Just how profitable is the healthcare industry?
Wednesday, December 07, 2016
"Show me the money" is a statement made famous by the somewhat-long-in-the-tooth '90s movie classic, "Jerry Maguire." Today, the statement is known for its directness in proving whether a business or industry is success. Typically, anyone who is able to utter such a phrase is "worthy" of the proverbial funds, as we were taught in the film.
Healthcare is one of those sectors, and it can certainly scream "show me the money" from within any corner of its locker room.
This is nothing new, but it's an interesting fact that is not often discussed. Looking back a tiny bit, let's examine this point for a moment. According to a 2015 Forbes report, healthcare was projected to be one of the most profitable industries of 2016. Little wonder, especially given how many nonhealthcare companies saw this and jumped into the sector.
Health technology was actually projected to be the most profitable sector of the year with a 21.6 percent net profit margin. Technology services (17.2 percent net margin) were second, narrowly edging past finance (17.1 percent). Electronic technology and consumer nondurables round out the top five.
These numbers were projected to surpass even the energy sector and consumer-related goods. Amazing, really. Perhaps not surprising, though, since the healthcare market is such a large part of the national GDP.
For some additional perspective, let's look at a report by Entrepreneur that further depicts healthcare as a major financial market driver. In the report published earlier this year on the 15 most profitable small business industries, "office of physicians" showed a net profit of 13.01 percent in 2015, while "offices of other health practitioners" realized a net profit of 13.3 percent. Both of those are staggering numbers.
Finally, a Financial Times report organized data into 46 industry groups, the largest of which ("Other") accounts for 7.5 percent of total private gross output. The median industry accounts for about 1.5 percent of total private gross output, and the average industry accounts for about 2.2 percent.
Of those companies on the list, "hospitals" is 45th and "ambulatory care is 38th. When profits are accounted for, those institutions rise among the list slightly. However, "in schools, health services and investment banking, about half of revenues are paid to workers, although 'computer systems design' workers nab the biggest share of the pie for themselves, with 58.1 percent," the magazine reports.
What does all of this mean? Based on the measurements and factors used, healthcare is a profitable sector, but it doesn't always come to the top of the richest of the rich, of course. There's money to be made here, which leads to innovation and jobs — and, perhaps, even better care to patients, if we want to take a roundabout look at things.
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