Health care industry not immune to recession
When people make sacrifices in a tough economy, they usually don’t start with their health.
That’s one reason the health care industry, if not exactly recession-proof, seems one of the best able to endure the economic downturn.
St. Louis’ growing medical sector includes the area’s largest employer, BJC HealthCare, with 23,500 workers. Not only are local hospitals not experiencing layoffs, many will continue to hire skilled workers, said Dave Dillon, spokesman for the Missouri Hospital Association.
"There’s always going to be a demand for health care," Dillon said.
During economic downturns, sales of prescription drugs and medical devices tend to hold up better than nonessential goods, noted David Wyss, chief economist of Standard and Poor’s.
"Generally, you’re looking for things that are necessities, not luxuries," Wyss said. "People get sick and need medical care regardless of the state of the economy."
But recent earnings show that drug makers aren’t immune from slumping sales that have plagued their peers in the retail and auto industries. Pfizer, which employs 1,200 people in its labs in the St. Louis area, said last month that U.S. sales of its best-selling product, the cholesterol drug Lipitor, fell 13 percent in the last quarter as some financially struggling patients stopped filling their prescriptions.
"The typical safe harbors (for investors) have been pharmaceuticals," said analyst Steve Brozak of WBB Securities. "They’re no longer safe; they’re now the least bad choice."
Pfizer and Schering-Plough Corp. were able to offset weak revenue in the U.S. with higher sales abroad. But other companies, such as Merck & Co. Inc., have been less successful. Merck said recently it will cut 7,200 jobs after reporting sales declines.
Experts say pharmaceuticals are more vulnerable to economic cycles because employers have shifted more of the financial burden for care to patients, with higher copays and deductibles.
"With consumers having more cost-sharing in their benefits, you’re going to see a greater effect on their health care spending right away," said Paul Ginsburg, President of the nonprofit Center for Studying Health System Change quick pay day loan.
That means more uninsured or under-insured patients seeking care through hospital emergency rooms and other safety-net providers. Between 2000 and 2005, 125,000 people in Missouri went off employment-based health insurance, said James Kimmey, president and CEO of the Missouri Foundation for Health.
"If the recession leads even more employers to back down a bit from their current coverage levels, it could increase the uninsured pretty fast," Kimmey said.
The lagging economy and rising unemployment have made it harder for health insurers such as UnitedHealth Group Inc. and Humana Inc. to raise prices to offset higher costs and investment losses.
Health care companies least affected are those that sell inexpensive medical products directly to hospitals, bypassing cash-strapped consumers.
Becton, Dickinson & Co. and Baxter International Inc., for example, reported sharp profit gains for the most-recent quarter and boosted their full-year earnings estimates. Becton Dickinson specializes in syringes and surgical tools; Baxter sells drugs to treat blood and immune disorders.
"The products they offer aren’t high-tech things," said Aaron Vaughn, an analyst with Edward Jones. "They are health care staples that people need."
A focus on lifesaving medicine also is expected to reward makers of high-priced biotech drugs.
Genzyme Corp. and Celgene Corp., for example, have built businesses around niche drugs for life-threatening diseases. Health care investment firm Leerink Swann gives both companies an "outperform" rating, along with peers Amgen Inc., Biogen Idec Inc. and Gilead Sciences Inc.
POST-DISPATCH STAFF WRITER BLYTHE BERNHARD CONTRIBUTED TO THIS REPORT.