Health economics is a subdivision of economics central to issues correlated with the effectiveness, significance and performance in the structure, production and utilization of the healthcare industry—and the evaluation of numerous categories of calculated financial information including: measured value, consumer costs and industry expenditures. In general terms, health economists analyze the health effects of behaviors—the finances, efficacy and operations of health care systems —and the competitive symmetry in the five health markets.
The five health markets generally studied are: * Health care financing market * Physician and nurses services market * Institutional services market * Input factors market * Professional education market While the current quality or condition to change in healthcare as a private benefit is preserved, in the last three markets, market failures result in the financing and delivery markets because accurate information about product price is not a pragmatic conjecture—and various limits of access exist in the financing markets; such as the monopolistic structure of the health insurance industry.
Medical technology is generally classified as an Institutional Services Market and encompasses of all aspects involved in the treatment of disease—which includes the utilization of medical devices, and surgical and pharmaceutical interventions—and is of vital importance in relation to individual health and, as a result, for general wellbeing. Progress and advanced developments in medical technology transmit a vista of both enhanced public health and increased universal welfare. However, due to extensive governmental regulations concerning the healthcare goods and
services markets; the developments, improvements and utility of medical technologies essentially differs from non-medical technological progress and improvements. (Grossman, Lindgren, & Bolin, 2011) Developments in the medical device industry are remarkably different from advancements which take place in the pharmaceutical industry. There are differentiations in who manages and conducts the research and development (R&D), the essential nature of the research and development, and the consequences of federal and municipal policies that directly impact it.
The medical technology market requires higher start up costs and is difficult to enter—but in comparing the medical device industry to the pharmaceutical industry, we can easily distinguish the advancement of smaller companies. The medical device industry (an oligopoly), consists of fewer suppliers of a products or devices, where the suppliers’ activities can have a substantial impact on costs and, inevitably, on its competitors.
Because there are a limited number of suppliers and dealers, the medical device industry is more apt to be aware of the activities and innovations of its competitors—and is better able to strategically plan the responses of other medical device industry participants. Also, healthcare device manufacturers have more flexible and adaptable innovation methods and more lenient regulations and enforcement than those imposed on the pharmaceutical industry. (Gelijns, 1991) | This analytical paper concerns itself with Allied Healthcare Products, Inc.
(AHPI) which is a component of the medical device industry and subdivision of Health Economics. The company dates back to a small St. Louis company named Stilecraft which was established by the Sciuto brothers during the Great Depression. Stilecraft, a producer of wooden window coverings, diversified over the following years—eventually specializing in the manufacturing of medical equipment. Allied Healthcare Products, Inc. (a unit of Harbour Group Investments, LP), maintains its headquarters at 1720 Sublette Avenue, St.
Louis, Missouri 63110, and maintains industrial installations in both Missouri and Stuyvesant Falls, New York. (Allied Healthcare Products I. , Company Histories & Profiles, 2011) Presently, Allied Healthcare Products, Inc. (AHPI) manufactures a variety of respiratory products utilized in the health care industry in a wide variety of hospital and alternate health care settings, consisting of home health care, emergency medical care and ambulatory surgery centers, and sub-acute care facilities.
The entire range of products marketed by the company includes respiratory care products, medical gas and equipment, and emergency medical products. Allied Healthcare Products, Inc. owns and maintains the US trademarks; Chemetron, Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron, and Schuco. Registrations for these brand names are also owned and maintained by the company in foreign countries where AHPI markets its products and such registration processes are mandatory. (Allied Healthcare Products I. , 2011) Allied Healthcare Products, Inc.
