The healthcare sector is made up of many different industries—from pharmaceuticals and devices to health insurers and hospitals—and each has different dynamics. Investments in this sector are affected by many variables, including positive trends related to demographics and negative trends related to reimbursement.

Healthcare investing requires a multifaceted approach to understand the underlying capital requirements and drivers. Investors can profit from investments in both the overall sector or its industries. This article will detail the differences among the various healthcare industries and which metrics investor🍒🐲s should follow before making an investment.

Trends in the Healthcare Sector

When deciding on a 澳洲幸运5官方开奖结果体彩网:healthcare company in which to invest, keep the following prevalent trends in mind. Changes to or continuations of these trends can have implications for a variety of areas within the 澳洲幸运5官方开奖结果体彩网:healthcare sector.

Positive trends include:

• the aging population and the 澳洲幸运5官方开奖结果体彩网:baby boomers
• people living longer with chronic disease
• obesity and diabetes epidemics
• technological advances
• the global reach of disease
• personalized medicine

Negative trends include:

• possible future single-payer system
• the uninsured (although declining)
• Rising costs that haven't been controlled
• customers shopping around

Pharmaceuticals

Pharmaceutical and biotech companies both manufacture "drugs", but differ in how those drugs are created. Pharmaceuticals are generally defined as small chemical compounds that easily pass through barriers or membranes in the body, while biotechs are considered large protein compounds that have trouble passing through membranes.

These companies often spend a significant percentage of revenue on 澳洲幸运5官方开奖结果体彩网:research and development (R&D) to discover new compounds. The "hit ratio" is very low as the discovery of new compounds is very difficult and tedious. When investing in drug cꦗompan🍰ies, there are several things to keep in mind. You need to have some understanding of:

• the underlying disease or condition that a specific drug treats
• the number of people affected
• the number of compounds currently available
• the process of discovery and coming to market, specifically the rigorous 澳洲幸运5官方开奖结果体彩网:clinical trials required by the 澳洲幸运5官方开奖结果体彩网:Food and Drug Administration (FDA)
• the availability of 澳洲幸运5官方开奖结果体彩网:substitutes, including generic versions of drugs
• patents
• the overall marketing framework, which may include revenue or profit-sharing agreements with other companies

This is an industry that is greatly affected by clinical-trial data, and surprises about the outcomes of the data can affect the stock price tremendously. Positive surprises—better-than-expected clinical data, faster time to market, etc.—can cause stocks to appreciate significantly in a short time period, while negative surprises can have the opposite effect. In addition, aftermarket data, such as the number of prescriptions written, 澳洲幸运5官方开奖结果体彩网:market share, FDA warnings or the loss of a patent will affect investments. This is an industry that r🧸equires active monitoring on the part of the investor.

Who Pays the Bills?

Health insurers are the companies that pay the bills. People obtain 澳洲幸运5官方开奖结果体彩网:health insurance in various ways, including through employers, individual, and through government programs like Medicaid and Medicare. Health insurance covers part or ඣall of the cost of medical bills in exchange for premiums paid by those who are insured.

澳洲幸运5官方开奖结果体彩网:Underwriting skills drive health insurers' profitability. The better the underwriting, the lower the medical costs relative to the premium (or payment) received from the purchasing company. The 澳洲幸运5官方开奖结果体彩网:key ratio that health insurers report is the 澳洲幸运5官方开奖结果体彩网:medical cost ratio. This ratio is akin to the 澳洲幸运5官方开奖结果体彩网:operating-profit ratio and should be looked at as a 澳洲幸运5官方开奖结果体彩网:trend analysis. The medical loss ratio is also an important ratio and is similar to the 澳洲幸运5官方开奖结果体彩网:gross margin, only in reverse (lower ratios are better). ♎In addition, you want to invest in a company that has a conservative, trustworthy management because there are often timing mismatches between when me👍dical services are consumed and when the bills are paid.

