Five Industries Impacted By Health-Care Reform

The Patient Protection and Affordable Care Act (PPACA) is expected to boost the number of insured individuals entering the healthcare system and have a significant impact on a number of related industries. Industry research firm IBISWorld identified five industries affected by the newly enacted legislation:

Pharmaceutical Manufacturing
The potential gain of millions of new customers through increased healthcare coverage and Medicare and Medicaid benefits is expected to bolster sales throughout the next five years, bringing the average revenue growth rate to 2.0 percent annually, a total of $227.4 billion in 2015.

“When the Health Insurance Exchange (a marketplace for health insurance that will offer a choice of plans, establish common rules regarding the pricing of insurance and provide information to help consumers understand the options available to them) begins in 2014, sales are expected to jump 4.1 percent,” said Sophia Snyder, industry analyst with IBISWorld. “An estimated 32 million uninsured Americans will become insured and people with prescription drug coverage have a 75 percent higher drug utilization rate.”

Despite higher sales potential, profits will likely take a small hit; the industry agreed to pay out $84.8 billion in taxes and discounts over the next ten years to fill the Medicare coverage gap. Additionally, generics, which command a lower margin, will continue to dominate the market as the government aims to cut costs.

Pharmacies and Drug Stores
The Pharmacy and Drug Store industry will benefit from an increase in sales volume as more people gain insurance coverage for prescription drugs. More insured individuals will mean a boost in demand for prescription drugs, as occurred in 2006 when the Medicare Part D benefit was introduced.

Pharmacies will also experience increased traffic in their in-store clinics, which have stagnated at around 1,200 outlets. According to government data and estimates from the Associated Press, five million people live in areas designated as having a shortage of primary care physicians. Given the inadequate supply of primary care, millions of the newly insured are expected to flock to these retail clinic services. The number of in-store clinics is forecast to grow by around 5.0 percent per year from 2010 through 2012; growth is expected to top 10 percent annually in 2013 and 2014. As a result, industry sales should increase by an average of 2.6 percent annually through 2015.

“Although sales will pick up, profits are expected to come under pressure, as reform aims to reduce costs and the newly insured will have the advantage of third-party bargaining power,” explained Snyder. “As a result, the overall profit margin is expected to fall to 3.5 percent of revenue, down from 3.8 percent in 2010.”

Rivalry among pharmacies is also increasing as a result of price pressures. Currently, the top three players account for an estimated 70 percent of total sales, but in the next five years, the number of enterprises will decline by an average rate of 2.1 percent annually as the largest players continue to force the smaller ones out of business.

Medical Device Makers
This industry will face an estimated $20 billion in new taxes over the next ten years under the new legislation, causing many small companies that have yet to make a profit to lay off employees, cut R&D budgets or merge with larger players. Consolidation will also be spurred by the reform’s implementation of effectiveness research, that is, studies on which medical devices work best; smaller manufacturers may not have the resources to rebut studies that question a product’s value. As a result, the industry is expected to consolidate to 9,200 operators during the five years to 2015.

“Profits will decline as a result of the new taxes and sales growth will slow to 2.9 percent on average per year through 2015,” said Snyder.

Substance Abuse and Mental Health Facilities
PPACA requires all health plans to meet certain standards and cover mental health and substance abuse services on par with physical illnesses, thereby increasing demand in this industry. Revenue growth will increase by 4.1 percent on average per year for the next five years, up from 2.7 percent during the five years to 2010.

Expanded Medicaid coverage will help a wide range of individuals with unmet mental health and substance needs gain access to industry services. Snyder states, “The number of people who have severe mental illness and substance abuse problems and who are covered by Medicaid is expected to more than double with the reform, so companies that serve a high percentage of Medicaid patients will likely experience a surge in sales.” However, reimbursement through government programs could come under pressure if state and federal budget pressures continue to mount, squeezing profit margins.

Nursing Facilities
The healthcare legislation includes a list of changes to nursing services for seniors and the disabled, including an infusion of federal funding to help state programs provide more care through home- and community-based settings, which, presumably, will result in a reduction in nursing home care. The industry is expected to experience lower demand, which will be moderately offset by an increase in the number of insured. Overall, sales are expected to grow by 1.5 percent on average per year through 2015, reaching $109.5 billion. This is slightly lower than the previous five-year average growth rate of 1.7 percent annually.

