Van T. Jackson, Jr. is a healthcare executive leader in administration and policy formation. In the following article, Van T. Jackson, Jr. provides an industry outlook and discusses the impacts to the industry during economic downturn.
After considerably outperforming the wider market in 2022, displaying only a 4% decline over the broader S&P 500's 20% drop, healthcare was positioned well as a defensive sector. But with the Federal Reserve raising rates by a whopping 4.5%, many may ask where is the industry headed in 2023?
While investors anticipate an economic slowdown and increasing costs limiting the growth of specific healthcare segments, it appears that the aging population will continue benefiting the sector and Van T. Jackson, Jr. reports that biotechnology could experience strong returns.
How Economic Slowdown Is Set to Impact the Healthcare Market in 2023
The Fed's efforts to combat inflation mean the nation is entering a time of economic slowdown due to restrictive monetary policy. The
Bank of America and J.P. Morgan characterize the upcoming state as a "shallow recession."
Van T. Jackson, Jr. reports that analysts expect that high-performing defensive groups from last year will keep doing better than the wider markets in the first quarter of 2023. But as the second quarter hits, the same groups face rotation risk to growth stock, as the market will likely begin discounting the possibility of recovering from the slowdown by year-end.
As the year matures, risky sectors, including biotechnology, will likely boom as investors actively seek risk to skyrocket their returns.
That said, Van T. Jackson, Jr. reports that if the recession is deeper than anticipated, defensive groups, like pharmaceuticals, could dominate for the whole of 2023.
The Aging Demographic - A Healthcare Megatrend
Owing to the aging population, all Medicare-related providers will experience growth in the coming months, bolstered by the continued endemic status of the coronavirus.
Van T. Jackson, Jr. says that COVID-19 remains a recurring market opportunity for service providers and the biopharma segment. McKinsey analysts suggest that the virus could cause around $200 billion in healthcare costs throughout the United States of America every year.
Cost Increases Could Limit the Growth of the Provider Segment
According to a
distribution table formulated by the experts at McKinsey, provider profit pools are expected to exhibit a CAGR of 3% from 2021 to 2026. This is 4% less than their July 2022 estimations, thanks to the increased costs resulting from excessive inflation and labor shortages.
Van T. Jackson, Jr. says that the provider sector of the healthcare industry faced a lot of pressure last year and is expected to continue dealing with it for the next 12 months.
It appears that the total EBITDA (i.e., earnings before interest, taxes, depreciation, and amortization) will drop to $235 billion in 2023, displaying a decrease of one-quarter from 2021.
Although, the future doesn't seem so bleak for the segment, with McKinsey analysts predicting a rebound from 2023 to 2026 of 15% annual growth.
Pharmacy Services Expected to Grow This Year
Van T. Jackson, Jr. reports that pharmacy services are showing a positive CAGR (3%) from 2021 to 2026, climbing $10 billion by the latter to reach $65 billion.
The segment's growth comes from the maintained utilization of drugs and the increased costs of specialty medications. However, experts note that both factors may be somewhat offset by the reduced profit margins, expansion of biosimilars, and reimbursement pressure likely to arise this year and beyond.
As for specialty pharmacy services, Van T. Jackson, Jr. says that they're expected to exhibit a CAGR of 7% from 2021 to 2026.
Doctor's offices and ambulatory infusions are outpacing analysts' initial growth estimates, with expectations for the overall market set at a CAGR of 11% from 2021 to 2026.
Despite Lagging Behind, Experts Anticipate Biotechnology to Experience Strong Returns in 2023
Van T. Jackson, Jr. reports that the last two years have seen biotechnology struggle to realize positive returns. But 2023 is set to be its game-changing year. It's a high-risk group, meaning it's particularly sensitive to interest rates, and with the ten-year yield at its peak, it's a good year for biotech.
An economic slowdown is on the horizon, but biotechnology is perfectly positioned to benefit it from it. Investors will find comfort in risks throughout the next 12 months to benefit from boosted returns.
Technological advancements and innovation, particularly in the biotechnology sphere, keep expanding opportunities for the aforementioned healthcare groups to flourish.
Van T. Jackson, Jr. says that industry analysts state that solutions addressing the ongoing supply chain difficulties, growing demand for healthcare, and reducing the costs of healthcare delivery will perform the best in 2023 and beyond. In addition, the aging demographic gives companies offering home-based care a chance to thrive.
