Can Healthcare Continue Its Outperformance Streak?

As a sector, healthcare has had a good run. According to S&P, “The health care sector has outperformed the broader market over each of the last five years.” That’s the good news.

Yet, despite a stable outlook, and even optimism that healthcare can continue to outperform the broader market in 2016, S&P notes some challenges.

The nonprofit sector’s stability is predicated on a boost from Medicaid expansion and the insurance exchanges under the Affordable Care Act. But, there are negative pressures at nonprofits, including difficulty with poor IT installation, weaker patient volumes and the cost of absorbing physician practices. “The strongest hospitals and health systems are likely to just hold existing margin and reserve levels, while weaker providers will likely continue to see operating margin and cash flow erosion and eventually balance sheet pressure.”

S&P writes that the for-profit sector should remain stable due to the accelerated shift from inpatient to outpatient care, and the leveling off of the impact of the ACA. Despite fewer uninsured Americans, for-profit hospitals will struggle with collections because of the increasing popularity of high deductible health plans.

Notwithstanding S&P’s stable outlook for 2016, there are rumbling indicators that all providers—regardless of sector—need to continue to remake and refine their organizations to ensure they are humming along as efficiently as possible. The growing and aging U.S. population will continue to drive demand for healthcare services, but the winners in this game will need to stay three steps ahead.

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