Compared to the automotive or housing sectors, there is a general consensus that healthcare and diagnostics (as part of the healthcare industry) are fairly recession-proof. But are they really? According to Kalorama Information’s latest research report, “In Vitro Diagnostics in a Recession,” the answer may be: “Yes, but…”
Diagnostics starts with an advantage, for while there have been decreases in discretionary health spending, not all types of medical care can be put off. Heart disease, cancer, diabetes, autoimmune disease, and many other diseases strike regardless of the economic environment, ensuring a foundational demand for testing. This may seem an obvious conclusion—people get sick and will still need care, in spite of the state of the economy. But the safe-haven status that healthcare enjoys may be only relative to that of other industries.
In fact there is evidence that some patients are cutting back on care. A study conducted by the Associated Press found that people with diabetes are increasingly cutting back on doctor visits, treatment, and testing. Such a slowdown in doctor visits would impact most areas of the testing industry.
While testing now takes place in a variety of settings, most still occurs in hospital labs. Yet hospital funding is in jeopardy. A major source of hospital funding is derived from investment income. Some 80% of hospital asset financing is rooted in equity investments. With the constriction of the stock market, analysts estimate that most hospitals now have at least 50% less money to spend.
As a result of the cash crunch, weaker hospitals may not survive and will be acquired. This new wave of hospital consolidation is also not necessarily a positive sign for in vitro diagnostics (IVD) companies. There will be fewer purchasers of equipment and reagents. Traditionally, small labs pay more for reagents and supplies than larger labs, and thus there may be a slight reduction in the price point for some routine tests.