Healthcare Demand and the Aging Population: What Investors Should Know

Demographic Trends of the Aging Population

Healthcare spending is projected to grow due to demographic trends, with an aging population driving mid-single-digit growth, particularly through increased Medicare Advantage usage.

"We expect overall spending on health care to continue to grow in the future, due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the population and national interest in health and well-being." --- (UNH, sec filing, 2024/Q1)

"And we continue to see and believe over the coming years that it will be a mid-single-digit growth, and that will be a combination of demographic growth, maybe slowing a little bit in the latter years of this decade, but we continue to see that along with the penetration of more beneficiaries using Medicare Advantage." --- (HUM, earning call, 2024/Q1)

Increased Demand for Healthcare Services

Healthcare providers are experiencing increased demand for services, with HCA Healthcare and UHS reporting higher admissions and improved patient management. Additionally, there is a notable shift towards outpatient services driven by technological advances and insurer pressures, while rural areas contribute significantly to overall demand.

"The people of HCA Healthcare continue to deliver for our patients with improvements in key non-financial metrics, including improved quality outcomes, more efficient process measures in emergency room services, which have accelerated time to discharge and increase satisfaction, and finally, better inpatient capacity management with reduced length of stay and increased acceptance of patients who needed to be transferred to our hospitals." --- (HCA, earning call, 2024/Q1)

"Our Acute Hospitals continue to experience strong demand for their services in the first quarter with adjusted admissions increasing 4.5% year-over-year on a same-facility basis." --- (UHS, earning call, 2024/Q1)

"Yeah. I think that absolutely fits in with what we're seeing that they get they're able to get healthcare exchange insurance, but with that comes a higher co pay and deductible, and there's still that barrier for them to be able to meet that, particularly for those at the lower end of the wage spectrum." --- (CYH, conference, 2024/05/14)

"Then underneath that, we're exploring whether the market demand for those services was something we call end market demand or it came from the rural market into a major market because the rural market is another target market for us because of the deficits in capacity and talent in rural America, healthcare travels to the cities And in our communities, 18% of all demand for healthcare comes from the rural community into HCA markets." --- (HCA, conference, 2024/05/30)

"The percentage of patient service revenue attributable to outpatient services has generally increased in recent years, primarily as a result of advances in medical technology that allow more services to be provided on an outpatient basis, as well as increased pressure from Medicare, Medicaid and private insurers to reduce hospital stays and provide services, where possible, on a less expensive outpatient basis." --- (UHS, sec filing, 2024/Q1)

Pharmaceutical Needs of the Elderly

Pharmaceutical companies are increasingly focusing on the elderly, with Eli Lilly expanding its pipeline of innovative medicines and Pfizer securing approvals for vaccines specifically targeting older adults in multiple countries.

"Our focus is to bring innovative medicines to people in need. And in 2024, we're investing in our people, our launches, expanding our pipeline of new medicines, including through business development, and of course accelerating the needed capacity in our manufacturing network." --- (LLY, earning call, 2024/Q1)

"The vaccine has also received approvals from la Administración Nacional de Medicamentos, Alimentos y Tecnología Médica (ANMAT) of Argentina in September 2023; the Medicines and Healthcare products Regulatory Agency (MHRA) of the United Kingdom in November 2023; Health Canada in January 2024; the Pharmaceutical Administration Bureau of Macau in February 2024; the Ministry of Health, Labour, and Welfare of Japan for maternal immunization to help protect infants in January 2024 and for older adults in March 2024; and the Therapeutic Goods Administration of Australia in March 2024 for older adults." --- (PFE, press release, 2024/04/09)

Rising Usage of Medical Devices

Medical device usage is rising, driven by consistent growth in companies like Abbott and Boston Scientific, expanding applications, and innovations in heart-assist, neuromodulation, and renal denervation devices. This trend is fueled by an aging population and increasing prevalence of conditions like hypertension.

"When you have our medical device businesses growing at mid-teens consistently over the last, whatever, four or five quarters, that has a real strong impact on our gross margin." --- (ABT, earning call, 2024/Q1)

"And as we look towards other potential uses of that device beyond instant restenosis, bifurcation lesions, small vessel disease, that to 1 in 5 interventional procedures in the U. S. Very good." --- (BSX, conference, 2024/05/29)

"The primary contributors to the growth of the renal denervation devices market are the increasing elderly population, the rising prevalence of hypertension, and the procedure's long-lasting effects." --- (MDT, press release, 2024/07/16)

"It's a much easier closure device after open heart surgery, and because we are innovative, because we have clinical data, we carry an ASP premium when we do cases with Sterilog." --- (ZBH, Investor Day, 2024/05/29)

"In heart failure, growth of 9% was driven by our market-leading portfolio of heart-assist devices that offer treatment for both chronic and temporary conditions. In neuromodulation, growth of 8% was driven by strong demand in international markets for our Eterna rechargeable spinal cord stimulation device, which obtained CE mark in Europe last year. In vascular, we received FDA approval in late April for our Esprit dissolvable stent, a breakthrough innovation for people who suffer from blocked arteries located below the knee." --- (ABT, earning call, 2024/Q2)

Long-term Care Demand

Long-term care demand is rising due to increased use of long-term care insurance among seniors and the need for sustainable solutions beyond temporary measures. Home-based health care services are also impacting demand, allowing some individuals to live at home longer. Government payment rates and economic factors further influence this demand.