Proper 澳洲幸运5官方开奖结果体彩网:liability reserves is also an important measure to review. These stocks are generally more stable and less susceptible to surprises as compared to drug stocks. However, 澳洲幸运5官方开奖结果体彩网:following government regulation, particularly bills related to Medicare and Medicaid funding, is important as the U.S. government is the single largest purchaser of healthcare services. The House Ways and Means Committee is the part of the government that affects Medicare legislation. In addition, it is often perceived that the Democratic Party is more friendly to healthcare companies than the Republican Party, and stocks in the industry will often react to changes in party control of the government.

Facilities

The providers of medical services—the hospitals and clinics—are the cornerstone of healthcare in the U.S. U.S. laws mandate that all facilities with an emergency room treat anyone that walks through the doors, regardless of whether that person has health insurance or money to pay for the services. In recent years many free standing emergency rooms have opened to serve rural areas that are farm from hospitals. However, what they offer has not been standardized which has lead to issues with the right care being available for some patients. On the contrary, many clinics without emergency rooms have begun offering medical services across the United States. By not having an emergency room, these clinics aren't require to give treatment.

Doctors at these non-emergency clinics are able to pick and choose which patients to treat and benefit from higher payments from insurance companies. Meanwhile, hospitals are faced with 澳洲幸运5官方开奖结果体彩网:bad debts impacting their profitability. The bad-debt ratio is an area of focus for investors. In addition, 澳洲幸运5官方开奖结果体彩网:cost controls are key for hospitals' profitability. Many hospitals do a poor job of keeping costs down. Their systems have yet to make technological advances like electronic medical records, proper purchasing, and operating systems a part of their standard operations, although this seems to be slowly changing. Of course, costs ar♍e often passed on to patients, but it still is robbing financial potential.

Controlling costs among numerous 澳洲幸运5官方开奖结果体彩网:cost centers is very difficult for hospitals. The ones that do this well and incorporate computer systems tend to be considered the best managed. In addition, hospitals that are able to recruit specialist physicians, such as neonatologists, are able to increase EBITDA per bed as specialty medical practice generally garners higher payments for services. Other than bad-debt ratios, EBITDA per bed and overall utilization or capacitꦿy rates are💃 other important metrics.

Other Industries

Pharmacy benefit managers (PBMs) are companies that administer drug benefits on behalf of insurers. They work in tandem with the health insurer and can be considered an outsourced segment of health insurance. Generally, when you go to the pharmacy to have a prescription filled, the pharmacy will contact (via computer) your PBM to see if you are covered for the particular drug. Additionally, if you receive your drugs via mail, they usually come from the PBM's distribution center.

PBMs tend to benefit from more mail transactions and generic prescriptions filled because they generally receive a higher margin for that type of service. In addition, PBMs receive higher margins on specialty drugs, drugs that are injected (such as biotech drugs), or drugs that need to be refrigerated and are typically not sold at a local pharmacy (because these types of drugs require more attention). Therefore, PBMs that have a large specialty pharmacy component tend to have higher margins.

Distributors are intermediaries between the drug manufacturers and the pharmacies, and receive a service fee for controlling the 澳洲幸运5官方开奖结果体彩网:logistics for the pharmaceutical companies. Many distributors also have other lines of business that improve margins, such as packaging some of the drugs, but the service-fee margin is a main driver of profits.

Medical technology and device companies manufacture a host of medical products, from bandages all the way to artificial joints and heart stents. These companies, similar to the drug manufacturers, spend a large percentage of revenues on R&D, and some need to follow the same clinical-trial path. Investing in these companies re🌞quires knowledge and analysis of the new technology as well as the competitors and known substitutes. Adoption rates and gross margins are important indicators of a compꦏany's success, which is similar to other technology companies.

The Bottom Line

澳洲幸运5官方开奖结果体彩网:Investing in healthcare stocks can provide generous returns, but it is also tedious due to the many factors affecting stock prices. The healthcare sector is vast, Businesses within the sector have 澳洲幸运5官方开奖结果体彩网:varying needs in capital investm♚ent and operating costs. There are many large and small companies to choose from in various industries. To help ease the burden, there are 澳洲幸运5官方开奖结果体彩网:investment vehicles like ETFs and healthcare 澳洲幸运5官方开奖结果体彩网:mutual funds in which you can invest; they can reduce the volatility of investing in individual stocks by 澳洲幸运5官方开奖结果体彩网:diversifying holdings.