The Healthcare Mosaic Report

Thursday, September 15, 2016

In the quarterly Healthcare Mosaic Report, healthcare analyst Ryan Daniels selects a far-reaching topic of interest in the healthcare space and provides a variety of data points and analyses to offer a more complete picture of what it means for the broader healthcare marketplace (and investors in this market). Each Healthcare Mosaic Report includes analyses of how the particular trend can affect healthcare companies and the industry as well as any potential winners and losers in the space from an investment perspective.

In the latest edition, “The Healthcare Mosaic Report: An In-Depth Look at the Changing U.S. Healthcare Workforce and What It Means for Investors,” published in third quarter 2016, Daniels takes a deep dive into the rapidly changing U.S. healthcare workforce. “Over the past several decades, the aging U.S. population and the potential for a shortage of skilled caregivers in the U.S. workforce have been common investment themes in the healthcare space,” he stated. “Still, throughout most of this time frame, this thesis—while not incorrect—was too early to have any real impact on the space (outside of some periods of peak demand and limited short-term labor supply).”

However, this appears set to change in the near future, as the aging U.S. population, increased healthcare consumption, greater access to care, and a pending wave of retirement among skilled clinicians could shift the industry toward a troublesome supply/demand imbalance.

For example, data from the National Nursing Workforce Study indicate that more than 50% of all registered nurses are over age 50, and recent survey data from AMN Healthcare indicates that 62% of all nurses over age 54 (a cohort that equates to nearly 39% of the total U.S. nurse workforce) intend to retire within the next three years.

“In isolation this is a major concern for hospital executives,” Daniels said, “yet it becomes an ever-larger issue when considering the clinical knowledge that must be replaced by millennials entering the healthcare workforce for the first time.” Moreover, millennials are much more likely to transition between employers than any prior generation (thus further diminishing workforce productivity); in fact, this is already contributing to the recent rise in turnover across the sector. Thus, hospital executives not only need to find replacements for retiring caregivers, they also must deal with increased turnover and the less robust clinical skillsets of these new employees.

Hospital operators also are facing more competition for employees than ever before, as retail and urgent care clinics (which often provide better hours and less-stressful clinical environments) experience rapid growth across the country. Accordingly, wage pressures for skilled clinicians appear to be rising, and it is not unusual for larger healthcare systems to offer $5,000 to $10,000 signing bonuses for clinicians, such as experienced registered nurses. And this comes at a time when systems are desperately trying to reduce operating expenses given future reimbursement pressures and negative mix shifts toward more government payers.

Lastly, demographics are expected to drive a natural uptick in healthcare utilization. For example, the over-65 population experiences nearly three times the level of hospital utilization compared to the under-65 age cohort and the over-75 population has more than four times the level of hospital utilization. Furthermore, the Bureau of Labor Statistics data indicate that the largest number of job openings will be in healthcare (due to both job growth and replacement needs) over the next decade, with many areas in healthcare seeing a 35% to 40% uptick between 2014 and 2024 alone.

Daniels believes this could create a tremendous amount of pressure and opportunity for a variety of healthcare services providers and technology companies over the coming years.

For a copy of the most recent Healthcare Mosaic Report or for more information on the healthcare companies covered by Ryan Daniels, please contact your William Blair representative.

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