Uptick in medical supply sales suggests recession may be easing

Health industry watchers expressed optimism but cautioned that the numbers could reflect preparations for a potential H1N1 flu outbreak.

By Victoria Stagg Elliott — Posted Aug. 24, 2009

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Recent positive sales results from a pair of large medical suppliers are being taken as possible signs that the economic picture for office-based physicians may be getting better. But the increases also could be a one-time bump because of preparations for the upcoming flu season.

"We're cautiously optimistic that, as the turmoil in the market slows down a little bit, doctors can see where things are headed, and we might be seeing the first sign of renewed confidence," said Matthew J. Rowan, president and CEO of the Health Industry Distributors Assn.

Henry Schein Inc., the largest provider of health care products and services to office-based physicians and practitioners, issued its second-quarter results Aug. 4. Though overall sales declined, medical group sales increased 8% to $351 million.

"We are very pleased with the progress our medical group is making," said Stanley M. Bergman, the company's chair and CEO. "The business is growing nicely."

First-quarter results released May 4 showed a decline of 1.2% to $327 million, primarily because sales of less expensive generic products increased and some vaccines were in short supply. Medical group sales declined 12.5% in the fourth quarter of 2008 and dropped 4.1% in the third quarter of last year.

PSS World Medical Inc., another large supplier, reported that first-quarter results July 22 indicated sales to physicians grew 3.3%. Sales had declined 0.8% in the quarterly results released Jan. 23, 2008, but had increased 8.2% in the quarterly data issued July 23, 2008.

Experts suspect that the rise in sales may be fueled by purchases of infection-control supplies and antiviral medications in preparation for the upcoming flu season. According to the World Health Organization, a pandemic is under way, and flu watchers are concerned that the U.S. will be hit hard. Henry Schein said second-quarter medical group sales were up 3% alone on products related to influenza A(H1N1).

But while the increases in sales may indicate positive economic movement, there continue to be other signs suggesting the health system as a whole is still struggling.

On Aug. 11, the Medical Group Management Assn. released results of a survey stating that the top challenge for those running a medical practice is "dealing with operating costs that are rising more rapidly than revenues." In addition, 36.6%of respondents said they had postponed capital expenditures because of the recession; 33.9% had cut operating budgets.

"Running a successful business that provides medical care is an incredibly difficult task in these economically challenging times," said William F. Jessee, MD, MGMA president and CEO.

Numerous hospital and health systems have announced layoffs. On Aug. 11, 1,850 of 135,000 Kaiser Permanente employees in California were notified their jobs were eliminated.

In a conference call with investors July 23, PSS World Medical CEO and Chair David A. Smith said, "Our customers are absorbing the blunt trauma of spiraling administrative cost, complexity of building and shrinking reimbursement."

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