Companies in this industry provide medical, diagnostic, and treatment services to people on an inpatient and outpatient basis at specialized medical, surgery, emergency, and other health care facilities. Major companies include Community Health Systems (CHS), HCA Healthcare, and Tenet Healthcare (all based in the US), as well as Apollo Hospitals (India), Fraser Health (Canada), and Ramsay Health Care (Australia).
The world has about 40,000 hospitals, primarily located in the Americas, Asia, and Europe. Among countries tracked by the Organization for Economic Cooperation and Development (OECD), South Korea, Japan, Australia, Finland, and France have the most hospitals per 1 million people.
The US hospitals industry has about 7,100 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $1.2 trillion.
Hospitals are under extreme pressure to lower costs while improving quality of care. Government payers and insurers are nudging patients toward less-costly outpatient care, reducing the number of routine inpatient procedures conducted at hospitals. The trend is encouraged by advances in medical technologies that improve recovery times. As reimbursements shift toward pay-for-performance protocols and away from procedure-based payments, hospitals may be rewarded or penalized based on quality and efficiency standards, such as reducing repetitive ER visits and hospitalizations. Eliminating wasteful processes is essential, as operating margins are slim, and the ability to raise prices is limited.
In urban and suburban areas where multiple hospital systems are present, competition for patients is intense and is based on reputation, cost, and specialization. Competition also comes from local surgery centers, urgent care centers, and diagnostic imaging centers. Hospital results are heavily impacted by whether they are included in insurance provider networks, and how the insurer payment contracts are negotiated. In rural areas, hospitals often function as the sole (last-resort) provider for uninsured or underinsured populations, making it difficult to bring in new payer resources.
Major global pandemics can impact the competitive position of hospitals. For instance, the 2020 COVID-19 pandemic put a strain on hospital resources in areas hard hit with disease outbreaks, causing shortages of protective gear and certain treatment supplies. In areas where virus cases were low, but lockdowns were enforced, hospitals lost major revenue due to the delay in most outpatient and elective care procedures.
Hospitals also compete for physicians, and seek to attract doctors with state-of-the-art equipment and an attractive work environment. Large companies have advantages in buying supplies, sharing best practices, consolidating IT systems, and negotiating contracts with health insurers. Large hospitals may offer a wider variety of services. Small hospitals can compete successfully by serving a limited geographical area or offering specialized services.
Globally, a majority of hospitals are government owned. In the US, about 75% of US hospitals are nonprofits, affiliated with churches, charities, or local governments. The US industry is fragmented: the top 50 organizations generate about 30% of revenue.
Outpatient Service Networks - Hospital operators are acquiring physician practices, building walk-in clinics, and taking other steps toward widening their outpatient networks. Hospitals are also offering more procedures and services on an outpatient basis to make up for revenue loss from declining inpatient procedure volumes.
Insurer Relationships - Companies depend on commercial insurance contracts for the majority of reimbursement revenue. In the US, government mandates aim to lower Medicare and Medicaid spending, and commercial insurers often follow the lead of Medicare and Medicaid in setting rates. Managed care organizations include hospitals on their provider networks based on quality, price, and the availability of services in the area.
Consolidation - Hospitals are consolidating rapidly in response to changing reimbursement practices and rising capital needs. For-profit hospital networks are aggressively pursuing facility purchases to increase economies of scale and improve bargaining power. Community hospitals are also forming affiliations for group purchasing and administrative advantages as it becomes more difficult to survive independently.
Companies to Watch:
HCA Healthcare is the largest for-profit hospital operator in the US, with about 180 hospitals in some 20 states. Its largest markets are Florida and Texas. The company also operates outpatient care facilities including surgery, urgent care, and rehabilitation centers, and has a handful of hospitals in England. The company expands through diversified acquisitions and increased service offerings.
Tenet Healthcare operates major urban medical centers and small community hospitals across about 10 US states, including California, Florida, and Texas. Like HCA, Tenet operates ambulatory health centers and has operations in the UK. It also provides patient billing and communications services to affiliates and nonaffiliates across the US through its Conifer Health Solutions subsidiary.
Community Health Systems focuses on small hospitals in rural areas or small cities in about 15 states. Its 100 hospitals house some 16,000 beds and generally include ancillary facilities such as primary care and diagnostic imaging centers, as well as home health agencies. The firm controls costs through group purchasing, centralized business functions, and other methods.
Products, Operations & Technology
Major services include inpatient hospital care, which accounts for about 52% of industry revenue, and outpatient services (those that typically don't require
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Also includes the following chapters:
Quarterly Industry Update
Trends and Opportunities
Call Preparation Questions
Glossary of Acronyms