Health Care Sector
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Industry Overview
The US health care sector includes more than 780,000 hospitals, doctor offices, emergency care units, nursing homes, and social services providers with combined annual revenue of about $2 trillion. Major companies include Kaiser Permanente, HCA, Ascension Health, and Tenet Healthcare. The sector is highly fragmented: the top 50 organizations generate just 15 percent of revenue.
The sector includes about 6,500 general hospitals; 75,000 nursing homes and residential care facilities; 13,000 diagnostic labs; 30,000 outpatient clinics; 127,000 dentist offices; 220,000 doctor offices; and 150,000 family and social services providers.
Worldwide, health care expenditures total about $5 trillion annually, according to Swiss Re. Total health spending (both public and private) as a portion of GDP ranges from about 7 percent in countries such as Estonia to 17 percent in the US, according to the Organisation for Economic Co-Operation and Development.
Competitive Landscape
Demand for health care 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 health care 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. Health care is labor-intensive: average annual revenue per employee for the sector is about $130,000.
Products, Operations & Technology
Major services include hospital medical care (35 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. Health care in the US is led by for-profit entities, an exception to the global norm of nationalized medicine. However, of the 6,500 US hospitals, around 75 percent are not-for-profit. Most doctor offices, nursing homes, outpatient and urgent care centers, and day care facilities are run as for-profit enterprises.
Federal and state governments are heavily involved in the US health care 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 providers of various social services programs.
About 85 percent of Americans are covered by some form of private or government health insurance; about 15 percent are uninsured. Many are covered by combinations of private and government policies. About 55 percent of Americans are covered by employer-sponsored health insurance, the most common type. The health care reform law passed in 2010 was intended to eventually provide health care coverage for all Americans. The 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 health care 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 health care. A typical family of four pays $15,000 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 health care 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. Health care providers care for individuals and are reimbursed by private insurers and the government.
In total, government expenditures account for around 30 percent of total health care costs and private expenditures 65 percent. US health care spending is about 18 percent of GDP, highest among industrialized nations.
The US is a leader in health care 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.
