Higher living standards and healthier lifestyles are driving an increase in life expectancy in many countries. In the developed world, people aged over 65 now make up the fastest growing segment of society. And with an older population comes a higher risk of chronic diseases, leading to increased demand for healthcare services.
With healthcare budgets in many developed countries already stretched, new technologies that make healthcare provision more efficient could offer significant growth opportunities for investors.
Demographics driving high demand for healthcare
In 1950, the global average lifespan was just 47 years. By 2020, that will have risen to 73 years and by 2030 it is estimated by the United Nations that people around the world can expect to live (on average) to the age of 83. And the fastest growing age group in the world is now those aged over 65, who will account for 14.1% of the global population by 2040, compared with 9.3% in 2020. In the UK, over 65s will account for almost a quarter of the population by 2040, while in Japan the figure will be more than 35%.
And with increasing age, comes increasing healthcare complications. Conditions such as arthritis, heart disease, cancer, diabetes and chronic obstructive pulmonary disease (COPD) become more common as people grow older. Diabetes, for example, is expected to account for 25.5 million deaths around the world in 2020, according to research by the Marshall Protocol Knowledge Base. This compares to around 14.5 million deaths in 1990.
Cost pressure driving the call for change
Developed countries spend on average between 10% and 12% of GDP on healthcare. This ranges from the 9.8% in the UK to 12.2% in Switzerland. The US is an outlier within this list and currently spends 17% of GDP. This is set to rise to 25%. And with an ageing population there is increasing pressure on healthcare budgets. Government spending is stretched in many countries as areas such as education, welfare and pensions compete for funding.
A significant share of healthcare spending in many developed countries is at best ineffective and at worst, wasteful. For example, many patients receive unnecessary or low-value care that makes no difference to their health outcomes. Many health systems are poor at using generic drugs, while some provide care in expensive places such as hospitals, rather than in more cost-effective settings. This creates a significant need for healthcare providers to bolster efficiency and cut down on waste.
Technology is providing the means to bolster efficiency
The way that technology is transforming the provision of healthcare can be seen in the treatment of diabetes. The number of people living with this chronic disease around the world is set to reach 642 million by 2040. This compares to 415 million in 2015. Wearable glucose monitors, which continuously measure a patient’s sugar levels throughout the day and night, help to reduce the need for finger-prick blood tests. The device makes it easier for sufferers to self-manage their condition, cutting demand on hospitals and surgeries.
More effective use of technology is helping to reduce waste, cut down on mistakes and bolster healthcare efficiencies. Smartphone technology is being used to monitor the health of patients, with some apps offering rewards when a patient achieves a certain activity or health goal, for example walking a certain number of steps in a day. Appointments with doctors and therapists are also increasingly being made available via video apps on phone and laptops.
Innovation is opening up new investment opportunities
With the development of new healthcare technologies rapidly accelerating, companies at the forefront of innovation could offer attractive opportunities for long-term investors. The value of pharmaceutical and biotech investments grew by 232% between 2010 and 2018 to $28.3 billion (from $8.5 billion), according to research by McKinsey. In the same period, the value of health tech and digital health investments grew by 186% to $30.8 billion (from $10.8 billion).
Moreover, research by BofA Merrill Lynch has predicted that some areas of healthcare could see their market sizes expand by compound annual growth rates (CAGR) of more than 50% in the period between 2018 and 2025. For example, the market size for big data (the better use of data to improve patient outcomes) and artificial intelligence in healthcare is forecast to grow by a CAGR of 50.1% to $36.1 billion (from $2.1 billion).
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