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Healthcare has long been considered "recession-proof," meaning that even when other industries are ailing and laying off workers, hospitals, physician practices, other providers, and insurers are somehow immune.

However, this idea doesn't always hold, nor does the opposite concept: that healthcare suffers when the general economy is booming. Healthcare is , with spending growing by 4.1% in 2022 (even after the pandemic). But "healthcare" as a sector is ; it consists of medical services, pharmaceutical companies, insurance providers, healthcare IT, medical equipment, and other healthcare-related services. Macroeconomic factors may have varying impacts on each subsector.

Healthcare doesn't "always" do well and the results can be mixed in subsectors. The U.S. economy is currently growing -- -- and the as inflation has cooled. Some sectors of healthcare, like the and , are expected to grow at 6.15% and 9.8%, respectively, over the next few years. Meanwhile, have had a much different result, suffering continued losses in part because how healthcare is paid changes by , reducing private payer reimbursements, inflation, and (i.e., the physician fee schedule or Medicare Part C rates).

The point here is, "it's complicated." People may always get sick, but we cannot count on that fact alone to prevent healthcare from succumbing to a recession.

Recent Economic Recessions and Healthcare Spending

During the Great Recession of 2008, healthcare faced , leading to a slowdown. As the ability for consumers due to job losses or insurance benefit changes (or both), people avoided elective procedures and spending on prescription drugs, and others avoided care altogether.

And even though the COVID recession was short-lived, it had a huge impact on healthcare. Despite substantial economic relief packages and changes in the Federal Reserve rates, avoided medical care and 29% didn't take medications as prescribed. These spending contractions had long-term, for hospitals and healthcare providers.

There is a lot of evidence the industry still is having trouble nearly 5 years after the pandemic started, even though major sectors of the economy, like manufacturing and retail, continue to perform well.

Bankruptcies Have Proliferated

The provider sector has faced significant financial headwinds before and after the pandemic.

As in January, the number of healthcare company bankruptcies has soared. Indeed, Gibbins Advisors found that "2023 was the biggest year for healthcare Chapter 11 bankruptcy filings in the past half-decade." Gibbins identified 79 filings with liabilities of $10 million or more from hospitals, practices, and other companies.

Hospitals, the backbone of healthcare delivery, have been particularly hard-hit. While patient volumes have bounced back, they have struggled to recover financially, facing increased labor costs, supply chain disruptions, and declining reimbursement rates.

Primary Care and Retail Health Struggles

Primary care, often seen as the cornerstone of healthcare, is not immune to the pressures of rising inflation and declining reimbursement. The contraction in primary care services has been stark. Traditional primary care has faced significant financial headwinds, with many practices and clinics losing in 2023.

Retail primary care hasn't fared much better, with companies like Walgreens considering due to difficulties in achieving profitability. Similarly, Walmart ended its , signaling retail giants' challenges in making healthcare ventures work.

Additionally, from 2012 to 2021, the share of total U.S. healthcare spending devoted to primary care was less than 6%. Since 2019, investment in primary care has steadily declined across all major healthcare payers, .

Consolidation Is a Symptom of Financial Headwinds

As financial pressures have increased on providers, the march to vertical and horizontal integration and consolidation has continued. According to the , there were 1,573 hospital mergers from 1998-2017 and 428 hospital and health system mergers from 2018-2023. The share of community hospitals that are part of a larger health system increased from 53% in 2005 to 68% in 2022.

Independent providers haven't fared much better. Facing mounting financial pressures, many have chosen to consolidate or be acquired by private equity firms or larger health systems. KFF reported the share of physicians working for a hospital or in a practice owned at least partially by a hospital or health system increased from 29% in 2012 to 41% in 2022. The result is a growing divide between the "haves" and "have-nots" among hospitals and providers, with well-capitalized institutions thriving and smaller, community-based providers struggling to stay afloat. The impact of market pressures is not a one-size fits all.

Physician staffing firms, which provide critical services to hospitals and other healthcare facilities, have also been hit hard. , one of the largest physician staffing companies, eventually filed for bankruptcy in May 2023 and sold off pieces of the organization to stay afloat (most notably , their ambulatory surgery business). Envision is one of several other within the provider sector, where even large, well-established firms face existential threats.

The Nursing Staffing Crisis Could Stifle Growth

While cutting jobs and reducing hours worked is often considered a nasty byproduct of a recession, the lack of labor has a negative effect on output as well because the supply and demand mismatch can put greater pressure on hospitals and clinics. Indeed, in 2022, , chief economist at the Burning Glass Institute, predicted that "the dwindling labor supply is becoming a serious constraint on U.S. economic growth." Healthcare is not immune. As the healthcare labor supply continues to fall short of the demand, labor costs become untenable for health systems, and , stifling growth.

One of the most significant challenges facing the provider sector is the ongoing nursing staffing crisis. Even leaders in healthcare staffing have reported continued struggles in meeting demand. What's more, an analysis published by the in November 2022 noted the federal government projects a shortage of 78,610 full-time RNs in 2025 and a shortage of 63,720 full-time RNs in 2030. Washington state will suffer a 26% percent shortfall, while Georgia will have a deficit of 21% and California a gap of 18%.

The nursing shortage, exacerbated by the pandemic and persisting today, has driven up costs for hospitals and has led to burnout and attrition among nurses, further straining an already overburdened system. At least for the next several years, it will continue to dampen hospitals' and practices' ability to grow and serve more patients.

It's Complicated

The realities on the ground increasingly challenge the idea that healthcare is recession-proof. Healthcare is much more complicated -- it's not monolithic. Further, the market forces typically seen in the travel, manufacturing, and other industries have clear payment relationships between consumers and businesses. In healthcare, regulatory policies, payer structures, and the mere fact that the consumer and the provider know little about the actual cost or payment a patient makes create distorted incentives.

While parts of the healthcare system may continue to perform well, the provider sector is undeniably struggling. The distribution of the dollars in healthcare has shifted away from providers (hospitals and physicians) and into the hands of pharmaceuticals, device manufacturers, health tech, and insurers.

Providers need help. It is time to reassess the belief that healthcare is immune to economic downturns and be prepared to intervene.

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