2013-2014 Industry Economic Outlook For U.S. Health Care
Forecast/ScenariosDownside* Baseline* Upside* Actual CommentBaselineimpact onsector
2013 2014 2013 2014 2013 2014 2012
Real consumerspending (%change)1.74 1.48 2.03 2.76 2.31 3.68 2.2 Consumer spending continues to growmodestly, supporting utilization rates.SomewhatFavorableTotal nonfarmpayrolls135.83 136.53 136.01 138.58 136.17 140.04 133.74 Although unemployment is still high, jobsare being created slowly, which shouldlead to increases in higher paying privatecoverage segment.SomewhatFavorableS&P 500operatingearnings pershare ($)102.39 88.29 106.26 113.75 109.35 134 96.82 We expect corporate profit growth tomoderate in 2014, which suggestsemployment growth will continue, butremain slow.SomewhatFavorable
Federal surplus(fiscal-yearunified, bil. $)(702) (783) (698) (726) (695) (669) (1,089) Continued large federal budget deficitsshould continue to place downwardpressure on Medicare reimbursements,which would hurt service providerrevenues directly and productmanufacturers more indirectly.Unfavorable*Based on our U.S. economic forecast "Legends Of The Fall", published Sept. 13, 2013, on RatingsDirect.
Industry Credit Outlook
We believe pharmaceuticals and related companies should see modest revenue growth in 2013
We expect low-single-digit revenue growth for the industry overall in 2014, as new product launches offsetpatent losses on significant products. Despite an improving rate of new product introductions, the introduction of generic drug competition once patents expire will constrain performance. In 2014, products with U.S. sales of about$17 billion will lose market exclusivity. We expect the Affordable Care Act will have a slight positive effect on thevolume of prescriptions written, although the majority of the volume is likely to be generic. We expect the trend of double-digit declines in branded drug prescriptions to continue, with generic prescriptions taking an increasing shareof total prescriptions written. Generics now comprise 84% of all U.S. prescriptions. Branded volume declines are offset by price increases; we believe average prices on the top selling drugs increased by about 11%, year to date.
Most of our rated specialty pharmaceutical companies are experiencing mid- tohigh-single-digit organic revenue growth in 2013 because of demand for existing marketed drugs, with acquisitionspushing reported revenue growth into the double-digits. We expect this level of growth to continue in 2014, and wewould attribute any negative deviation from this trend to company-specific operating problems or selected patentexpirations. We do not expect the Affordable Care Act to benefit specialty pharmaceutical companies because most of the incremental volume will utilize generic drugs and also because specialty pharmaceutical companies still havepricing power and patent protection on their branded products.
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Industry Economic And Ratings Outlook: The Outlook For U.S. For-Profit Health Care Will Remain Stable WithModest Negative Bias