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HEALTH PRODUCTS WILL GENERATE 1987 CONSUMER SALES OF $100 BIL.

Executive Summary

HEALTH PRODUCTS WILL GENERATE 1987 CONSUMER SALES OF $100 BIL., representing approximately 20% of a projected $511 bil. in total U.S. health care expenditures this year, according to a recent estimate by SRI International. In addition to pharmaceuticals, the "health products" category includes "eyeglasses and appliances, consumable medical supplies and capital equipment," SRI explains. SRI's $100 bil. projection is based on the estimate that wholesale U.S. expenditures on health products will reach $64 bil. in 1987. "Taking a conservative 50% markup estimate on the $64 bil. to reach the consumer level indicates a figure of close to $100 bil.," SRI said. "This means that about 20% of [total health care expenditures] is accounted for by consumer products." Although the health care products segment represents "a sizeable and growing market" for companies serving the field, marketing power in that area is shifting from product supplier to buyer, SRI pointed out. The research group cited several reasons for the shift, among them a trend among health deliverers to integrate "backwards" into the product area, "giving them more control over product purchases and knowledge of the product (as opposed to service) business." SRI also noted the growing proliferation of large buying groups, cooperatives and other types of networks, which adds to the buyers' leverage. Expiring drug patents and an increasing reliance on distributors to reach "a highly fragmented health delivery system" are two further "barriers" to be overcome in order for companies to earn above average profits, SRI said. Potentially substantial profit margins continue to lure newcomers to the field, the research group noted. "But they often ddo not appear to realize just how high the barriers are and what the criteria for continued success are." The study predicts an 11.9% growth from 1987-1995 in purchases of health care products from pharmacies and other retailers, due in part to "more effective OTC products available" and a "possible increase in drug insurance coverage (e.g., under Medicare)." Entitled "U.S. Health Care Expenditures to 1995," SRI's market overview is based on government and industry sources. The study was issued in May.
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