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The Business of
Health Care Report What should an investor look for in as strong vital signs for health care stocks? As the economy stumbles and stock prices dip, you might think twice about splurging on a new car. But break your arm and you can't put off a trip to the emergency room. That, in essence, is what earns hospitals and other health-service providers a reputation for delivering steady stock market performance regardless of the economic environment. That perceived stability helped health care stocks soar nearly 120 percent last year as the high-tech market was beginning to tumble. Not surprisingly, demographics are working in favor of health-service providers as an aging population feeds demand for medical insurance, hospital care and rapid technology development to serve the aging. Membership in the 45-plus age group is expected to increase by about 24 percent in the next decade to 120 million. Hospitals in particular stand to gain the most from growing demand with admissions starting to climb again. The pricing environment for health care insurers also is improving. The tide began to turn in 1999 and 2000 as insurers began passing along price increases for pharmaceuticals and new medical devices. In addition, the emergence of budget surpluses led to passage of legislation expected to funnel $20 to $40 billion in Medicare reimbursements to insurers and hospitals. Predicting the fortunes of a particular sector is tricky business. Health-insurance stock prices tend to move in three- to five-year cycles, with share-price increases lagging premium increases by 12 to 18 months. Premiums have been increasing for three years and are expected to peak in 2002, meaning that insurance stocks may not peak until 2003 or 2004. If you have comments on health care or suggestions for topics to be addressed on this program, e-mail me at DouglasHawthorne@TexasHealth.org. Stay tuned to our weekly Business of Health Care reports here on TexasHealth.org and on News Radio 1080 KRLD. Source: Lehman Brothers, Pimco Fund, Kiplinger's Personal Finance Magazine, May 2001. Doug Hawthorne - DougHawthorne@TexasHealth.org ©
2001 Texas Health Resources |
