Henry Schein 2003 Annual Report Download - page 22

Aging Population and Other Market Influences
The healthcare products distribution industry continues to experience growth due to the aging population, increased healthcare
awareness, the proliferation of medical technology and testing, new pharmacology treatments and expanded third-party insurance
coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing in hospitals to the
alternate site, particularly physician offices, despite significantly lower pricing of hospital medical products. As the cosmetic surgery and
elective procedure markets continue to grow, physicians are increasingly performing more of these procedures in their offices. The elder
care market continues to benefit from the increasing growth rate of the population of elderly Americans.
The January 2000 U.S. Bureau of the Census estimates that the elderly population in America will more than double by the year 2040. In
2000, four million Americans were age 85 years and older, the segment of the population most in need of long-term care and elder care
services. By the year 2040, that number is projected to more than triple to over 14 million. The population age 65 to 84 years is projected
to more than double in the same time period.
As a result of these market dynamics, the annual expenditures for healthcare services continue to increase in the U.S. The Centers for
Medicaid and Medicare Services (CMS), Office of the Actuary published "Health Spending Projections Through 2013" in 2004, indicating
that total national healthcare spending reached $1.6 trillion in 2002, or 14.9% of the nation’s gross domestic product. Healthcare spending
is projected to reach $3.4 trillion in 2013, an estimated 18.4% of the gross domestic product, the benchmark measure for annual
production of goods and services in the U.S.
Governmental Influences
The healthcare industry is subject to extensive government regulation, licensure, and operating compliance procedures. National
healthcare reform has been the subject of a number of legislative initiatives by Congress. Additionally, government and private insurance
programs fund a large portion of the total cost of medical care. During 1997, the Balanced Budget Act passed by Congress significantly
reduced reimbursement rates for nursing homes and home healthcare providers, affecting spending levels and overall financial viability
of these institutions.
The Medicare Prescription Drug, Improvement, and Modernization Act (the "Medicare Act") was passed by Congress and enacted by
President Bush on December 8, 2003. The Medicare Act is the largest expansion of the Medicare program since its inception and
provides participants with voluntary prescription drug benefits effective in 2006 with an interim drug discount card. The Medicare Act also
includes provisions relating to medication management programs, generic substitution and provider reimbursement. Based upon current
information, we believe the Medicare Act may create additional volume demand and provide incentives for additional utilization of generic
drugs, both of which have potentially positive implications for our pharmaceutical distribution business.
Product Integrity
Certain pharmaceutical and medical-surgical product manufacturers and legislators are in discussions regarding the risks of counterfeit
products in the supply chain and the manufacturers' concerns regarding the impact of secondary market distribution on counterfeiting.
As a distributor of such products, we continue to work with our suppliers to help minimize the risks associated with counterfeit products
in the supply chain and with potential litigation.
20