Performance and Forecast of the U.S. Healthcare Industry: 2016-2018

This report provides an analysis of the U.S. healthcare sector, examining its performance in 2016 and 2017, and offering a forecast for 2018. The introduction discusses the impact of economic cycles on the healthcare industry, including the effects on health insurance, employment, and spending. The report then details the sector's performance in 2016, highlighting challenges such as declining pharmaceutical earnings and increased scrutiny on drug prices, which led to a decline in the overall sector. Despite this, the report notes a rebound in 2017, with improved financial metrics, rising demand due to an aging population, and strong employment. The report also provides a forecast for 2018, anticipating continued growth driven by increased demand for healthcare services, robust financials, and potential impacts from changes in healthcare policies. Factors such as fluctuations in exchange rates and competition are also considered. The report uses data from various sources to support its analysis.

Running head: HEALTHCARE SECTOR OF U.S
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Healthcare Sector of U.S
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Introduction
Economic cycles impact all the sectors of the economy inclusive of the health care.
During periods of economic progress, the healthcare industry improves significantly. On the
other hand, economic downturn often results in service reductions and budget cuts in the
healthcare sector and hence hiring freezes and layoffs. Moreover, significant segments of
healthcare industry such as nursing labor market are destabilized leading to adverse outcomes
like severe shortages which often extend beyond the recessionary period. Health insurance is also
another segment of the healthcare industry that is affected by an economy of the country. In the
United States, for example, many Americans receive health coverage from their employers.
Therefore, when unemployment is high, many individuals go without health coverage, and the
amount of money spent on health products reduces considerably (Ameritrade, 2017). This paper
explores the performance of healthcare industry in the United States in 2016 and 2017. The
article culminates by providing a performance forecast for this sector in 2018.
The 2016 -2017 Performance
In 2016, the healthcare industry in the United States performed poorly compared to the
previous years. It was the year when the drug patents began to roll off, and scrutiny on drug
prices increased. As a result, many pharmaceutical firms struggled, and there was a drop in
earnings and revenues. The overall sector is said to have declined by 7.1% (Ameritrade, 2017).
Despite the dreary results in 2016, the healthcare industry seems to be making a return in
2017. The balance sheets of the healthcare companies are solid, their respective stocks are
offering good dividend yields, and the general cost structures have improved significantly. For

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instance, the 61 shares in the category of Standard & Poor's 500 healthcare industries which
incorporate insurers, hospitals, medical device makers, biotechs and drug makers have increased
by 8.9% in 2017 (Shell, 2017). Furthermore, the demand for healthcare services and products is
on the rise. This situation is partly attributed to strong employment and an increase in the aging
population. The robust growth of this sector in 2017 is also depicted by P/E ratio improvement.
The P/E ratio for 2017 is 43.71 compared to 38.78 of 2016. The data from figure one below
shows that the various segments of the healthcare sector of the United States have gained in
2017. It is the only Health Care Services segment which is experiencing a decline (Yardeni,
Abbott, & Quintana, 2017).
Figure 1: Retrieved from Yardeni Research, Inc
2018 Forecast

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The robust growth in the healthcare sector experienced in 2017 is expected to continue in
2018 due to various reasons. Foremost, the demand for healthcare services is on the rise. The
increasing aging population is an indication that the demand for extensive medical care and drug
treatment will be high. The increase in issues resulting from obesity will also enhance the
demand for medical services (Ameritrade, 2017). Growth in employment creation is also
expected to amplify for healthcare services like insurance cover. Besides, strong financials in this
sector will improve the chances of high dividends payments, mergers, and acquisitions.
However, any alteration in Affordable care and drug pricing controls is likely to result in sways
in the healthcare stocks. Fluctuations in exchange rates as well as generic and biosimilar
competition will also play a critical role in determining the growth of this sector.

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Bibliography
Ameritrade. (2017, July 6th). Healthcare Sector Earnings: What Might Be Expected for Q2
2017? Retrieved August 22nd, 2017, from
https://tickertape.tdameritrade.com/trading/2017/07/healthcare-sector-earnings-q2-2017
Shell, A. (2017, March 20th). Health care stocks rebound despite fight over Obamacare.
Retrieved August 22nd, 2017, from USA TODAY:
https://www.usatoday.com/story/money/markets/2017/03/20/health-care-stocks-regain-
form-amid-fight-over-law/99405320/
Yahoo Finance. (2017). Healthcare. Retrieved August 22nd, 2017, from
https://finance.yahoo.com/sector/healthcare
Yardeni, E., Abbott, J., & Quintana, M. (2017, August 21st). Performance 2017 S&P 500
Sectors & Industries. Retrieved August 22nd, 2017, from yardeni.com:
https://www.yardeni.com/pub/peacockperf.pdf