Is Healthcare Recession Proof?
Industry shifts since last recession likely to change how a downturn affects healthcare
Healthcare is often touted as a defensive position to hold compared to some other industries in times of economic recession, but is it really? At least intuitively it would seem that way. After all, people get sick regardless of what the economy is doing, however, getting sick and getting healthcare are not the same thing.
Most analyses of the healthcare sector during the 2008 great recession show that healthcare suffered through the downturn along with the rest of the economy but somewhat later than other sectors. Ben Isgur, health researcher at Price Waterhouse Coopers told Healthcare Dive that healthcare lagged behind other sectors both going into and coming out of the recession
While the experience of healthcare during that last recession offers some insight into a potential COVID-19-induced recession fueled by the oil price collapse, most experts caution that substantial changes in the healthcare system likely limit the parallels between that recession and the next.
The four major changes according to Rick Kes, senior manager and healthcare senior analyst for RSM International include:
- The Affordable Care Act,
- Expansion of Medicaid,
- Out-of-pocket expenses, and
- Increases in number of people on Medicare and Medicare Advantage plans.
These changes offer both greater opportunity and challenges for MedTech companies, as the impacts on some healthcare sectors will be delayed or softened by increases in health insurance coverage allowing more people to continue to access healthcare during a downturn.
Key points out that higher enrollment in Medicare and Medicare Advantage plans since the last recession has increased faster than the U.S. population as a whole, which has shifted the payer mix away from commercial insurance.
Aneesh Krishna, partner at McKinsey & Company told Healthcare Dive that this shift to Medicare plans is good news for hospitals and providers that are more dependent on Medicare are more likely to be resilient through a recession as their patients are not going to lose coverage in a recession.
Kes cautions however that while more people covered by government-funded insurance might provide a buffer to providers during a downturn, a sustained increase in unemployment will significantly reduce the number of people covered by employer-based insurance that would shift the mix of payers from commercial to Medicaid, which could result in a net negative hit to bottom lines.
In a Becker’s Hospital Review: A Recession is Coming, although they may have jumped the gun by about 12 months, they make a case for several other effects of a recession on healthcare. On the positive side, the report suggests a recession could alleviate shortages in healthcare workforce as demand could draw some nurses out of retirement or deter others from retiring, thus allowing providers to continue to offer a spectrum of service lines.
In addition, they predict that a financial collapse might push many patients to delay or forgo elective procedures and push more procedures to outpatient settings that is more consumer-friendly and less expensive, which is likely to negatively affect hospital earnings but positively impact outpatient clinical centers and large practices.
Another change occurring since the last recession is the major consolidation of hospital systems through mergers and acquisitions. While this could magnify the negative impact on hospital revenues, larger organizations are better positioned to allocate resources to mitigate the effects of a financial slump.
Taken all together, most experts conclude that while the industry will suffer through the next recession along with the rest of the economy, the effects of recession are likely to be uneven within different sectors of healthcare with some parts being better prepared to weather a downturn.
What can you do to protect your business?
Given that the impact of recession on healthcare is likely to be uneven, what are the things MedTech businesses can do to mitigate the effects on their own businesses? Forbes magazine offers 5 tips that can be adapted to MedTech businesses.
- Diversify revenue – if your business is heavily dependent on hospitals, for example, consider expanding your share of clinic business
- Reduce expenses – maintain a lean workforce and increase production efficiency, and refine your marketing strategy to increase ROI
- Increase savings – put more into your emergency fund, consider extending the number of months you might need to cover expenses from 3 to 6 months or from 6 to 12 months.
- Keep inventory low – refine production goals to adjust to trends further in the future
- Manage debt – reduce balances on your higher interest loans, secure or increase your line of credit
With recession looming, now is the time to take action to weather a downturn and MedTech Momentum can help.
MedTech Momentum combines intimate knowledge of the MedTech industry with unmatched expertise in marketing healthcare and medical devices in the Internet era. Our robust and talented team operates as an extension of your marketing department to power synergistic strategic planning and execution to give your medical device business the most efficient ROI. Think of MedTech Momentum as adding a team of 20 experts for the cost of adding just one junior marketing employee to your mix.
Curious to find out more, and how MedTech Momentum can guide your business to success, even in a recession? Start your Free Proposal here. We look forward to hearing from you.
Sources: Healthcare Dive, Kaiser Family Foundation: Assessing the Effects of the Economy on the Recent Slowdown in Health Spending, The Real Economy Blog: Is Healthcare Recession Proof?, Becker’s Hospital Review: A Recession is Coming, Forbes Magazine: 5 Ways to Prepare Your Business for a Recession