Healthcare Markets

April 2nd, 2008 | Market Approach

As participants in the February BVR Teleseminar heard, my detailed research into for-profit and not for profit healthcare markets in the US yielded some striking differences and underlying structural reasons for those differences.  A brief synopsis follows.  I hope to see the related Paper published later this year and the findings will be one of the topics discussed at my Joint Presentation with Don Barbo at the AICPA/ASA Business Valuation Conference in November.

The degree of revenue and profit for healthcare provider entities varies significantly from state to state and even within different regions of individual states.  As a threshold matter, areas with high healthcare spending and particularly high Medicare[1] spending tend to offer the greatest opportunity for profit.  The elderly, of course, receive the bulk of medical care.  Given that high localized spending is the primary driver of profit, the other factors contributing to the pattern of location of larger for-profit providers include: 

  • The presence and market strength of Blue Cross plans,
  • The degree of market strength of local nonprofit hospitals versus for-profit hospitals,
  • The degree of market strength of local nonprofit health insurers versus for-profit health insurers,
  • Certificate of Need laws and
  • Other local demographic and economic factors.

[1] Medicare spending varies considerably from region to region with states such as Florida, Texas, California and Tennessee having high per capita and total dollar spending and many for-profit providers.

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