Rob Bergmans, Philips' director of sales and service formedical systems in western Europe outside of Germany.

The evolving British health structure is allowing for someprivate investment and an effort is being made to better evaluatewhat types of medical equipment are required, he said.

While there are parallels between Europe and the U.S. in regardsto tight government budgets and a reevaluation of health-caresystems, Europe does not appear to be following the U.S. intoa systemic flattening of demand for medical imaging equipment,Bergmans said.

Part of the reason for long-term vendor optimism in Europeis that the region did not follow the U.S. into the rapid proliferation--andin some regions oversaturation--of expensive high-technology imagingsystems, specifically MRI. While there are reports of decliningMRI procedure volumes in the U.S., usage is still rising in Europe.

"The density of MRI in Europe (compared to the U.S.) isat a ratio of one to five today," said Jonathan Adereth,vice president sales for Elscint. "During one year, therewere more MRs sold in Florida than in the whole of Europe. Europeis far from being saturated and the standard of living is notfar behind the U.S."

Germany, although historically the largest European marketfor medical systems, does not have the highest density of scannersin the region, noted Masamichi Katsurada, director of ToshibaMedical Systems Europe.

"The market is not dropping drastically in Germany,"Katsurada said. "Since the (imaging) machine population isnot high even when compared to other European countries, the potentialdemand from German users is high."

GERMANY'S HEALTH-CARE SYSTEM is going through a period of radicalchange. Where this change will lead is not clear, but unlike inthe U.S., German cost-containment rules are on the books. Theyare not hanging over industry as potential threats and a sourceof market uncertainty.

Led by federal health minister Horst Seehofer at the startof this year, Germany implemented a law that caps overall reimbursementlevels for imaging and other medical expenditures, Maly said.The new system contrasts sharply with Germany's past practiceof reimbursing hospitals based on a per-bed/per-day charge.

"The incentive was for hospitals to have more beds andlonger stays," he said. "Now, if the number of examsgrows, remuneration per exam goes down. The government requiresefficient use of existing modalities. Hospitals have come underheavy competition. Over the next three years, some will go bankrupt."

As in other parts of Europe, however, German health-care signalsare mixed, Elscint's Inbar said.

"They (the German authorities) say there can be much moreMRI, but general practitioners are told they cannot refer anymore patients for MRI (exams). Only specialists like neurologistscan do the referring," Inbar said. "They want more entrepreneursto move into imaging but fit them with harnesses in order notto escalate health-care costs or to defend some interest groups.This has created confusion."

Privatization in Germany should not be confused with privatepractice. Rather than encouraging independent imaging centers,the government is providing incentives for hospitals to contractout the operation of their imaging departments to entrepreneurs.

"German cost-containment laws have taken money out ofthe system," Peabody said. "They are limiting the numberof physicians who may open their own clinic. This is not onlya crackdown on equipment purchased but on the establishment ofnew clinics."

AS HOSPITALS SUBCONTRACT out their radiology services on site,new companies and business people are coming into the equipmentacquisition process, GE's Bohn said. These entrepreneurs are interestedin a more wide-based partnership with vendors, involving not onlytechnology but financing and assistance with department planning.

Germany has invested major sums in upgrading the health-caresystems of its newly united eastern states. During these years,overall German medical imaging sales rose dramatically, Maly said.Now, however, health-care parity between the east and west inGermany is close to a reality and sales are coming down.

Siemens' medical system sales in Germany may decline 10% to15% this year, following an excellent year in 1992. Fluctuationsin dental equipment sales are an extreme example of the medicalboom and consequent decline, he said. Siemens' German dental salesrose nearly 50% over the last two years, but are down by 20% in1993.

Medical imaging sales in Eastern Europe have not yet boomedbut are respectable in certain national markets, particularlyPoland, Hungary and the Czech republic. Other areas, such as theformer Yugoslavia, offer little or no business prospects due towar and civil unrest.

Medical entrepreneurs are starting to emerge in Eastern Europe,Inbar said. Elscint helped set up the first Eastern European privatemedical imaging center in Budapest in cooperation with Israeliand local entrepreneurs and physicians. The center is fully equippedwith MRI, CT and nuclear medicine, operating 365 days a year,24 hours a day, he said.

A second imaging center in another part of Hungary was dueto be opened in October by the same business group, this timerunning a dual-head rather than single-head nuclear camera.

"Their workload necessitated it," Adereth said.

Long-term demand should be strong in the nations of EasternEurope as their populations demand improvements in the qualityof health-care services, Bohn said.

"We can't say we are bullish for the next year or two,but health-care demands will grow in Eastern Europe over the next10 to 20 years," Bohn said. "Increasing funds are goinginto health care. They are building their medical structures."

While all imaging vendors feel the pressure of a down marketin Europe this year, demand is most depressed for big-ticket modalities,such as MRI, according to Katsurada.

"In the ultrasound area, we have less problems,"he said.

Ultrasound is Toshiba's best established modality in Europe.Prospects continue to look bright for ultrasound over the longrun as demand picks up for moderately priced color-flow Dopplersystems.

But ultrasound sales, which grew rapidly in Europe over thepast eight years, are slowing down, Maly said. Overall, Europeanultrasound sales should grow 2% to 3% in 1993, he said.

THE MARKET FOR STANDARD X-RAY SYSTEMS in Europe is coming back.Upgrades of installed systems have been neglected in recent yearsas increased focus was placed on CT and MRI. Consequently, basicradiological equipment is too old and must be replaced, Maly said.

A growing x-ray replacement market opens up opportunities fornew digital x-ray systems that will function well with CT andMRI within picture archiving and communications systems, Malysaid.

"X-ray for us is an area where the digital revolutionis taking place," agreed de Simone. "Europeans, particularlyin Central Europe, are very knowledgeable in the use of digitalx-ray."

But don't count out CT with its established installed baseand evolving technology. Many European CT users are interestedin newer, more efficient spiral systems. Vendors are shiftingwhat was exclusively a premium technology into the mid-tier oftheir CT lines, partly in response to European demand (SCAN 10/20/93).

"This is derivative of the situation in the European market,"Adereth said. "There was a wish to buy the (spiral) technology,but the cost exceeded available budgets, due to the economy inEurope."