Snyder estimates that profits should remain healthy due to improved government reimbursement rates in the industry: “Recognizing the disparity between Medicare and Medicaid reimbursement rates, the reform bill establishes supplemental payments to nursing facilities with high percentages of Medicare and Medicaid residents.”

Similar industries include: Pharmeceutical & Medicine Manufacturing , Pharmacies & Drug Stores , Medical Instrument & Supply Manufacturing

Retailers Say “I Do” To The Bridal Industry

With stores like J.Crew offering a bridal collection and now Urban Outfitters, it seems some retailers are looking to tap into a market that is ready to flourish. With wedding season here, IBISWorld looks at what’s really going on within this industry and where it may be headed.

“In 2010, The wedding industry will remain a difficult market with high unemployment and continued discomfort coming out of the worst recession in many years,” explained Toon van Beeck, senior analyst with IBISWorld. “Couples will continue to put off wedding plans this year, but 2011 is expected to be much stronger, as the economy will be in a better position than it is now or was in 2009. It’s for this reason, companies like Urban Outfitters may be aiming to capitalize on a strong rebounding wedding market, with a number of couples looking to 2011 and 2012 to tie the knot.”

The continued troubled economy throughout 2010 will see average wedding costs remain “low”, falling by an expected 4.0% to $19,200, from the $20,000 reported in 2009. As a result, the total wedding market is expected to be worth $42.73 billion (which excludes honeymoons). However, the wedding industry in 2011 will be much stronger, as the improved economy will see couples increase their average wedding spend, and therefore more will wed. This will push the wedding market up by an expected 15.5% to $49.3 billion.

Similar industries include: Personal Trainers , Wedding Planners & Other Services , Photography , Jewelry Stores

Gun Manufacturers: A Small Glitch In A Growing Industry

The guns and ammunition industry will experience its first decline in five years in 2010. Although Americans drastically cut back their spending during the recession, firearms and ammunition grew by an astounding 8.9 percent in 2009 alone. Prior to this year, growth was in the double digits in 2006 and 2008, and it was clear that this industry was flourishing in recent years. However, this thriving industry is expected to take a radical turn for the worse, declining by a whopping 5.7 percent in 2010, to $9.83 billion.

“One of the factors influencing civilian gun purchases has been the fear of increasing crime and civil disorder due to the economic downturn,” explains Nima Samadi, industry analyst with IBISWorld. “As the economy begins to recover, these fears will subside, lowering the uncharacteristically high revenue growth this industry has experienced.”

Another factor contributing to rise and fall of revenue is the new administration. The spike seen in recent years was partly attributed to the fears surrounding the possibility of the Obama administration enacting tougher gun control legislation. Therefore, gun enthusiasts were seizing the opportunity to get firearms and ammunition while they still could. But, with the likelihood that more pro-gun legislators will be elected in the 2010 mid-term elections, many of the fears that gun enthusiasts have about changes in gun laws will be ameliorated.

“Major firearm manufacturers such as Smith & Wesson are already lowering their revenue outlook for 2010 and the number of FBI background checks for gun purchases has already declined 4.1 percent, compared to the same period in 2009,” adds Samadi.

The small arms, ammunition and ordnance sector will continue to experience healthy revenue growth over the next five years, while purchases from the government sector are expected to remain steady due to the United States' continued involvement in Middle Eastern conflicts. However, as the U.S. military continues their planned withdrawal from Iraq and the war in Afghanistan declines in popularity domestically, military funding may be slashed.

On the other hand, the threat of terrorism is likely to persist for years to come, which will result in continued funding of federal, state and local law enforcement to expand their terrorism prevention and response capabilities, benefiting this sector.

The guns and ammunition manufacturing industry does face challenges though, many of which are part of long-term trends within the industry. Domestic producers have been dealing with rising import competition for years, with some having moved production off-shore to emerging economies with cheaper labor or acquired foreign weapons manufacturers.

This trend is set to continue in the future, with imports satisfying a growing portion of domestic demand. Throughout the five years to 2015, imports are forecast grow at a rate of 4.9% per year, with the U.S. exporting only around 300 million more than they are importing by 2015. Exports are forecast to grow at an average annualized rate of 2.6% over the five years to 2015. Overall though, domestic demand for guns and ammunition is expected to remain rather positive.

Similar industries include: Explosives Mfg. , Guided Missile & Space Vehicle Mfg. , Sporting Goods Stores