has completed 8 acquisitions while taking stakes in 0 companies. Allied Healthcare Products, Inc. has 0 divestitures during this period and has not carried out any acquisitions since 1995. Year| Acquisitions| Stakes| Divestitures| 2012| 0| 0| 0| 2011| 0| 0| 0| 2010| 0| 0| 0| 2009| 0| 0| 0| 2008| 0| 0| 0| 2007| 0| 0| 0| 2006| 0| 0| 0| 2005| 0| 0| 0| 2004| 0| 0| 0| 2003| 0| 0| 0| 2002| 0| 0| 0| 2001| 0| 0| 0| 2000| 0| 0| 0| 1999| 0| 0| 0| 1998| 0| 0| 0| 1997| 0| 0| 0| 1996| 0| 0| 0| 1995| 4| 0| 0| 1994| 2| 0| 0| 1993| 1| 0| 0| 1992| 0| 0| 0| 1991| 0| 0| 0|
1990| 0| 0| 0| 1989| 0| 0| 0| 1988| 0| 0| 0| 1987| 0| 0| 0| 1986| 1| 0| 0| Total| 8| 0| 0| The acquisitions Allied Healthcare Products, Inc. has completed are as follows: Company Acquired| Acquisition Date| Omni-Tech Medical, Inc. | Dec. 01, 1995| Design Principles-Emergency Pr. From Design Principles, Inc. | Jul. 05, 1995| Bi-Core Monitoring Systems, Inc. | Jun. 15, 1995| Bear Medical Systems, Inc. from Invensys PLC| Feb. 10, 1995| B & F Medical Products Inc. | Sep. 16, 1994| Hospital Systems, Inc. | Apr. 21, 1994| Life Support Products, Inc. | Dec.
10, 1993| Oxequip Health Industries, Inc. | Mar. 31, 1986| (Acquisitions, 1985-1996) (Allied Healthcare Products I. , Company Histories & Profiles, 2011) Allied Healthcare Products, Inc. markets its product lines primarily to hospital equipment and emergency medical supply dealers, hospitals, hospital building contractors and home healthcare medical supply dealers. The company does not have any one particular customer that constitutes more than 10 percent of total sales. Sales by region, and by product, are as follows: | | 2011| | | 2010| | | 2009| |
| | | | | | | | | | Domestic United States| | $| 37,634,627| | | $| 37,337,662| | | $| 41,932,370| | Europe| | | 1,721,779| | | | 1,390,631| | | | 1,272,728| | Canada| | | 668,430| | | | 676,428| | | | 1,136,094| | Latin America| | | 3,427,960| | | | 3,326,792| | | | 4,426,046| | Middle East| | | 911,401| | | | 512,744| | | | 1,207,774| | Far East| | | 2,296,635| | | | 2,545,353| | | | 1,941,170| | Other International| | | 122,604| | | |
244,638| | | | 156,494| | | | $| 46,783,436| | | $| 46,034,248| | | $| 52,072,676| | | | 2011| | | 2010| | | 2009| | | | | | | | | | | | Respiratory care products| | $| 10,796,923| | | $| 11,142,890| | | $| 12,299,343| | Medical gas equipment| | | 24,949,906| | | | 24,623,684| | | | 29,748,758| | Emergency medical products| | | 11,036,607| | | | 10,267,674| | | | 10,024,575| | | | $| 46,783,436| | | $| 46,034,248| | | $| 52,072,676| | (Allied Healthcare Products I. , 2011)
In fiscal year 2011, respiratory care products, medical gas equipment and emergency medical products represented approximately 23%, 53% and 24%, respectively, of the Company’s net sales. In contrast, in fiscal year 2010, respiratory care products, medical gas equipment and emergency medical products represented approximately 24%, 54%, and 22%, respectively, of the Company’s net sales. The Company functions as a business in a single industry segment in a highly competitive environment where each of its product lines has a competitor. Its principal products are described as follows: Respiratory Care Products:
* Respiratory care/anesthesia products * Home respiratory care products Medical Gas Equipment: * Medical gas system construction products * Medical gas system regulation devices * Disposable oxygen and specialty gas cylinders * Portable suction equipment Emergency Medical Products: * Respiratory/resuscitation products * Trauma and patient handling products (Allied Healthcare Products I. , 2011) AHPI does not offer installation services for its products and the majority of its products are frequently shipped prepared for immediate utilization by the customer.
Third-party contractors who purchase in-wall medical system components are ultimately responsible for installation—and those equipment system services are contracted and arranged for by the consumer. Consequently, the customer purchase order and sales contract does not include provisions for installation or “on site” instruction or training for use of its equipment. Allied Healthcare Products, Inc. offers a limited warranty period of one year on its products.
