Encompass Health Corp (EHC)

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Health Care Services Industry Profile

Profiting from someone else's misery isn't as easy as it seems, but the opportunity is present. The US health care services market, the world's largest, is worth nearly $1.4 trillion, while the European market is worth about $700 billion. Many companies, though, have failed miserably trying to claim some of that money.

A problem (and an opportunity) is the rising demand for services. People are living longer and need more care. The rise and fall of long-term care centers in the US is an example of the peril. Such firms as Kindred Healthcare, Sun Healthcare, and Beverly Enterprises, which once built and bought nursing homes and opened home care and other specialized care units, are now hurting. Taking care of patients requiring expensive drugs and other care drains budgets. Cutbacks prescribed in the 1997 Balanced Budget Act didn't help: Starting in 1998, providers were reimbursed based on per-day cost caps, not on the total cost of care.

In most nations, though, the government controls health care, but many of those are also suffering as costs rise and demand exceeds capacity. The UK National Health Service has announced it will team with such private sector providers as BUPA to help clear crowded waiting rooms.

Slashed budgets create a domino effect. The competition among health care supply distributors, including Alliance UniChem, McKesson, and Owens & Minor, has heated up as facilities look to cut their number of vendors and the costs of their supplies. These distributors are among the industry's leaders in adopting new technology to help cut costs.

Technology may not be the industry's panacea. