Challenges remain but growth steady for health industry
3Q 2015 Health Care Industry Spotlight
INSIGHT ARTICLE |
Growth prospects for the U.S. health care industry are rosy. Consumer demand is only set to grow further, as sizable demographics age and more consumers obtain insurance. The Congressional Budget Office projects spending for Medicare and Medicaid in fiscal year 2015 alone to hit $541 billion and $350 billion, respectively, while overall health spending is set to grow 5.3 percent from 2014 levels.
Growth is set to grow even beyond government programs, as millennials are either entering the workforce and obtaining employer coverage or taking advantage of new regulations and staying on their parents’ plans. With such strong and stable demand, the challenges that investors grapple with nowadays are found mainly in navigating different aspects of complex and varied health care models, as the industry itself grows and changes.
Bolstered by a substantial number of health care services deals and considerable sums spent on pharmaceuticals and biotechnology, U.S. health care mergers and acquisitions (M&A) activity was strong in the first half of 2015. Total value in Q2 remained high at $85 billion, with the average deal size lofty, at $1.3 billion, but that was primarily due to the outsized proportion of dollars invested in pharma and biotech deals. That space captured about 70 percent of all deal value, largely due to continued consolidation. As just over half the activity by count was in health care services, however, the role of financially sponsored platforms adding on smaller practices remains integral in overall deal flow.