The company’s financial cost of supplying warranty service for its product lines for the years ending June 30, 2011, June 30, 2010, and June 30, 2009 was $125,369, $135,032,and $166,651, respectively. The related liability for warranty service totaled $83,380 and $95,547 on June 30, 2011 and 2010, in that order. Sales continue to be hampered by recession prompted budget cuts in healthcare facilities, and municipalities— but the company considers the decline in sales between fiscal year 2010 and 2011 is a result of purchase order timing rather than any additional market declines.
Loss from operations was $228,072,000 compared to $133,849,000 in 2010. A deficit before income tax deductions was $233,819,000 compared to $141,540,000 in fiscal year 2010. AHPI maintains a standard sales force of 22 full-time sales specialists which consists of eight domestic emergency, hospital and home healthcare professionals and six domestic construction engineers; which are led by four sales managers who direct each respective group. Two full-time product managers are accountable for product lines and marketing activities.
Four international sales specialists market the company’s product-lines within their region. AHPI’s net sales to foreign markets totaled 20% of total net sales in fiscal 2011 and 19% in 2010 and 2009, respectively. Foreign sales are completed by means of a network system comprised of representatives, dealers and U. S. trade exporters who market the company’s product lines, internationally. Allied Healthcare Products, Inc. sells its products in Canada, Mexico, Latin America, Europe, the Middle East and Far East.
The company’s manufacturing operations include electro-magnetic mechanical assembly processes, plastics manufacturing and production. A major component of AHPI’s manufacturing operations includes electro-mechanical construction of proprietary product lines and the company is incorporated in virtually all essentials of metal engineering and fabrication. The majority of AHPI’s labor force is involved in product engineering and design, metal fabrication, plastics production and product assembly (Allied Healthcare Products I.
, Competitor Industry: Industrial Specialties, 2012) AHPI’s research and development department—staffed with electrical and mechanical engineers— is responsible for development, upgrading and improvement of innovative products. For the period of fiscal year 2011 AHPI’s research and development department effectively completed the CPAP ventilator circuit improvements and performance quality for the construction manifold and expenditure reductions. Furthermore, the department is vigorously developing additional products that were not disclosed to the public during fiscal year 2011.
The company considers its manufacturing plants and equipment are in good condition and adequate to meet projected increases in volume— and that the situation of the local labor force is such that it likely that the company will implement extra shifts and additional days of operation. (ALLIED HEALTHCARE PRODUCTS, 2011) Allied Healthcare Products, Inc. has occasionally become a party to personal injury litigation occurring as a result of incidents or accidents involving alleged defects, malfunction or use of its products.
AHPI confidently believes that the company’s product liability insurance coverage is sufficient to cover any prospective judgments ensuing from such litigation proceedings— in excess of the calculated amount of money set aside to compensate for potential future loss. (ALLIED HEALTHCARE PRODUCTS, 2011) As part of the contract concerning the removal of the Baralyme product in August 2004, Abbott Laboratories settled to compensate AHPI for product improvement costs in order for the company to carry out the development of a new carbon dioxide absorption product for its utilization in relation to inhalation anesthetics.
The agreement also requires as a condition that, for a time period of eight years, AHPI will not manufacture, license, dispense, endorse, market, donate or exploit for financial gain any Baralyme product or comparable product containing potassium hydroxide. In consideration of the above-mentioned, Abbott Laboratories agreed to pay AHPI a cumulative amount of $5,250,000; due in annual installments. The company received its final payment on June 19, 2008. (ALLIED HEALTHCARE PRODUCTS, 2011) Allied Healthcare Products, Inc.
has pursued development of a new carbon dioxide absorption product, resulting in its new Litholyme product. Litholyme does not include potassium hydroxide or produce considerable exothermic reaction as with currently available inhalation anesthetic agents. (John Robertson, 2008) On May 27, 2011, the company filed a lawsuit against Armstrong Medical challenging the validity of Armstrong’s patent for a similar carbon dioxide absorbent utilized in anesthesiology; and further seeking a declaratory judgment that AHPI is not in violation of Armstrong’s patent.
