Healthcare Industry Overview
When marketing to the Healthcare industry, it is important to have a firm grasp of the current state of both the healthcare industry and the life sciences vertical. The US healthcare vertical consists of hospitals, physicians’ offices providing outpatient care, dental care, urgent care, care for the elderly, hospice care and social assistance. Ironically, though the largest percentage of American healthcare revenue (40%) comes from for-profit entities, something like 75% of our 6,500 US general hospitals are not-for-profit.
Including roughly 780,000 hospitals, doctors’ offices, emergency care units, nursing homes, and social services providers, the US healthcare sector boasts annual revenue of more than $2 trillion. Aside from hospitals, most healthcare providers are for-profit. In addition to general hospitals, the sector includes, according to a respected industry overview, 75,000 nursing homes and residential care facilities, 13,000 diagnostic labs, 30,000 outpatient clinics, 140,000 dentist offices, 220,000 doctor offices, and 150,000 family and social services providers.
Global healthcare expenditures total roughly $5 trillion per year, with total public and private health spending as a portion of GDP ranging from about 7% to a the highest among developed nations at 17% for the US.
Some recent developments: Total US revenue for healthcare and social services rose 4.4% for Q1, 2011 over Q1, 2010, while US consumer prices for medical care commodities rose 3.2% in July, 2011 vs. July, 2010, and consumer prices for medical care services also rose 3.2% for that same period.
Demand drivers for healthcare include demographics and medical advances in both technology and care; profitability is dependent upon operational efficiency and federal funds, grants, etc. for non-profits. In contrast to the technology sector, which is a capital-intensive industry with average annual revenue per employee somewhere around $300k, healthcare is a labor-intensive industry with average annual revenue per employee at about $100k.
Roughly 60% of Americans are covered by employers’ health insurance plans, where only about 9 or 10% are self-insured. Medicaid claims an enrollment rate of 15%; 43% of Americans over 65 are covered by Medicare, and 45% are uninsured, a number representing about 15% of the US population. The healthcare reform law of 2010 aims to provide coverage for all Americans through a rather complex arrangement of ‘payers.’ For simplicity’s sake, we’ll use pre-reform stats: of that 17% of GDP we spend on health care, government expenditure accounts for 30%, private expenditure accounts for 55%.
The US technology sector relies heavily on R&D to develop new technologies in order to drive revenue, with something like 15% of its revenue going toward R&D. (Some analysts group molecular biology and medical technology into the technology sector, so the line between ‘computer’ and medical technology R&D can be blurry.) The healthcare sector also relies heavily on costly R&D in order to maintain its position as a global leader in ‘healthcare technology, scientific advances, and medical research.’ Research hospitals lead the way on many fronts, while the US government provides much of the funding required for molecular biology research, from which we are learning about cellular processes involved in disease. Partnerships with pharmaceutical companies help build new treatments to counteract abnormalities discovered in this research. Computer technology R&D produced diagnostic imaging systems such as ultrasound, MRI, CAT and PET.
Oddly, in spite of America’s giant annual healthcare expenditure and its position as a leader in medical advances, US doctors lag behind much of Europe and other countries in their use of electronic health records (EHRs). Beyond simple record keepers, EHRs speed tasks, streamline processes and help with medical decision making. Only about 1/3 of American doctors use them. More about this when we discuss ‘opportunities…’
It is possible that half of American hospitals operate at a loss. Operating margins had been trending downward prior to the recession but the slowdown exacerbated the problem, resulting in additional financial woes and shortages in staff. Numerous strategies are being implemented to reverse this downward momentum, including the recent sprouting of outpatient surgical centers and urgent care clinics, in addition to partnering with physicians’ networks to staff these facilities, where profits are often double those of hospitals. (A notable downer: one healthcare overview we read cited a key healthcare business trend called ‘The Checklist,’ entailing using lists to help personnel reduce errors and focus on safety and cleanliness in order to reduce the number of infections which have become ‘worrisome’ aspects of outpatient surgery centers.)
