Healthcare - Business issues

Healthcare and related industries are generally seen as robust, defensive stocks in a downturn on the assumption that people will always prioritise spending on their health.

The current global financial crisis, though, is likely to pressurise healthcare budgets in many countries – even those that have pledged to maintain or increase spending.

In late 2010, for example, the UK Government gave a public commitment to increase spending on the NHS by 0.1% year-on-year throughout the lifetime of the current parliament. But there are already doubts about whether this promise is being delivered¹.

More fundamentally, critics would argue any additional funding may not necessarily benefit healthcare because of organisational bureaucracy and inefficiency.

The NHS is the largest public sector health organisation in the world but most healthcare in the western economies is similarly dependent on government funding which will become increasingly pressured as tax receipts decline during the course of the economic downturn.

Other developed countries fund their healthcare through a variety of public and private insurance programmes – with varying degrees of efficiency and success in terms of healthcare outcomes.

The question of how best to fund healthcare services in developed economies gains added urgency from the fact that demand for those services is likely to continue increasing.

As reported by the UN’s Department of Economic and Social Affairs Population Division, the world’s population is ageing more rapidly than ever before: “The twenty-first century will witness even more rapid population ageing than did the century just past. Worldwide, the percentage of the population aged 60 years or older increased by 2 points–from 8 to 10 per cent–in the second half of the twentieth century. During the first half of the twenty-first century, that percentage is projected to increase by 11 points, to 21 per cent. By 2050, the population of the less developed regions will have the same percentage of persons aged 60 years and over as the more developed regions did in 2000².”

Older people need more healthcare – some of it long term healthcare – and this will need to be funded.

At the same time, lifestyle and environmental factors mean that the risks of chronic disease may be increasing throughout the general population too.

Since the 1980s, the spread of obesity has become an acute concern.  Across OECD countries, one in 2 adults is currently overweight and 1 in 6 is obese.  The number of overweight people is projected to increase by a further 1% per year for the next 10 years in some countries³.

Equally disconcerting is the continuing prevalence of cardiovascular disease, claiming an estimated 17 million lives every year. A substantial number of these deaths can be attributed to tobacco smoking, physical inactivity and unhealthy diet⁴.

For healthcare as an industry, the prognosis is therefore challenging.

More people will need more care for longer – and there is likely to be less money to pay for it.

Even if the healthcare sector looks more robust than most in the economic turmoil, it will still benefit significantly from working more efficiently.

Deciding which activities are key to successful health outcomes and which can be more efficiently outsourced is already providing a way forward for many.

1 http://bbc.in/cmrPuN
2 http://bit.ly/jQJtw
3 http://bit.ly/a4nHbJ
4 http://bit.ly/2iK8QJ