Healthcare Sector
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Industry Overview
The US healthcare sector includes more than 820,000 hospitals, doctor offices, emergency care units, nursing homes, and social services providers with combined annual revenue of more than $1 trillion. Major companies include Kaiser Permanente, HCA, and Ascension Health. The sector is highly fragmented: the top 50 organizations generate just 15 percent of revenue. Hospitals are the least fragmented industry: the top 50 hospitals account for 30 percent of total hospital revenue.
The industry includes about 6,000 general hospitals; 20,000 nursing homes; 15,000 diagnostic labs; 30,000 outpatient clinics; 120,000 dentist offices; 200,000 doctor offices; 75,000 day care facilities; and 50,000 family and social services providers.
The healthcare sector doesn't include managed healthcare providers, fitness centers, or weight reduction services, which are covered in separate industry profiles.
Competitive Landscape
Demand for healthcare services is driven by demographics and advances in medical care and technology. The profitability of individual companies depends on efficient operations and, in the case of many nonprofit healthcare providers, obtaining grants and federal funds. Large companies have advantages in accessing the latest medical research, buying supplies, offering a wide range of services, and negotiating contracts with health insurers. Small institutions can compete successfully by serving a limited geographical area, offering specialized services, or building a local reputation for quality care. Healthcare is labor-intensive: annual revenue per employee is $80,000. Revenue per employee is nearly $100,000 for ambulatory services and hospitals, and only around $45,000 for nursing homes, residential care facilities, and social assistance providers.
Products, Operations & Technology
Major services include hospital medical care (40 percent of industry revenue) and outpatient care provided by physicians (20 percent). Other services include dental work, urgent care, elderly and hospice care, and social assistance. Healthcare in the US is led by for-profit entities, an exception to the global norm of nationalized medicine. Of the 6,000 US hospitals, around 75 percent are for-profit. Most doctor offices, nursing homes, outpatient and urgent care centers, and day care facilities are run as for-profit enterprises.
US healthcare isn't, however, a completely private enterprise. Federal and state governments are heavily involved in the US healthcare sector, as a direct-care provider (the Department of Veterans Affairs); an operator of health insurance programs (Medicare for the elderly, Medicaid for the low-income and disabled), and as a provider of social services (Health and Human Services, state departments of Social Services).
In total, around 60 percent of Americans are covered by employee-sponsored health insurance and 5 percent on individual ("private non-group") insurance; 15 percent are enrolled in public insurance programs like Medicaid and Medicare. People over 65 are almost universally covered by Medicare. In spite of this combination of for-profit and government involvement, 45 million Americans are uninsured - more than 15 percent of the US population. This combination of employer-sponsored plans, individual insurance, subsidized insurance, and the uninsured spins a complex web of payers (private insurance companies and the government) and healthcare providers, known in the industry as a multi-payer system.
Individuals and businesses fund Medicare through payroll taxes. Businesses pay all or a portion of the premiums for employee-sponsored healthcare. A typical family of four pays $11,000 a year toward health insurance; on average, an employer covers around 75 percent of this cost. Beyond contributing to premiums, individuals also pay additional direct or out-of-pocket expenses to providers for healthcare services.
The government uses money generated from taxes to reimburse providers who care for patients enrolled in Medicare, Medicaid, VA hospitals, and State Children's Health Insurance Programs (S-CHIP). Tax dollars also support health insurance premiums for federal employees.
Private insurers accept premiums from individuals, business, and the government. In turn, insurers reimburse providers for taking care of insured patients. Healthcare providers care for individuals and are reimbursed by private insurers and the government.
In total, government expenditures account for around 45 percent of total healthcare costs and private expenditures the remaining 55 percent. The $1.5 trillion in annual US healthcare spending is around 15 percent of total GDP, highest among industrialized nations. On average, Americans spend nearly $6,000 a year on healthcare.
Despite these inefficiencies and the large numbers of uninsured, the US is clearly a leader in healthcare technology, scientific advances, and medical research. Many of these advances are led by research hospitals that maintain a staff of PhDs specializing in research and discovery. Molecular biology, largely federally funded, has advanced understanding of the cellular processes involved in disease, largely by identifying defective proteins and gene mutations. New drug treatments, often developed in partnership with pharmaceutical firms, counter the effects of these abnormalities. Advances in computer technology have produced new diagnostic imaging systems like ultrasound, MRI, CAT, and PET that can detect abnormalities in their earliest stages, often preventing the onset of diseases like cancer and organ failure. The R&D that drives these discoveries is costly, often resulting in expensive medicine.
Around 30 percent of US doctors use electronic medical records (EMRs). EMRs are networked systems that can help a physician track a patient's health, check for potential harmful drug interactions, and provide medical decision support. The use of EMRs among US physicians is much lower than many European and other nations: nearly all doctors in the Netherlands rely on EMRs, as do most doctors in the UK, Australia, New Zealand, and Germany.