"The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing services." --- (ENSG, sec filing, 2024/Q1)

"I'm curious also, as we've seen a big ramp in home-based health care services, are you seeing any impact from that on demand or individuals able to live at home longer in specific areas?" --- (BKD, earning call, 2024/Q1)

"Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors." --- (NHC, sec filing, 2024/Q1)

"At best, we believe these are temporary Band Aids, not long-term solutions for small providers." --- (ADUS, earning call, 2024/Q1)

"This may aid older patients in obtaining or keeping their health insurance in order to pay for long-term care services." --- (ENSG, sec filing, 2024/Q1)

Insurance Implications for an Aging Population

Higher medical cost trends in Medicare Advantage plans and the need for differentiated member experiences are driving increased benefit expenses and the necessity for value-based care models. These changes aim to improve health outcomes, satisfaction, and loyalty among seniors, while managing costs and maintaining performance levels in the insurance sector.

"Benefits Expense The Insurance segment benefit ratio increased 320 basis points from 86.1% for the 2023 quarter to 89.3% for the 2024 quarter primarily due to higher Medicare Advantage medical cost trends in the 2024 quarter compared to the 2023 quarter partially offset by the impact of pricing and benefit design of our 2024 Medicare Advantage products, which included a reduction in benefits in response to the net impact of the final rate notice and the initial emergence of increased medical cost trends." --- (HUM, sec filing, 2024/Q1)

"It drives better health outcomes, provides a higher-value, significantly more comprehensive benefit for people, all at a lower cost to beneficiaries and taxpayers, and is more popular with and valuable to seniors than traditional Medicare." --- (UNH, earning call, 2024/Q1)

"And then in addition to that, we do believe over time, if we can create differentiated experiences for our members who use those services, then we can increase claim satisfaction, and patient satisfaction, increase engagement, which should ultimately lead to better service results, improved loyalty and retention and overall improved total cost of care health outcomes, which can be driving further incremental margin and also reinvest it back in the business to support further growth." --- (HUM, earning call, 2024/Q1)

"Through OptumHealth, we're making strong progress toward our goal to transition to 7 to transition 750,000 more people to fully accountable value based care arrangements this year, bringing the total number of people we serve through this comprehensive model to nearly 5,000,000." --- (UNH, event transcript, 2024/06/03)

"Susan Diamond: Josh, so as we think about the 3%, and as Justin had asked earlier, that even historically had been -- how the business has been performing and expectation that we would be able to continue to maintain that level of performance and believe that the industry will minimally require that level of margin, just recognizing the inherent sort of risk in the insurance business the regulatory capital that has to be established." --- (HUM, earning call, 2024/Q1)

Financial Implications for Investors

Investors can expect significant financial implications from the aging population's healthcare demand. Companies like Welltower and Ventas are actively investing in healthcare properties, managing long-term financing, and maintaining strong liquidity positions. These strategies highlight the sector's potential for value creation and financial stability, making it an attractive investment opportunity.

"Since the beginning of the year, we have closed or under contract to close $2.8 billion of investments across 23 separate transactions, including $1.1 billion, which we spoke to in February, mostly made up of the affinity transaction." --- (WELL, earning call, 2024/Q1)

"For that reason, we generally attempt to match the long-term duration of our investments in real property with long-term financing through the issuance of shares of our common stock or the incurrence of long-term fixed rate debt." --- (VTR, sec filing, 2024/Q1)

"This allowed us to fund investment activity, along with the extinguishment of approximately $1.5 billion of debt in the quarter, including $1.35 billion of senior unsecured notes and ended the quarter with $2.5 billion of cash and restricted cash on the balance sheet." --- (WELL, earning call, 2024/Q1)

"And we have a great demand driven business. And at this moment in time, it's Ventas represents a really interesting and I think compelling value creation opportunity in terms of and you must agree because you have a buy on the stock, but the growth and the multiple combination is really something that screens incredibly well for investors, and we're just getting going." --- (VTR, conference, 2024/06/04)

"We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities and commercial paper program." --- (VTR, sec filing, 2024/Q1)

Government Policy and Regulation Impact

Government policies and regulations significantly impact healthcare demand. CVS and Humana highlight the effects of Medicare program changes and MA rate notices on funding and benefits. UnitedHealth focuses on policy solutions for universal coverage and affordability. Cigna notes regulatory restrictions on cash flows, while CVS also mentions the potential business impacts of the Inflation Reduction Act.

"Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms." --- (CVS, sec filing, 2024/Q1)

"UnitedHealth has stated that its political contributions are designed to advanced policy options excuse me, advanced policy solutions that focus on achieving universal coverage, improving health care affordability, enhancing the health care experience and achieving better health outcomes." --- (UNH, event transcript, 2024/06/03)

"Our businesses generate significant cash flows from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company." --- (CI, sec filing, 2024/Q1)

"Specific to 2025, we expect benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address their current medical cost trend environment and regulatory changes." --- (HUM, earning call, 2024/Q1)

"With about a minute left, one last question here. Not a lot of companies have been proactively talking about the Inflation Reduction Act and how that could impact the business, but there's obviously a lot of things that are going to change over time related to that legislation." --- (CVS, conference, 2024/05/14)