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Must-know: Dropping medical device prices suggest a strong market

Amritpal Khalsa

Device prices declining

According to AdvaMed, a medical device lobbying group, the average prices paid for medical devices declined from 2007 to 2011 on an inflation-adjusted basis. The size of the decline in average selling price ranges from 17% for artificial knees to 34% for drug-eluting stents.

(Read more: Medtronic purchases Cardiocom: Bad for medical device industry?)

What does this mean?

The findings show that while medical devices make up a small percentage of the US healthcare budget, average device prices have increased by around 1% since 2000 (compared to 2.7% for the overall consumer price index, or CPI). This rise has mostly been driven by payer pressures on pricing and increased competition.

What we can infer from this data is the strong value proposition that the industry maintains. Despite concerns like the excise tax, reimbursement pressure, and regulatory pressure, competition is still strong in the industry. Manufacturers are still fighting.

These results also suggest that medical devices aren’t part of the growing healthcare cost problem. Device prices have risen at half the rate of US goods.

At first look, the data dissuades investors. However, price drops suggest a very competitive environment that will effectively leverage increased demand from a global aging population and emerging markets.

(Read more: Why shifts in Chinese regulation could benefit U.S. device makers)

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