Earnings Growth Contributes to Stable Health Care Outlook

Stable fundamental business conditions for the next year-and-a-half are expected for global pharmaceuticals, U.S. medical products and devices, and U.S. for-profit hospitals, Moody’s Investors Service said in a new report. The ratings agency expects EBITDA (earnings before interest, taxes, depreciation and amortization) growth for each sector.

"Global demand for health care products and services will continue to rise," said Moody's Senior Vice President Michael Levesque; “however, rising health care spending creates budgetary pressures, driving ongoing cost-containment efforts. Payers will increasingly focus on cost effectiveness and value, and employers and insurers will place greater cost sharing on patients."

New product launches should drive incremental growth in the global pharmaceutical sector. Branded pharmaceutical prices are expected to rise at a slower pace in the United States, while the agency forecasts single-digit price declines in Europe and Japan.

Earnings growth from 2.5% to 3% in the U.S. for-profit hospital sector lead to Moody’s stable outlook, though high deductibles and copayments will increase the collection burden for health care providers. Rising bad debt expenses will weigh on EBITDA margins.

"Rising costs, including higher wages and pharmaceutical prices, will limit ability to improve margins given the slow pace of revenue growth," said Moody's Senior Vice President Dean Diaz.

Moody’s stable outlook for U.S. medical products and devices, with an estimated EBITDA increase from 3% to 3.5%, reflects solid growth from the release of new products, particularly in cardiology and orthopedics. Medical device manufacturers, however, may experience increasing pricing pressure with the shift toward value-based reimbursement for health care providers, Moody’s said.

– Adam Fusco, editorial associate

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