First Research US Industry Profile

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Hospitals
SIC Codes: 8062, 8063, 8069
NAICS Codes: 622
Last Quarterly Update: 4/15/2019
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), Japan, South Korea, Russia, Germany, and Austria have the most hospital beds per 1,000 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 $1.1 trillion.
Competitive Landscape
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.
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.
Competitive Advantages:
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 170 hospitals in 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 11 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 20 states. Its 125 hospitals house some 21,000 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 ... plus:
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