Healthcare spending in the US is projected to touch US$ 5.7T by 2026

The healthcare spending is expected to rise on average 5.5 per cent annually from 2017 to 2026.The sector is also expected to comprise 19.7 per cent of the US economy in 2026 from 17.9 per cent in 2016.

Definition / Scope

The healthcare sector includes doctors, nurses, hospitals, medical equipment, pharmacies, pharmaceutical manufacturers, and health insurance firms.

It comprises of all the sectors that provides medical goods and services for the welfare of patients. This report will majorly focus on hospital part of healthcare sector.

Market Overview

Nearly 58 per cent of the US community hospitals are non-profit, 21 per cent are for-profit and 21 per cent are government owned.
The per capita expenditure on health in USA is US$ 9,403.
The United States spent 17.1 per cent on healthcare as percentage of its GDP.

The different types of healthcare service in USA are:

Community Hospitals

Most US hospitals are classified as community hospitals. It can have from 6 beds to more than 500 beds. Two third of community hospitals are located in large cities. Community hospitals can either provide general care or provide special care on treating diseases and conditions such as orthopedics.

Federal Government Hospitals

In US, there are around 200 hospitals operated by the federal government. These hospitals are looked after by the Department of Defense, Department of Health and Human Services and Veterans Health Administration. These hospitals provide care for specific patient populations like military personnel.

Non-federal Psychiatric Care

There are more than 400 non-federal psychiatric hospitals that treat conditions like depression and substance abuse. The mainly serve the patient with mental health illness.

Non-federal long term care

Here, patients with extreme illness are provides medical care for prolonged periods.

Top Market Opportunities

People in US spends a lot on health care as compared to other countries in the world.The health insurance coverage has become compulsory in US. Health care spending increased at average rate of 2.8 per cent annually during 2000 to 2016 while in the same period this rate was 2.6 per cent for OECD countries.

It was also found out that US spends approximately twice as much as 10 high income countries on healthcare. The median per capita spending in US, Sweden and UK was $9,403, $6,808 and $3,377 respectively.

Between 2006 and 2016, 2.8 million jobs were added to the health sector, according to the Bureau of Labor Statistics. The growth rate is about seven times faster than the rest of the economy.

During the next decade, jobs in healthcare sector are expected to rise at three times the rate of the rest of the economy. It is expected that about 11.6 million healthcare workers will be required during 2016 to 2026 to fill new jobs and replace workers in healthcare sector.

Market Trends

Higher Prevalence of Chronic Disease

The consumption of processed foods in the US is high that leads to increased risk of cancer, obesity, diabetes and heart disease. The leading cause of deaths in US are heart disease, diabetes, cancer, stroke and Alzheimer.

The number of people to have heart failure is expected to increase from 6.5 million between 2011-2014 to 8 million by 2030, as per American Heart Association. Chronic disease is a major driver of healthcare and accounts for nearly 75 per cent of the US aggregate health care spending.

Government initiative

Government funded and administered programs such as Medicaid, Medicare and the Children’s Health Insurance Program and the Veterans Health Administration consists of 60 to 65 per cent of healthcare provision and spending.

The government initiatives taken in different parts of the USA such as national level insurance coverage and health insurance program for the poor and disabled is also expected to contribute significantly to rising health spending as the population ages and depends more heavily on healthcare services.

Demographic Shift

There is large demographic shift happening in US as baby boomers reach retirement age. By 2030, all baby boomers will be older than age 65. 1 in every 5 residents will be retirement age.The shift to older population is estimated to increase medical spending.

Industry Challenges

Many medical tourists are going from United States to other countries to receive health care as they seek less expensive healthcare. More than 1.4 million Americans traveled to other countries for health care in 2017. US have the most expensive healthcare system in the world. People can easily find countries that would offer medical procedures at 30%-65% of the cost of care in the United States. (Refer to the pricing trend for more details on price).
The insurance penetration was 7.3 per cent is US, which is lower than other countries like South Korea, UK, Japan, France and Italy.

