Analysis: Americans make slow return to doctor's offices

NEW YORK Thu Nov 11, 2010 9:57am EST

Richard Meelia, Chairman, President, Chief Executive Officer and a Director of Covidien Ltd., speaks at the Reuters Health Summit in New York, November 10, 2010. REUTERS/Brendan McDermid

Richard Meelia, Chairman, President, Chief Executive Officer and a Director of Covidien Ltd., speaks at the Reuters Health Summit in New York, November 10, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Americans are slowly making their way back to the doctor's office after many months of skimping on medical care, holding off on everything from routine visits to hip replacements.

A noticeable number of U.S. consumers had skipped medical check-ups and procedures since the recession, as some lost insurance coverage when getting laid off work, while others have seen insurance premiums jump just as they try to save money.

But there are small signs suggesting that cycle has started to turn, healthcare executives told the Reuters Health Summit in New York this week.

Covidien Plc, a maker of a wide range of surgical instruments, medical devices and pain medication, reported better-than-expected earnings this week and cited an increase in medical utilization in the United States.

"The pick up that we've seen has been broad-based. We might have gained a little share, but we think it was a little bit of a bounce back in the U.S.," Covidien Chief Executive Richard Meelia said at the Reuters Health Summit. "We don't think it's an aberration."

Meelia believes the recent decline in medical utilization rates was a cyclical effect from the weak economy, rather than a structural change as more costs have shifted to budget-conscious consumers.

"It has been created by so many people struggling," he said. "I've been in the healthcare business since the 1970s and have seen economic cycles, none of which ever impacted healthcare demand. Never. We just went right through it."

That contrasts with the view of industry experts like Tim Nelson, analyst at FAF Advisors, who believe the fact that Americans are paying much more for healthcare out of their own pocket represents a fundamental change in the system.

"When employment recovers, people will get their health insurance back and find their costs are higher. That's structural and not likely to reverse," he told Reuters in an interview ahead of the Health Summit.

Meelia said this is the first time he has seen economic weakness affect demand for medical supplies and devices, but said an aging society and global population growth means demand will eventually return.

"I believe the volume is now beginning to pick up and I think it had to," Meelia added.

REBOUND IN 2011?

GE Healthcare, the unit of General Electric Co that makes imaging and other medical equipment, earlier this week noted a pickup in demand for equipment and services in the United States.

Cigna Corp Chief Executive David Cordani said he has seen the rate of healthcare consumption rise in key areas, including preventive services, wellness, key diagnostic services and medication compliance for people who are dealing with chronic conditions.

At the same time, the growth is inconsistent, particularly for the costliest of diagnostics.

"What we do see is some (decrease) in the rate of growth around some of the high cost diagnostic services, MRIs, CAT scans, PET scans, nuclear medicine, in certain areas, both geographically or for certain diagnosis," he said.

Aetna President Mark Bertolini said that while he has not seen signs of improvement yet, the insurer is planning for a rebound in 2011.

"For next year, we are assuming the current low level of utilization is not sustainable," he said.

Kris Jenner, portfolio manager at T. Rowe Price Healthcare Sciences Fund, said he expects healthcare utilization to accelerate as the economy recovers, adding that healthcare products and services represent about 17 percent of U.S. gross domestic product.

"A hip replacement can be deferred. You can live with more pain. You can decrease your activity, but from my point of view that's not going to be put off indefinitely," he said. "When we start seeing improvement in such macro factors as consumer confidence ... there's no reason for me to believe there has been something that has changed so acutely that it will interfere with what is a more normal consumption of healthcare."

Government statistics show that healthcare consumption drops about two years after GDP declines. So if GDP bottomed during the first half of 2009, we should see a bottoming in consumption in the near future if historical trends hold, Jenner said, boding well for healthcare company shares down the line.

"If the mantra becomes 'low utilization, low utilization' and 'healthcare isn't defensive, healthcare isn't defensive' and then these companies start putting up good numbers and start talking about improved utilization, we could have a very meaningful rally (in health stocks)," he said.

(Reporting by Debra Sherman, additional reporting by Susan Kelly; Editing by Michele Gershberg and Tim Dobbyn)

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