# Exploring the Healthcare Sector: Industries, Key Statistics, and More

![Healthcare Sector: Businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients.](https://www.investopedia.com/thmb/-HyumHLETJzwE4LOvRSbPDmDrT0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/health_care_sector.asp_Final-a32bc5773ace4e71b4e7dbbfd9b697f2.jpg)

*— Investopedia / Candra Huff*

## What Is the Healthcare Sector?

The healthcare sector represents a significant and complex portion of the U.S. economy, comprising industries that provide medical services, manufacture medical equipment and drugs, or offer insurance. Accounting for 18% of the GDP in 2020, this sector is driven by strong demand due to medical research, development, and an aging population. Understanding its structure and economic influences, including government intervention and inelastic demand, is crucial for navigating potential economic issues and reform uncertainties.

### Key Takeaways

*   The healthcare sector is a significant component of the U.S. economy, accounting for 18% of the GDP in 2020.
*   Companies within the healthcare sector range from drug manufacturers and medical equipment makers to managed healthcare providers and healthcare facilities.
*   The industry is marked by challenges like price inelasticity, regulatory barriers, and political uncertainties.
*   U.S. healthcare spending is the highest globally per capita, yet health outcomes often lag behind other developed countries.
*   Investment in the healthcare sector is subject to political risks due to ongoing reform efforts and regulatory changes.

## Key Dynamics of the U.S. Healthcare Sector

The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for 18% of [gross domestic product](https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/) (GDP) in 2020. The U.S. healthcare sector benefits from strong medical research and development, supported by universities and the tech industry. The aging U.S. population, especially Baby Boomers, is creating high demand in the healthcare sector.

Economically, healthcare markets are marked by a few distinct factors. Government intervention in healthcare is widespread because of these economic factors. Demand for healthcare services is highly [price inelastic](https://www.investopedia.com/terms/e/inelastic.asp). Consumers and producers face inherent uncertainties regarding needs, outcomes, and the costs of services. Patients, providers, and others face uneven information and common principal-agent problems.

Major [barriers to entry](https://www.investopedia.com/terms/b/barrierstoentry.asp) exist in the form of professional licensure, regulation, intellectual property protections, specialized expertise, [research and development](https://www.investopedia.com/terms/r/randd.asp) costs, and natural [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp). The need for capital varies widely between pharmaceutical companies, large facilities, and those providing insurance and medical supplies. Using or not using medical services can create significant external effects, especially with infectious diseases. [Transactions costs](https://www.investopedia.com/terms/t/transactioncosts.asp) are high in both the provision of care and the coordination of care.

## Diverse Industries Fueling the Healthcare Sector

The healthcare sector contains a diverse array of industries, with activities ranging from research to manufacturing to facilities management.

### Drugs

Drug manufacturers can further be broken down into biotechnology firms, major pharmaceutical firms, and makers of generic drugs. The [biotech industry](https://www.investopedia.com/etfs-4427784) consists of companies that engage in research and development to create new drugs, devices, and treatment methods.

Many of these companies are small and lack dependable sources of revenue. Their market value may depend entirely on the expectation that a drug or treatment will gain regulatory approval, and [FDA](https://www.investopedia.com/terms/f/fda.asp) decisions or rulings in patent cases can lead to sharp, double-digit swings in share prices. Examples of (larger) biotech firms include Novo Nordisk (NVO), Regeneron ( REGN), Alexion ( ALXN), Vertex ( VRTX), Gilead Sciences Inc. (GILD), and Celgene Corp. (CELG).

Major pharmaceutical firms also engage in research and development but tend to focus more on manufacturing and marketing an existing portfolio of drugs than the typical biotech firm. These companies tend to have more dependable streams of revenue and a more diversified "pipeline" of drugs in the research and development stages, making them less dependent on make-or-break drug trials and their shares less volatile. Examples of major pharmaceutical firms include Johnson and Johnson, Roche, Pfizer, Eli Lilly, Novartis AG. GlaxoSmithKline, and Astrazeneca.

Some pharmaceutical firms specialize in generic drugs, which are identical to name-brand drugs but no longer enjoy patent protection. As a result, there is often competition to manufacture identical drugs, leading to lower prices and thinner profit margins. An example of a generic drugs firm is Teva Pharmaceutical Industries Ltd.

### Medical Equipment

Medical equipment makers range from firms that manufacture standard, familiar products—scalpels, forceps, bandages, and gloves—to those that conduct cutting-edge research and produce expensive, hi-tech equipment, such as MRI machines and surgical robots. Medtronic PLC is an example of a medical equipment maker.

### Managed Healthcare

Managed healthcare companies provide health insurance policies. The "Big Five" firms that dominate the managed Medicaid industry are UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Molina., and Centene.

### Healthcare Facilities

Healthcare facilities firms operate hospitals, clinics, labs, psychiatric facilities, and nursing homes. Examples include Laboratory Corp. of America Holdings, which operates facilities that perform blood tests and other analyses, and HCA Healthcare Inc., which operates hospitals and other healthcare facilities in the U.S. and U.K.

## Comparing U.S. Healthcare With OECD Countries

According to the OECD, some of the highest-quality care in the world can be found in the U.S., but in terms of some measures of health the U.S. lags other wealthy, developed countries. According to the OECD, life expectancy in the U.S. is 78.9 years, below the OECD average of 80.

Despite these results, the U.S. spends more on healthcare per person than any other country: $10,948. This situation has led to a number of national reform efforts, including the [Affordable Care Act](https://www.investopedia.com/terms/a/affordable-care-act.asp). Investors in the healthcare sector face considerable political risk as a result of uncertainties around the push-and-pull between politics and industry interests.

## The Bottom Line

The healthcare sector, a crucial part of the U.S. economy, includes a diverse array of industries ranging from pharmaceutical and biotech firms to healthcare facilities and managed healthcare providers. This sector benefits from robust research and development, but is also characterized by complex challenges, including high costs, regulatory scrutiny, and political risks.

Despite the U.S. spending significantly more on healthcare than other developed nations, health outcomes lag behind. Investors and stakeholders must navigate a landscape shaped by inelastic demand, economic barriers, and ongoing reform efforts due to the sector's significant impact on GDP and societal well-being.

> **Article Sources**
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> 3.  OECD. "[Life Expectancy at Birth](https://data.oecd.org/healthstat/life-expectancy-at-birth.htm)."
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