Health is big business in Australia, with revenues exceeding $200 billion in the fiscal year that ended in June 2012. The make-up of this vast and complex industry in 2009-10 is shown in the first exhibit, followed by a supporting table showing revenues and growth rates for the industryâs components.
Hospitals & Nursing homes represent the largest segment, accounting for over 29% of the total industryâs revenue that year, followed by GPS & Specialists at over 10%.
Interestingly, clean water and sewerage facilities were one of the industryâs vanguards for good health centuries ago, reducing germs and infestation. It still is vitally important and takes up almost 7% of the industryâs revenue.
In terms of growth rates, Health Insurance heads the list with an expected average real growth of 6.9% pa over the 5 years to F2015. Waste disposal, as important as sewerage, in preventative health runs second at 6.5% pa. Medical & Surgical Equipment (5.5% pa), Health Buildings Construction (also 5.5% pa), Ambulance Services (5.2% pa) and Nursing Homes (5.1% pa) make up an eclectic mix of leading growth components in this industry.
Overall, growth is expected to average 3.8% pa, or nearly half a percent faster than our GDP to the middle of this decade,
One of the many key challenges of this industry is productivity. As the third chart shows, productivity has been poor over the past decade.
The industry has had half the productivity (increase in output per hour worked) of the nation at large at 15.2 % over a 15 year period, converting to less than 1% per annum over that period. Only Mining, running fat on massive mineral price increases, and Utilities (electricity, gas & water) that are largely government owned and unionised were in negative territory; making our health industry look reasonable by default.
But how do we compare with the world? The next two charts provide some useful perspective, even though the most recent comparative data is for 2007.
The first chart reminds us of the terrifying level of spending in the USA (16% 0f GDP) for a health service that is neither as comprehensive in its cover of all citizens nor necessarily any better in its general proficiency. We are heading slowly towards 10% of GDP and over by the end of this decade as our society ages, and as citizens want to be healthy and pain free all through life. Currently we sit below the average on the chart, yet with arguably among the best health services in the world.
The second chart shows the proportion of the health bill picked up by government (with our taxes). Perhaps surprisingly, government has carried two thirds of the bill for a century.
Again we sit low in the chart, a nice place to be compared with the more socialised nations such as the European nations headed by Denmark, the UK and Sweden at over 80% of the bill. Interestingly, Japan is in the same league of socialised health but with an outlay that less than Australia as a share of GDP.
Our health industry at large, as defined in the earlier exhibits, is now bigger than our manufacturing industry, and could well be our largest industry in the foreseeable future. We clearly have made it a priority in our lives.
The main challenge, in economic terms, will be productivity growth to slow cost increases and prevent us from following the USA into scary outlays, both by citizens directly and the government using our money anyway. The technological and research challenges are as great or greater in finding solutions to cancer, ageing diseases, pain relief and longevity.
Hereâs to us making great progress in both.
Phil Ruthven, Chairman IBIS World