Healthcare is 17.3% of U.S. GDP, and spending in the sector grew by 4.1% in 2022. But the industry comprises numerous subsectors, leading some to question the long-held concept that healthcare is "recession proof," according to an Oct. 3 viewpoint published in Medpage.
Here are five takeaways from the article, written by N. Adam Brown, MD, a practicing emergency physician, founder of ABIG Health and professor at the University of North Carolina Kenan-Flagler Business School.
1. Healthcare isn't a monolith: While some sectors of healthcare, such as the pharmaceutical industry and health insurance markets, have projected growth in the coming years, other aspects of healthcare have suffered losses. Dr. Brown cites physician groups as one example, as the acquisition of physician groups by private equity has increased by more than 600% from 2012 to 2021. Substantial evidence indicates that physician consolidation has led to higher prices in healthcare, particularly in hospitals.
This, Dr. Brown writes, is because healthcare payment structures are changed by economic incentives, reducing private payer reimbursements, inflation and regulatory policy such as CMS' physician fee schedule.
2. Recent history with healthcare and economic downturn: During 2008, healthcare growth slowed due to supply and demand contractions, Dr. Brown writes, and consumers cut spending due to job losses or insurance benefit changes. This resulted in people avoiding elective procedures and cutting back on prescription drug spending.
While the recessive conditions associated with COVID were short-lived, it greatly impacted healthcare. According to data reported by CNBC, 22% of Americans avoided medical care and 29% didn't take medications as prescribed during the COVID recession. This reduction in spending had deep impacts on healthcare.
3. The impact of bankruptcies: Healthcare bankruptcies spiked in 2023 with 73 healthcare companies, including 12 hospitals and health systems, filing for bankruptcy. This was due to high levels of debt throughout the industry and rising interest rates. Private equity firms owned 21% of healthcare companies that filed for bankruptcies, resulting in increased scrutiny from some lawmakers and other healthcare stakeholders.
4. Struggles in primary care: Primary care, a central force in the larger healthcare economy, has faced significant financial downturns. From 2012 to 2021, the share of total U.S. healthcare spending dedicated to primary care was less than 6%, and investment in primary care has declined across all major healthcare payers.
Retail giants like Walgreens and Walmart have also cut down on their investments in primary care. Walgreens reduced its stake in VillageMD due to challenges in reaching profitability and Walmart similarly ended its Walmart Health initiative.
5. Impacts of the staffing crisis: Dr. Brown notes that the lack of labor in healthcare, driven largely by the nurse staffing crisis, strains healthcare's output due to the pressure the supply and demand "mismatch" puts onto health centers. According to an analysis published by the Health Resources and Services Administration in November 2022, the federal government projects a shortage of over 78,000 full-time RNs in 2025 and a shortage of over 63,000 full-time RNs in 2030. This has driven up costs for hospitals and led to higher burnout and lower attrition among nurses, "straining an already overburdened system."