PE Funds' Health Care Services Companies Could Struggle as Consumers Delay or Forgo Treatment and Can't Pay Medical Bills
Closer to the beginning of the recession, at health care investing events, many health care deal makers spoke a common theme – the downturn would have little impact on health care services companies, as consumers will not delay or forgo medical treatments. After all, many health care services are necessary, much unlike other discretionary items such as a fifty-inch flat screen television set or that convertible at a family vacation house used only part of the year. Consumers will put off the latter, not the former, and reimbursement concerns, not recession related concerns, would continue to take center stage.
But this recession has impacted industries in ways never thought possible, and health care is no exception. In a recent post, Kristen Gerencher of Marketwatch’s Health Matters blog cites two studies suggesting that consumers have cut back on care and are delaying payments to providers for treatment received.
The American Academy of Family Physicians study indicated that nine out of ten members reported patient concerns over the ability to pay medical bills, and six out of ten reported a rise in appointment cancellations. Additionally, delaying preventive care has created a surge of more expensive procedures needed to treat health problems. Providers have also seen an uptick in charity care and have been forced to discount fees.
Raleigh Durham-based Sageworks also reported delayed payments to providers. For example, home health agencies are, on average, waiting 34 days to receive payment, up from 30 days. The drop in household income makes it difficult for consumers to pay medical bills timely.
Unfortunately, the data suggests that this downturn is indeed different for health care companies. Thus, some health care portfolio companies could potentially struggle – or already are struggling – from the downturn in ways that industry experts previously did not anticipate.
