When we talk about healthcare, we have to make a premise: this term does not refer only to the hospital sector.
On the contrary, the technological evolution and the social changes that have taken place in recent years have led to considerable growth in the sector, transforming it and making it one of the most interesting sectors from an economic point of view, also thanks to the birth of a multitude of start-ups and the development of innovative services available to all patients.
It is no coincidence, that, in recent years, healthcare has attracted the attention of many investors who see its potential in terms of economic return and technological development.
This has made the sector a driving force for the entire economy.
A sector in positive contrast to the trend
When a growth estimate is made for a company or for an entire sector, the forecasts are often ignored in reality.
There are many variables involved and the balance between them is precarious. For this reason, also because of the financial crisis, analysts tend to be cautious. If this is true for most areas, curiously it does not apply for healthcare. The US market offers an example of this phenomenon.
The S&P500 found that in August 2018, 97% of healthcare companies analyzed exceeded the estimates of profits and sales made, beating analysts’ forecasts (financiallounge.com).
How do you justify this trend?
According to some, the reason lies in the very nature of healthcare, which is considered a “defensive” sector, one capable of cushioning losses during phases of market contraction.
To be completely defensive, however, a sector would have to guarantee relatively low and stable growth rates over time, and this is not really the case for healthcare, where various activities and companies offer high growth margins. For this reason, when we talk about healthcare we usually say that it is double-sided (financiallounge.com).
This is confirmed once again by the American market. From October 3 to December 24, 2018, while the S&P 500 index of Wall Street recorded a loss of 20%, healthcare contracted only 15%. Conversely, in an expansionary phase such as the one that took place between the end of 2018 and July 2019, healthcare grew by 15% while the S&P 500 index achieved a much higher performance of 28%.
However, these figures only provide a partial picture of the sector.
In the last 5 years on the US market, several equity funds specializing in healthcare investments have recorded higher performance than those of the S&P 500.
But the (remarkable) economic results of the healthcare sector do not stop there.
A constantly growing market
Let’s start with the global situation.
The Global Wellness Institute, the non-profit that aims to strengthen global wellbeing through education and awareness within the private and public sectors, provides an interesting framework.
According to this organization, the value of the health sector is about $4.2 billion (as far back as 2017, globalwellnessinstitute.com). Between 2015 and 2017, there was considerable growth, at a rate of 6.4% per year, which is almost double the global economic growth rate of 3.6% per year. In the light of this positive trend, it’s not surprising that the healthcare segment, and the wellness industry in general, represents 5.3% of the global economy.
This sector is also supported by a constant growth trend in public and private expenditure over time. A study by Deloitte shows that healthcare spending worldwide is continuously growing (with few exceptions).
The value of healthcare around the world
According to Deloitte, it is expected that, from 2017 to 2021, the overall health expenditure will increase by 4.1% annually (sanita24.ilsole24ore.com) or three times as much as in the previous four-year period of 2012-2016. This means that global health expenditure will reach $8.7 trillion by 2020. The figure does not take into account the differences that exist between the different countries. For example, in 2021 the United States will spend about $11,356 per capita, while in Pakistan it will barely exceed $50 per capita.
And in Italy? Although our country fits perfectly into this general trend, there are still some peculiarities. If OECD countries spend an average of $3,992 per capita, Italy stops at $3,428 (quotidianosanita.it). Italy ranks 20th both in terms of current health expenditure compared to GDP, and in terms of current expenditure on health on a per capita basis, with equal purchasing power.
However, not all indicators are negative. There is, in fact, a curious trend to be noted.
Although the annual growth rate of current spending per capita on health is just 0.2% (placing Italy at the bottom of the ranking, ahead of only Greece, France, and Mexico), the direct expenditure of Italian citizens is above the OECD average, at $791 dollars vs. $716 dollars, well above countries such as Germany ($738), the United Kingdom ($629), and France ($463).
Equally positive and above-average figures are those concerning expenditure on pharmaceutical products (such as prescribed and over-the-counter medicines).
In Italy, in fact, 17.5% of current health spending is directed to this product segment; the average of OECD countries is, however, 16.1% below which all our main partner countries are positioned as Germany (14.1%), France (13.2%) and finally the United Kingdom (11.9%).
Italy also remains above average even when it comes to expenditure on pharmaceuticals and other medical expenses on a per capita basis, which in Italy reaches $601, while other OECD countries spend an average of $553.
The reasons behind this growth
As you can imagine, these figures confirm the fact that public and private spending plays a fundamental role in the overall growth of healthcare. However, the amount of expenditure, while important, is not sufficient to explain the constant growth of this sector. Several observers have raised the question and have identified a series of causes that may justify what has been said above.
Let’s look at each one.
The first factor that plays a decisive role is the ageing of the population.
This is reported by the World Population Prospect, the official United Nations document that provides statistics about the population, such as the average age, fertility, and world migration. Projections show that life expectancy is continuously increasing: it was 70.8 years in the five-year period 2010-2015, but is expected to reach about 75 by 2030.
This applies to all countries, albeit in a different way. African countries, for example, will see growth in both longevity and the birth rate, while more developed countries will face a demographic transformation resulting in an increase in the average age of citizens. Thus, in 2050, the average age in Nigeria will be 23 years, while in Japan it will be 53.
This has two consequences.
On the one hand, the African population will double while the European is expected to shrink. The healthcare sector, especially in developed countries, will become socially strategic. An older population will require more and more care and more and more time. In addition, the same care will have to be modulated in order to meet the needs of increasingly elderly citizens.
This opens up considerable growth prospects for the entire sector, which will also represent a fundamental resource in terms of sustainable spending for all countries, which are unlikely to be able to guarantee health and wellbeing for the entire population through traditional healthcare systems.
Another reason for this remarkable growth is linked to developing countries, such as China.
China has understood that healthcare will be an important area of investment in the coming years. Among other things, China also has to manage the strong growth of its middle class, which, with a healthy economy and a more affluent lifestyle, is willing to pay more for better healthcare and prevention services.
For these reasons, the Beijing government has decided to create a long-term strategy that will lead the country to become a world leader in the healthcare sector in the next few years. This means, essentially, allocating large sums of money to medical research and in the development of technologies needed to run laboratories efficiently.
All this will obviously push healthcare towards a further expansionary phase, ensuring stable and constant growth at a global level in the coming years.
The third major growth factor is technological development and the digital transformation that has inevitably affected the healthcare sector.
According to many analysts, healthcare innovation will be a central theme for 2019 and for the years to come, will affect several areas of the sector. For example, think about how much robotics has changed the way surgeons work, allowing them perform more complex procedures with a greater precision. An interesting application of the technology is showing itself in the field of diagnostic medicine where it is becoming possible to quickly and accurately identify infectious diseases.
In general, this has made diagnostic equipment companies very attractive for public and private investment, especially as national health authorities are willing to reduce the overuse of vaccines in the light of the observed increase in antibiotic resistance.
What is the future for HealtCare?
It is clear that the healthcare sector will be able to benefit from several growth levers and, therefore, continue to ride this expansive trend.
For the rest, it is more difficult to predict how the procedures for prevention and healthcare will change and transform in practice.
However, we know that healthcare and digital evolution will operate hand in hand in the coming years.
This is demonstrated, for example, by the fact that in 2018, investments in digital healthcare exceeded $18 billion, demonstrating 50% growth compared to 2017, with particular attention to start-ups in the fields of digital therapy, artificial intelligence, and robotics (aboutpharma.com).
Therefore, health is increasingly digitized and guaranteed by the help of digital technologies, with pros and cons for investments, for states and for patients.