For technology vendors looking to sell into the healthcare industry the above issue represents a challenge: IT purchases, according to a trusted industry overview, ‘are delayed because there simply isn’t enough money to pay for them. The recession of the late 2000s also delayed capital improvements, as credit was tight.’ Apparently, many hospitals rely on charitable contributions to stay afloat and to invest in IT programs as well as for research and expansion. Interesting statistic: this same industry overview cites charitable giving to hospitals now exceeding $8 billion annually.
Receivables are another challenge for healthcare providers. Doctors’ offices avoid much of the high operating cost suffered by hospitals and their receivables can be high, but both hospitals and doctors’ offices suffer slow payment from insurance companies – often several months, with disputes and reductions common.
Regulations add enormously to the complexity of healthcare administration. State and federal government regulations must be complied with, involving operations, accounting and billing (to give this topic such a cursory mention belies the volume of what must be done) and both Medicare and Medicaid, programs in which almost all health care providers participate, must be dealt with as well.
Business challenges include: containing costs (one of which is the increasing cost of technology), the high cost of malpractice insurance, death due to medical error, issues around Medicare’s rate cuts for reimbursements to doctors (to learn more, research the Sustainable Growth Rate, SGR), and finally, the interesting quandary of why it is that the US spends more of our GDP than other developed nations on healthcare, yet the health of our citizens appears to be no better than most of them. The two issues which appear most often as ‘critical’ in our research are, the shortage of physicians and nurses which is expected when older practitioners retire – both groups have very high percentages of 50+ practitioners – and, the ever-resent issue of healthcare reform. Notable aspects of the ‘Act’ include calling for expansion of EHR (electronic healthcare records) technology, providing funding for medical training, and enlarging Medicaid as well as the State Children’s Health Insurance Program (to learn more, research The Patient Protection and Affordable Care Act of 2010).
Business trends include a surprising fact: though it is feared the US could face a shortage of doctors and nurses in the next decade, employment in the healthcare field continues to rise, logging an over 30% gain in the last ten years, with even greater gains in doctor’s offices, labs and home healthcare. A 40% increase in physician’s assistants is expected between the years of ’08 and ’18; this is a cost-cutting boon for the industry as PAs perform many of the duties of doctors but at lower fees, thus reducing costs while helping meet demand. Two other important trends are: the increasing sophistication of patients who are far more well-informed about medical procedures and insurance issues than in recent history – due largely to the internet, and, the trend toward continued outsourcing of services by hospitals to third-party providers including everything from food service and laundry to ER and IT, a point of particular interest to those of us marketing technology to the healthcare industry.
Opportunities for the healthcare industry include six key areas that appear to be consistent across industry overviews. They are: handheld technology such as portable ultrasound devices; telemedicine, which involves doctors consulting with patients remotely and which increases access while reducing costs; personalized medicine, which involves genome-based diagnostics and treatment and is the cutting edge of medicine; the aging US population, which for a 65-year-old, represents a 3x spending scenario compared to the rest of the population; the growth of non-insurance practices where doctors’ offices reject health insurance altogether and simply charge patients an annual fee and co-pays (which are quite low compared to health insurance premiums and payback to doctors’ offices) but because of the otherwise-high cost of insurance administration, etc., the doctor’s office ends-up square by year-end. The last listed opportunity appears to be of most value to those of us looking to market into the healthcare vertical – health information technology (HIT):
Surprisingly, as we’ve said, less than 1/3 of doctors use some sort of EHR or HIT, but government incentives are in place for the adoption of HIT in order to improve US medical care and decrease costs. The values of HIT appear to be many. It integrates numerous systems including EHR and physician order entry for meds, as well as decision support systems, and those integrated by HIT could net improved scheduling, save ‘nurse admin time, improve drug use, and lower the risk of adverse drug reactions.’ Hospitals, however, have apparently reported that development and implementation of HIT is complicated and costly, and can create a dubious risk / reward scenario .