Case Type: industry analysis.
Consulting Firm: Trinity Partners final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; healthcare: hospital, medical; government & public sector; insurance: life & health.
Case Interview Question #00173: The year is 2004. You have been hired by the New York City Government because they want to analyze how the September 11th, 2001 terrorist attacks affected the healthcare industry in New York City and what losses resulted from the 9/11 attacks?
Healthcare sector economic conditions prior to 9/11
New York City’s healthcare sector, which comprises hospitals, health insurers, pharmaceutical and biotechnology companies, and a range of smaller businesses, such as home nursing care providers and private physicians, represents approximately 20% of Gross City Product (GCP) and is the source of approximately 345,000 jobs. The city boasts the nation’s largest concentration of world class research institutions and teaching hospitals that attract top researchers, physicians and students, capturing a significant share of available research funding. It is also home to several leading health care insurers and global pharmaceutical leaders, such as Pfizer and Bristol-Myers Squibb. New York City also has a small but growing presence in commercial biotechnology.
Prior to September 11th, the economic outlook for the city’s health care sector was mixed. Pharmaceutical and biotechnology companies appeared to have generally strong prospects. These prospects were driven by steadily rising demand, the relatively recession-proof nature of their products and favorable demographics and keen investor interest, particularly over the possibilities for genomics.
Prospects for hospitals and insurers were less rosy. New York City’s hospitals had long been in poor financial shape, falling below the 90th percentile nationwide, according to several traditional hospital operating metrics, such as total margins and current ratios. This fact had left little room for capital improvements and investments in information technology and other efficiency-enhancing measures. Though their financial position had improved, somewhat, in the past several years, most city hospitals had seen a deterioration in 2001. Deterioration had been driven by significant cuts in Medicaid and Medicare funding and increasing competitiveness in the market. The city’s teaching hospitals were also vulnerable to cuts in grants for medical education. The public hospitals, which had been in better financial shape than the teaching hospitals in recent years, continued to struggle under the burden of providing free care to patients admitted without medical insurance.
New York City’s health insurance firms were in better shape than its hospitals, but still faced challenges. The biggest were posed by the slowing economy. A recessionary environment typically translated into falling revenues from premiums, as workers lost jobs and health care coverage. Revenues were also being pressured as employers shift to cheaper, more restrictive plans in order to save money. At the same time, a slowing economy tended to prompt increased utilization of health care, as employees anticipated the loss of coverage, leading to higher medical loss ratios for insurers.
Question #1: What segments is the healthcare industry comprised of?