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What Is Medical Industry Analysis?

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  • Written By: A. Garrett
  • Edited By: John Allen
  • Last Modified Date: 02 September 2016
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Medical industry analysis is the use of financial statistics, data, and industry trends related to the medical field. Such business analysis is employed by firms already in the medical field seeking to expand operations, entrepreneurs seeking to start businesses in the industry, and investors looking to purchase stock in companies based in this market segment. Industry analytics tailored to the medical field allow such corporations and individuals to evaluate the industry climate in order to determine the likelihood of profit or return on capital. Entering or investing in the medical trade without performing medical industry analysis lowers returns because the providers of capital are unable to appropriately allocate risk of loss.

When conducting medical industry analysis, companies or businessmen focus on the various market segments of the medical field, factors that influence growth and profitability, barriers to entry such as government regulations, and the existence of competitors. Understanding the nature of the market segment is an integral part of industry analysis. This involves researching the products, services, costs, and sources of demand for each segment.

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There are several segments associated with the medical field. Despite being connected under the healthcare sector, each segment has different start-up costs, expenses, and sources of revenue that must be considered prior to entering the market. For example, the hospital segment of the medical industry requires a physical building, medical personnel, and a steady stream of equipment and supplies. This segment is usually regulated by the government and payment typically comes from billing the insurers of patients. Failing to gain proper understanding of the nature of the market segment lowers the efficacy of medical industry analysis because businesses or investors will not be aware of costs specific to that particular segment.

Profit is the goal of any business or investor. Medical industry analysis helps individuals and entities determine the potential for profitability based on the customer base and suppliers. Conductors of medical industry analysis rely on information gleaned from market segment research about customers and billing practices. They also review the financial records of companies already in the field in order to identify the sources of the biggest costs to the company.

For example, improvements in technology and the quality of medicine have led to longer lifespans. This provides hospitals with a larger pool of patients that will be in need of medical services as they continue to age. Also, the availability of insurance or government subsidized health care ensures that providers of such services to those patients will be compensated promptly. Obtaining the necessary medical equipment, supplies and medicine are usually some of the biggest expenses the hospital will have. Medical supply distributors and pharmaceutical companies usually operate out of a market segment with little competition, as a result that can charge higher prices.

Medical industry analysis also helps prospective investors identify potential barriers to entry. An individual conducting the analysis typically reviews state laws regarding medical practices, the regulations for manufacturers of medical supplies and the licensing requirements for operating a medical facility. Once the investor has knowledge of the requirements, he must calculate the amount of capital he would have to spend to satisfy them. Some companies may find that the costs to expand into the market are too great and abandon their efforts.

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