Technology Trends

The introduction of Electronic Health Records is replacing paper records in health care industry. Only 16 per cent of US hospitals were using EHR in 2009 which increased to 80 per cent in 2013. This has helped in enhancing patient care, improving public health and lowering the cost.
Artificial Intelligence (AI) is used in to analyze tests, X-rays and CT scans in hospitals. It is also used to analyze reports from patient’s file, external research and clinical expertise. The application of Artificial Intelligence is expected to save $150 billion dollars by 2026 for US healthcare economy.
Wearable health trackers from Apple, Garmin and FitBit is used to send alerts to the user to get more exercise and monitor health rate and activity levels.
Digital payment such as online checkouts and point-of-service mobile wallet acceptance are used for the payment in healthcare industry. According to the InstaMed study, about 61 per cent of the consumers have preference in using mobile wallets such as Samsung Pay and Apple Pay to make healthcare payment.

Pricing Trends

Most of the medical treatments are expensive in US in comparison to other countries. The below table shows the cost of different medical treatments in USA and other countries.

Regulatory Trends

The Patient Protection and Affordable Care Act requires all the citizens to compulsorily purchase health insurance.
Food and Drug Administration regulates the devices, equipment and pharmaceuticals in USA.
The Department of Health and Human Services is responsible for looking after the health issues in America and improving public health.
The Medicare and Medicaid are two US government programs that provides insurance coverage. Medicare covers insurance for people aged above 65 and covers four health insurance plans namely- hospital insurance plan, supplementary medical insurance plan, Medicare advantage and prescription drug coverage. While Medicaid covers insurance for low income group under age 65 and over that age who have used up their medicare benefits.
The Health Insurance Portability and Accountability Act of 1996 protects workers in America by letting them to carry health insurance policies from job to job.

Market Size and Forecast

The healthcare spending is expected to rise on average 5.5 per cent annually from 2017 to 2026.
The sector is also expected to comprise 19.7 per cent of the US economy in 2026 from 17.9 per cent in 2016.
Health spending is projected to touch US$ 5.7 trillion by 2026.
Prescription drugs are expected to rise at an average of 6.4 per cent per year due to higher drug prices.
The insured rate is expected to drop to 89.3 per cent from 91.1 per cent in 2016.
The number of hospitals in US witnessed decline since 1975. The number of hospitals decreased to 5,534 in 2016 from 7,156 in 1975.

Market Outlook

Healthcare sector jobs are expected to grow at rate of 18.1 per cent during 2016-2026.
In the same period, 3.5 million healthcare workers will be required to fill new jobs and 8.1 million health workers will be required to replace workers.
Home care and ambulance service are projected to witness the fastest growth in the healthcare sectors.

Competitive Landscape

The health care sector in United States became highly concentrated between 2010 and 2016. Physicians organizations and hospitals started merging horizontally and vertically.
Around 90 per cent of all metropolitan areas had increasingly concentrated hospital markets in 2016. During this time, concentration was high among primary care physicians and specialist physicians.
Health care facilities are majorly operated and owned by private sector.
Around 21 per cent of US community hospitals are government owned, 21 per cent are for profit and 58 per cent are non-profit.

Key Market Players

McKesson Corp

It is an industry leader in delivering medical products, pharmaceutical products, healthcare products, equipment, technology and other related services to non-hospital markets. It is the fourth largest pharmacy chain in terms of total revenue and ranked at number 6 on the Fortune 500 rankings of the largest US corporations.

United Health Group

It was founded in 1974, and has been serving clients through two diverse platforms- United Healthcare and Optum. In 2017, UnitedHealth acquired Rally Health Inc, DaVita Medical Group and Banmedica.

CVS Health

It was established in 1964 with headquartered in Rhode Island in Woonsocket. The revenue growth was about 4.1 per cent over US$ 184.7 billion in 2018. It is ranked at 7th on the Fortune 500 and 17th on the Fortune Global 500 list.

AmerisourceBergen

It has more than 10 decades of excellence in wholesale distribution and pharmaceutical sourcing. They have a chain of healthcare providers that includes acute care hospitals, retail chain pharmacies, clinics and skilled nursing centres. It is ranked 12th on the Fortune 500 and handles nearly 20 per cent of all of the pharmaceuticals sold and distributed throughout the US.

Strategic Conclusion

Healthcare sector is one of the largest employers in the United States, employing more than 6 million people at US hospitals. Health care sector is mainly run by private sector businesses in USA. Technology is playing vital role in health care in transforming all processes, from patient registration to maintaining record to lab tests.

Appendix

EHR – Electronic Health Record
GDP – Gross Domestic Product
OECD-Organization for Economic Co-operation and Development
UK – United Kingdom
US – United States