US Healthcare Sector: Advancements in Medical Technology

By Shawn Lee, CFA , Portfolio Manager, SGH Australian Small Companies Fund

Welcome to Our US Market x ASX Small Caps Series

As part of our ongoing commitment to delivering valuable insights to Australian investors, Shawn Lee, Portfolio Manager of the SGH Australian Small Companies Fund, embarked on an extensive research trip across the United States. He met with over 40 companies across the technology, automotive, insurance, and healthcare sectors. This series unpacks the essential takeaways from those conversations. It provides a closer look at how American businesses navigate challenges like inflation, labour constraints, regulatory risks, and the fast-approaching US presidential election. In each article, we explore a specific sector, connecting the dots to help you better understand the opportunities and risks on the horizon.

Stay tuned as we explore each sector, from stocks making waves to advancements in AI and more.

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During our research trip to the US, we explored how advancements in medical technology are revolutionising healthcare delivery and reshaping patient outcomes. Our meetings with key players in the healthcare industry highlighted several important trends. These trends offer significant insights into the evolving US medical technology landscape.

US Hospitals Under Pressure, Private Healthcare Gains Ground

One of the key trends we observed is that US hospitals are under increasing pressure due to rising demand and constrained resources. Demographic trends drive greater demand for healthcare services. However, hospitals struggle to keep pace due to funding and cost constraints. These dynamics force hospitals to cede market share to private diagnostic providers, which are more efficient and better equipped to meet patient needs.

For instance, we met with one of the largest diagnostic imaging providers in the U.S., Radnet, which is gaining outpatient share away from hospitals by offering faster, more affordable services. Legacy hospital systems, burdened by high capital costs, cannot compete with private operators delivering services at lower costs. This shift is supported by insurers who see cost benefits in redirecting lower-acuity patients to private diagnostic centres.

AI's Role in Healthcare: From Screening to Early Detection

AI is increasingly important in healthcare, particularly in diagnostic imaging. RadNet , for example, has made significant strides in utilising AI algorithms for breast cancer screening. Despite a lack of payer reimbursement, Radnet reports an impressive 30-40% attachment rate for their AI-powered mammography services. These services generate approximately $25 million in revenue from out-of-pocket patient payments.

These AI applications are showing promising results. Radnet's data indicates an increase in cancer detection rates—from 5-6 per 1,000 patients to 7-8 per 1,000—thanks to the enhanced accuracy provided by AI. Moreover, the AI algorithms are demonstrating the ability to detect cancers up to two years earlier than traditional methods. That significantly improves patient outcomes. This success is encouraging further development of AI for other types of cancer screening, such as lung, prostate, and colon cancers.

Radnet's advancements in AI-driven diagnostic tools exemplify medical technology's potential to transform healthcare by improving diagnostic accuracy and enhancing the efficiency of medical practices. We expect similar innovations to benefit the Australian healthcare sector, particularly for companies that invest in AI-driven solutions.

Conclusion: Growing Influence of Medical Technology

The US Medical Technology sector is evolving rapidly, driven by advancements in AI and a shift toward private diagnostic services. These trends are reshaping the healthcare landscape, offering opportunities for companies that can leverage technology to improve patient outcomes and reduce costs. The success of AI-powered diagnostics, like those developed by Radnet, underscores the potential of these technologies to revolutionise the industry. This impact is evident in both the US and Australia.

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Thank you for reading US Healthcare Sector: Advancements in Medical Technology, the fifth article in our US Market x ASX Small Caps Series.

If you want to explore more, check out our previous articles, including Auto Sector at Crossroads, ASX Stocks Making Waves in the US, Artificial Intelligence Innovations and our US Market Outlook. Stay tuned for our next article in the series, which will explore the insurance industry and the trends shaping the sector in the US market.

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