Despite the global success of the U.S. industry and the passage of the Cuban Democracy Act (CDA), which has permitted U.S. medical goods sales to Cuba since 1992, the level of medical device exports to Cuba has remained low.
The challenges associated with complying with the CDA, the limited opportunities to commercialize and sell devices in the Cuban public healthcare system, and Cuba’s relatively small market have all likely discouraged U.S. companies from greater participation in the Cuban market.
Recent trade data, however, show an increase in U.S. exports of medical devices to Cuba, indicating both current demand for U.S. products and the potential for expanded exports to Cuba in the event that U.S. restrictions on trade are removed.
Nonetheless, medical device export growth from the U.S. to Cuba in the near term may be restricted by Cuba’s centralized health care system, which limits the acquisition of costly, high-value-added devices. The country’s limited foreign exchange and the need for favorable financing also limit the Cuban market’s power to purchase new devices.
However, as Cuba has expressed a need for state-of-the-art medical equipment and has identified medical tourism as an area of potential growth, an increase in demand for U.S. exports in the longer term appears feasible.
Background on Medical Device U.S. Industry
The United States is the world’s largest medical device manufacturer, accounting for nearly 20 percent of the $350 billion global industry as of 2014. Further, eight of the world’s ten largest medical device original equipment manufacturers (OEMs), by revenue, are headquartered in the U.S. Although large firms command the greatest domestic market share, more than 80% of the industry’s 1,500 firms are small and medium-sized enterprises (SMEs) that employ less than 50 people.
Despite the relative prevalence of SMEs, the larger OEMs typically commercialize most medical devices due, in large part, to their financial resources, which better allow them to navigate the regulatory process in domestic and foreign markets. While U.S. production of devices spans across 90 distinct categories of products, U.S. firms tend to specialize in high-value-added technologies requiring a highly skilled workforce of engineers and technicians.
The U.S medical device industry employs more than 400,000 people throughout the country and pays wages that exceed the national average.
The U.S. industry’s leadership in the medical device sector is reflected in the global export market. The U.S. is the world’s largest exporter, accounting for 29% of global exports of $143.2 billion in 2014. Due in large part to the significant costs associated with overcoming regulatory barriers to market entry overseas, large OEMs typically dominate the U.S. export industry. U.S. medical device OEMs earn between 40% and 50% of their revenues outside the U.S., with the EU generating an estimated 30% of these sales. These sales generally reflect a combination of exports and activities by foreign-based subsidiaries.
Emerging markets represent a fraction of medical device sales outside the United States. For instance, Medtronic, one of the world’s leading medical device manufacturers, conducts less than 10% of its business in these markets. Cuba’s medical device market is the smallest in the Western Hemisphere, in part, due to the country’s small population but also because of its centralized national health system.
According to the Business Monitor International, Cuba ranked the lowest among other countries in the Americas in terms of marketing and selling devices. This has discouraged greater participation from U.S. firms.
Current Exports to Cuba from the U.S.
U.S. exports to Cuba during 2005–14 in this sector were relatively low, particularly during 2009–12, when they all but vanished. Even in 2014 U.S. exports of medical devices to Cuba totaled just $583,000, an increase of 44% over 2005 but a decline of 74% from 2013 values. U.S. medical device exports to regional countries with per capita GDPs similar to Cuba’s, including the Dominican Republic and Colombia, were more than 200x greater than those of U.S. exports to Cuba for all but two years during 2005–07.
Although the CDA permits U.S. companies to export medical devices to Cuba, few firms have availed themselves of this option. This reluctance is due, in part, to various requirements in the law that result in delays and difficulties in obtaining a U.S. license to export. It has been suggested that the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) previously imposed policies that made it difficult for U.S. firms to obtain these licenses, but has recently relaxed some of these barriers. Unfamiliarity with U.S. restrictions has also been an issue in the past, as some U.S. firms incorrectly assumed that the U.S. restrictions on trade with Cuba prohibited exports to the country completely.
Recent trade data suggest that U.S. exports of medical devices to Cuba have begun to expand; the 2015 U.S. data show an increase in exports to Cuba of 662 percent to more than $4.4 million over 2014. This increase was almost wholly driven by U.S. exports of ultrasonic scanning equipment, which totaled $3.9 million in 2015 compared with no exports of such equipment in 2014.
Cuban Industry and Market
Cuba’s national healthcare expenditures were estimated at 9.8% of GDP in 2014, a higher share than in both Japan and China, the world’s second- and third-largest medical device markets, respectively.
However, despite Cuba’s high relative expenditures on healthcare and its reputation for providing quality medical services, medical device production in Cuba is limited: it largely consists of low-value-added goods, such as optical lenses, surgical dressings, and dental supplies.
There are five major Cuban manufacturing companies that specialize in the production of orthopedic prostheses, electromedical equipment, consumables, and electrodiagnostic equipment. Two of these firms have established relationships with German, Chinese, Spanish, and Mexican companies to supply Cuban exports to these countries, receive FDI from these countries, or operate subsidiaries in these countries.An example of the latter is Neuronic, a Cuban company with locations in Spain and Mexico.
Owing to its limited domestic production, Cuba is highly dependent on medical device imports, more than 40% of which come from Europe, primarily Germany; nearly 30% come from China and Japan collectively. The devices most commonly imported into Cuba include both low-value-added goods, such as syringes, needles, and catheters, and higher-value-added goods, such as diagnostic imaging equipment, dental products, orthopedic devices, and hearing aids.
Most of the aforementioned goods are otherwise known as “consumables” and, together with diagnostic equipment, they account for over 50% of Cuba’s medical device imports by value. Cuba’s medical device imports rose to a relatively high level during 2005–07, averaging $270 million over this period, compared to the $80 million average for 2008–14.This was likely the result of Cuba acquiring medical technologies at discounted for oil; it is suggested that the United States could have supplied much of that equipment if U.S. restrictions had not been in place.
In fact, most Cuban medical device exports are re-exports through Cuba to other countries, with Venezuela typically receiving more than 95 percent of such exports.
Effects of the Removal of U.S. Restrictions
While prediction is difficult, the removal of U.S. restrictions on trade with and travel to Cuba will likely have only a limited effect on U.S. exports of medical devices in the short term. On the one hand, Cuba’s highly centralized healthcare structure — 94% of healthcare expenditures in 2014 were from the public sector — may suggest a continued preference for lower-cost technologies that have been historically supplied by China. Industry sources also indicate that Cuba encourages charitable donations (as well as samples) and that U.S. sources tend to be generous with such donations, which could hinder future U.S. commercial exports of these goods.
At the same time, Cuba’s previously discussed high relative spending on healthcare has contributed to a burgeoning medical tourism industry. The industry generated annual revenues of $40 million despite the U.S. restrictions on trade and travel, a figure that is likely to increase as Cuba builds this sector, particularly if U.S. restrictions are removed. In the longer term, this could translate into increased demand for various high-end medical devices and technologies, for which Cuban government officials have expressed a need.
Further, the removal of U.S. trade restrictions may increase Cuban confidence in importing medical devices from the United States. Industry representatives have suggested that one of the chief impediments to Cuba’s importing medical devices from the U.S. has been Cuba’s concern about the U.S. as a reliable source, given that the U.S. restrictions on exports to Cuba have been altered a number of times; a tightening of regulations on U.S. medical device exports would be detrimental to Cuba if it were too dependent on the U.S. for such products.