Healthcare
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Industry Overview
The healthcare industry in the US produces annual health spending of about $2 trillion. Goods and services are provided by manufacturers of drugs, medical devices, and other supplies, with combined annual revenue of $300 billion, and by care providers (hospitals, clinics, doctors offices, nursing homes) with combined annual revenue of $1.5 trillion. Much of the cost is funded by private health insurers with annual spending of $700 billion, and government health insurance programs like Medicare and Medicaid, with combined annual payments of $1 trillion. The industry is highly fragmented.
The industry includes about 7,000 general hospitals; 15,000 nursing homes; 10,000 diagnostic laboratories; 30,000 outpatient clinics; 120,000 dentist offices; 200,000 doctor offices; 1,000 drug manufacturers; 5,000 medical equipment and supply manufacturers; and 3,000 private health insurers.
Competitive Landscape
Although a large majority of hospitals are operated by nonprofits, most doctor offices, nursing homes, insurers, and manufacturers of medical products are for-profit entities. The industry is one of the few in the US with large participation from the government, both as a direct-care provider through the Department of Veterans Affairs and other hospitals and clinics, and as an operator of health insurance and other payment programs like Medicare and Medicaid.
Healthcare providers compete based on location and reputation, and to a lesser extent on cost. Providers of health insurance plans compete mainly based on cost, with corporate customers footing a large part of the bill.
Two developments have dominated activity in the healthcare industry during the last decade: scientific advances have led to improved methods of diagnosing and treating illnesses and injuries, and the cost of healthcare has increased rapidly.
Products, Operations & Technology
Scientific advances in molecular biology, largely federally funded, have produced a detailed understanding of many of the cellular processes involved in disease, often involving defective proteins. This new knowledge has promoted the development of diagnostic methods for identifying abnormal levels of many proteins and the mutations in genes that often cause defective cellular chemistry, and the development of drugs that counter the effects of abnormal cellular processes. Advances in computer technology have produced new diagnostic imaging systems like ultrasound, MRI, CAT, and PET that allow better detection of abnormalities.
Drugs are often expensive because of the large amount of R&D required to produce a successful drug from among the many that are tested; actual manufacturing costs are often low. The many advances in scientific medical knowledge have encouraged a greater degree of specialization in medicine, to the point that the main function of a patient's "primary care physician" is to determine which specialist a sick patient should be referred to. Healthcare monitors have found (not surprisingly) that complicated operations are most successful if performed by hospitals and doctors who specialize in them.