Perspectives on a Selected Key Topic | February/March 2009 | Volume One Issue One
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hich
specific sub-segment(s) of the entire health care industry, including
providers, purchasers, and vendors, do you see being most negatively
impacted by the recession, and which specific sub-segments do you see
being the most insulated, during the next twelve months or more (and
why)?
| Alexander
(Sander) C. Domaszewicz |
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I suspect that on the whole vendors in the health space may be the most directly impacted. Many (not all) have more discretionary services/solutions they are providing and certain vendor's offerings may have adoption timelines extended or pushed out as folks delay or defer their buying decisions in tough economic times.
On the provider side there can be variable demand for services, but folks will still need care, they can renegotiate their contracts as they come up, and they may benefit from some of the injected stimulus funds. Purchasers are sometimes in a position to make health care expenditures match their financial needs, even if this means draconian cut-backs. |
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| Peter R.
Kongstvedt, MD, FACP |
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All segments are affected by the economic crisis - but there are differences in timing. The most immediately affected sector is hospitals and health systems. Hospitals are highly cash constrained, and their access to capital has been sharply reduced. Furthermore, the cost of capital has risen as well, despite the reduction in the prime rate - the market places a higher risk margin on commercial and tax-exempt bonds than it used to. Making it worse is the loss of investment income from endowments, combined with a fall in charitable contributions from strapped companies and consumers. The next
sector is the consumers. They're economically frightened, so
they're postponing or avoiding elective care, which of
course is also where most hospitals and device manufacturers
get their margin. Consumers are also not filling
prescriptions, and we could see negative results in people's
health in the future. Hospitals are therefore demanding rate
increases from payers to fill the gap, resulting in some
tense negotiations. The net effect will be to drive up costs
- inflationary pricing will trump the (temporary?) reduction
in elective utilization. Higher costs will result in higher
premiums, leading to further erosion in the market. On the
bright side, healthcare is still over 16% of the GDP,
employs a lot of people, and is more stable than the other
sectors. And we could still see market reform, especially
under pressure from these forces, and won't that be exciting
(the good kind or the bad kind is your call). |
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| Vince
Kuraitis, JD, MBA |
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Health care has been and will
continue to be one of the most recession immune sectors of
the economy. Obama's stimulus bill allocates about $150 B
to health care, which should add further stability to
ongoing health care spending.
That said, health care is not
monolithic and sub-sectors within health care will be
affected differently.
Some retail health services are highly sensitive to economic conditions, for example, plastic surgery. Services that are paid exclusively or primarily by 3rd party payers will be much more insulated, for example, home health. |
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| Henry
R. Loubet |
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The segment most adversely impacted by the recession I believe are the purchasers who in most cases have many pressing business issues and financials that they need to consider in these very challenging and unparalleled times. Thus how they meet the employee benefits needs of their work force becomes very difficult as they try to balance so many issues. Probably the least affected will be the providers. Certainly they will feel the impact as most likely elective procedures get delayed or not provided and also the number of uninsured increase, as well as high deductible plans requiring patients to pay out of pocket with increasingly scarce funds. |
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|
Douglas B. Sherlock, CFA |
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Our entire focus is on health plans
and so we can comment only on payers. Health plans face numerous
pressures that management teams are endeavoring to overcome.
They face significant declines in investment income as returns
have fallen on financial assets that are themselves diminished.
The accumulated concentration of providers increases their
bargaining power vis-a-vis health plans. Employers are reducing
employees, creating both price resistance and the prospect of
lower enrollment. Management teams have limited abilities to manage provider relationships or the investment environment, so that pressures on revenues can sharply reduce earnings. Because health plan administrative expenses resemble fixed costs in the short term, failure to manage staffing levels, compensation and non-staffing administrative expenses will create a form of operating leverage, amplifying profit declines. Fortunately, administrative expenses are among the easiest to manage since they are "under your own roof" and variances can be modeled and identified.So, in short, among the health plans most severely impacted by the recession will be those that fail to effectively manage their administrative expenses. By contrast, those who manage them well may be able to gain share or even acquire less successful operations on unusually favorable terms. |
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