On September 15, 2011 Armstrong Medical, responded to the legal action, refuting Allied Healthcare Products, Inc. allegations— and countersued AHPI, claiming that the company’s marketing and sale of Litholyme encroaches upon Armstrong’s patent rights. At this time, Allied Healthcare Products, Inc. is unable to estimate the possible monetary loss relating to the impending legal action, since the legal proceedings are in its early stages— and Armstrong Medical has not stipulated the sum sought in compensatory damages.
(Allied Healthcare Products, Inc. v. Armstrong Medical Ltd. , 2011) (al. , May 8, 2001) The company’s products and its manufacturing processes are subject to wide-ranging and governmental directives by both federal and state authorities in the United States and foreign countries. In the United States, medical devices for human use are subject to comprehensive assessment by the United States Food and Drug Administration (FDA).
(Shein, 2008) (Wall Street Journal, 1999) Regardless of FDA sanction, it is usually a requisite to receive endorsement from an equivalent regulatory authority of a foreign country previous to the initiation of marketing medical equipment in those countries. In addition, FDA authorization could be required under certain circumstances to export certain medical devices. Also, commercial distribution in certain foreign countries is subject to additional regulatory requirements and receipt of approvals that vary widely from country to country.
Medical products shipped to the European Community generally require CE (Conformite Europeenne) certification. (Munsey, 1995) However, there can be no guarantee that any necessary FDA or foreign governmental sanction will be approved, or if approved, will not be rescinded. In addition, the limitations imposed by possibly adverse administrative regulations that might occur as a result of future domestic or foreign governmental legislation, are not predictable at this time. Any failure on the company’s part to acquire, and sustain, such authorization could adversely delay or prevent its capability to market its potential or existing products; thus causing substantial financial loss to the company.
(Maisel, February 17, 2004) Allied Healthcare Products, Inc. is additionally subject to the inspection and registration mandates of state regulatory agencies, and is subject to many federal, state and local laws concerning issues such as occupational and environmental safety protections, appropriate storage, removal and disposal of hazardous or potentially unsafe and/or harmful substances, fire hazard controls and manufacturing processes.
The company also is subject to documenting and reporting to federal regulating agencies any accounts and details of deaths, injuries or accidents related to the use of its products. Conversely detailed public disclosure of the above mentioned details or medical device malfunctions and device reliability are not required by law. As a result, customers, physicians and clients/patients, are not able to formulate appropriate decisions regarding appropriate product selection. (Munsey, 1995) Allied Healthcare Products, Inc.
is also subject to the reporting mandates of federal securities laws, in addition to the Sarbanes-Oxley Act of 2002. Among other requirements, the Sarbanes-Oxley Act demands that the company maintains effectual disclosure controls, verifiable accounting procedures— and internal controls over financial documentation. (U. S Department of Health and Human Services, May 1999) The company’s industry, operations and financial status are subject to diverse risks and unpredictable events in an intensely competitive environment.
The medical device business encompasses technological advancements, innovative products, price competition and varying customer needs—unpredictably rendering certain devices and products obsolete as a consequence of these changes. AHPI’s various competitors relative to each product line—and its competitors, for the most part, are significantly larger; possess greater financial resources and greater capabilities to access technical, research, marketing, sales and distribution opportunities.
Understandably, these larger competitors may also have the capability to develop and distribute its technologies and advanced innovations more rapidly and effectively; thus succeeding in acquiring regulatory authorization to introduce and market the product before a smaller healthcare product industry, such as AHPI. In this context, these unexpected developments could have a significant negative impact on the company’s business, financial state and operations. (Allied Healthcare Products I.
, Competitor Industry: Industrial Specialties, 2012) A reduced supply of raw materials or increased costs of such materials vary according to global market demands. In addition to inflationary price increases in the cost of these materials—which could hinder the company’s ability to obtain them—are the shipping and delivery freight charges which are substantially affected by the fluctuating prices of oil and gas. Decreased availability, an increase in the cost of raw materials, or the cost to transport them, could critically affect the company’s ability to manufacture its products and/or increase production costs.
