Healthcare Industry Has an Amazing Decade

In a recent Time Magazine cover story about the shrinking job market, a woman who was laid off several months ago from her job as a consumer service rep said that she was going to retrain for a health care position, because that was one of the few industries that seemed recession-proof.

She was not entirely correct-for example, the Ohio Hospital Association just reported that 18 percent of its members plan to lay off employees. But on the whole, the healthcare industry has done amazingly well compared to the rest of the economy, and not just during the recession.

A newly released MarketWatch study shows that, over the past 10 years, the 52 healthcare companies in the Standard & Poor’s 500 Index saw their average profits nearly triple, while their revenues jumped 160 percent. All of these companies combined are expected to book about $94 billion in profits this year on total volume of more than $1 trillion. That’s about 40 percent of the estimated $2.5 trillion that the U.S. will spend on healthcare this year.

Everyone talks about how the insurance companies tripled their aggregate income over the past decade. Six of the insurers listed in the S&P 500 are expected to report combined profits of $10 billion this year. But the health plans’ profit margins over the 10-year period are far lower than those of sectors such as biotechnology and pharmaceutical companies, which are five to seven times greater. And medical device makers and medical suppliers had profit gains that were several times greater than those of the insurance carriers. Pharmacy-benefit managers Express Scripts and Medco also saw their profits jump fivefold during the past decade. Tenet Healthcare, the only hospital company in the index, is expected to have a profit decrease for the period.

Of course, this analysis tracks only for-profit companies, and in the hospital sector, not-for-profits predominate. But hospitals’ aggregate margins set records in the middle years of the decade. Recently, after posting some losses because of last year’s economic crash, hospitals rebounded with healthy margins in the second quarter.

Observers doubt that healthcare reform-however it turns out-will have much impact on the industry’s leading players. For one thing, they point out, the Obama Administration and Congress have focused on insurance reform rather than true healthcare reform. And it’s unclear whether they will ever develop the gumption to take on the big companies and healthcare organizations that dominate healthcare. If they do, and they’re successful, they’ll have to reckon with the fact that a shrinking industry will generate even more unemployment.