(ALLIED HEALTHCARE PRODUCTS, 2011) The U. S. Government funds the majority of healthcare and healthcare equipment via Medicare and Medicaid programs, and other healthcare expenses are covered by means of private insurance plans and corporate insurance programs. (Gottlieb, 2009)While AHPI does not receive direct payments for its products from these programs, its primary customers—including home healthcare providers and dirigible medical equipment suppliers—are greatly dependant on Medicare, Medicaid and private insurance reimbursements as a main source of income.
The company’s products and services are largely intended to operate within the present U. S. healthcare industry organization. With the advent of the Healthcare Reform Acts (March 2010), the healthcare industry has experienced significant modifications designed to control costs— and generate revenues to cover universal healthcare expansion— and ultimately decrease the costs of federally funded healthcare programs. As a result, while managed healthcare has increased; federally funded healthcare reimbursement amounts have steadily decreased.
Presently, healthcare providers, manufacturers and distributors have merged and huge complex purchasing factions have become more common. (Fuchs, 2005) Starting January 2013, every medical equipment manufacturer will be mandated to pay surtax in an amount equivalent to 2. 3% of the cost for which the manufacturer sells its medical equipment. AHPI will be subject to this tax and could be adversely affected by it, in addition to changes in the delivery, pricing or reimbursement for its medical products.
The FDA and comparable foreign governmental authorities in which AHPI’s products are marketed, have the authority to demand the recall of medical device products in the incident of defective materials, component failures, manufacturing errors or flawed design. Any recall of a product would suspend manufacturing processes and redirect administrative and financial resources—and ultimately damage the company’s reputation and its business. The company believes that its products conform to FDA guidelines and according to the FDA website; no medical devices have been recalled.
(FDA. gov, 2012) Though medical device industries report to governmental authorities, regarding high-risk devices brought to market, manufacturers carry out little more than file documentation and pay the Food and Drug Administration a user fee of approximately $4,000 to market its products. Before 1976, a manufacturer could sell practically any medical device at its own discretion. In that year, government legislation categorized medical devices into three risk classifications, with clinical data required only for devices in the highest-risk category.
The FDA has yet to fully enforce even minimal testing requirements for Class III categories. The agency frequently releases innovative medical devices in all three risk classes without irrefutable testing, providing manufacturers can demonstrate that the devices are significantly equivalent to devices that have previously been on the market. (U. S Department of Health and Human Services, May 1999) Frequently, the only safety inspection that occurs is in the aftermath; when patients experience sustained injury or death as a result.
As for the smaller number of high-risk products for which advanced safety research studies are required, government policies allow medical devices to be marketed, collaborated by studies that are less stringent and less accurate than those required for the pharmaceutical industry. In conclusion, public reporting would create a client/patient protection market force. Physicians and patients could select products that have been sufficiently tested and documented as safe and dependable— and avoid those that are less reliable.
To sustain or increase market share, manufacturers would be required to develop safer, more dependable products. Strangely, consumers can find out more about the safety of the vehicle they plan to purchase than they can about the dependability of their potentially life-saving medical devices. Improved public device reliability reportage should correct this discrepancy. The decision for a manufacturer, however, of whether or not to inform physicians, patients, or the public about a detected malfunction is less than candid.
Historically, conclusions have been formulated on a case-by-case basis by considering aspects such as quantity and level of malfunction, probability of patient injury, origin of device failure, and potential to regulate and diminish the dilemma with an alternate intervention. [ (Consumer Reports Magazine, 2012) ] Also are the ethical issues involving health care insurance and reimbursement policy; the manufacturer, in this case Allied Healthcare Products, Inc. , sells it manufactured goods to a dealer, who in turn sells the product to a healthcare provider.
The equipment is not purchased by the consumer of the product, but in fact rented from the device agency service provider and paid for by Medicare, Medicaid, or private insurance providers at exorbitant costs. Afterwards the equipment, particularly evident in the home healthcare setting, is returned to the device service provider and ultimately rented to another consumer. In 2011, a panel from the prestigious Institute of Medicine said the FDA should revamp its device regulatory structure since it fails to ensure patient safety before and after products go on the market.
Instead, Congress is now debating a new law that would keep the present system virtually intact and ratify an agreement between the FDA and industry to get devices on the market even faster. [ (Institute of Medicine of the National Academies, July 29, 2011 ) ] The long-term outlook as of December 31, 2011 Allied Healthcare Products, Inc. had no aggregate indebtedness, including capital lease obligations, short-term debt and long term debt. However, during the first six months of fiscal year 2012, Allied Healthcare Products, Inc. has experienced higher prices for raw materials due to increased product prices for thermoplastic resins and brass.
Brass cost is determined by higher copper prices which are regarded as the main component. These increases have been to a degree offset by higher revenues for recycled metals and purchasing initiatives for other components and finished goods. In the event that economic conditions were to severely worsen for a protracted period of time, APHI believes that they will have borrowing capacity under credit facilities that will supply adequate financial elasticity. The Company would have options accessible to guarantee liquidity in addition to increased borrowing. Capital expenditures are projected at $1.
8 million for the fiscal year ending June 30, 2012. However, capital expenditures in prospective years could be deferred. [ (ALLIED HEALTHCARE PRODUCTS, 2011) ] References Acquisitions, T. M. (1985-1996). Allied Healthcare Products, Inc. Thomas Reuters. al. , A. e. (May 8, 2001). Patent No. US 6,228,150 B1. Allied Healthcare Products, I. (2011). Company Histories & Profiles. Retrieved from http://www. fundinguniverse. com: http://www. fundinguniverse. com ALLIED HEALTHCARE PRODUCTS, I. (2011). Form 10-K: Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934.
Washington, DC: United States Securities and Exchange Commission. Allied Healthcare Products, I. (2011). History of Allied Healthcare Products. Retrieved from About Allied: http://www. alliedhpi. com/history. htm Allied Healthcare Products, I. (2012, March 29). Competitor Industry: Industrial Specialties. Retrieved from AHPI Stock Details: http://www. nasdaq. com/symbol/ahpi/competitors Allied Healthcare Products, Inc. v. Armstrong Medical Ltd. , 4:11-cv-00972 (United States District Court For the Eastern District of Missouri Eastern Division May 27, 2011). Consumer Reports Magazine.
(2012). Dangerous Devices. Consumer Reports Magazine. FDA. gov. (2012). Recalls, Market Withdrawals, & Safety Alerts. Silver Spring, MD: U. S. Food and Drug Administration. Fuchs, V. (2005). Health, Government, and Irving Fisher. American Journal of Economics and Sociology, 407-426. Gelijns, A. C. (1991). The Changing Economics of Medical Technology. Washington, DC : Committee on Technological Innovation in Medicine, Institute of Medicine . Gottlieb, S. (2009). How the U. S Government Rations Health Care. Wall Street Journal, A. 23-A. 23. Grossman, M. , Lindgren, B. , & Bolin, K.
a. (2011). The Economics of Medical Technology. Washington, DC: Emerald Group Publishing. Institute of Medicine of the National Academies. (July 29, 2011 ). Report Brief: Medical Devices and the Public’s Health: The FDA 510(k) Clearance Process at 35 Years. Institute of Medicine of the National Academies. John Robertson, C. A. (2008). Patent No. 20080210091. Allied Healthcare Products, Inc. –St. Louis, MO. Maisel, W. (February 17, 2004). Medical Device Regulation: An Introduction for the Practicing Physician. Annals of Internal Medicine, 296-302. Munsey, R. R. (1995).
Trends and Events in FDA Regulation of Medical Devices Over the Last Fifty Years. Food and Drug Law Journal 50, Special Issue, 163-177. Shein, M. &. (2008). FDA Viewpoint. Pacing and Clinical Electrophysiology, 31(1): 16. U. S Department of Health and Human Services. (May 1999). Managing Risks from Medical Product Use: Creating a Risk Management Framework. Report to the FDA Commissioner from the Task Force on Risk Management. U. S. Department of Health and Human Services, Food and Drug Administration. Wall Street Journal. (1999). Allied Healthcare Products Inc. Wall Street Journal.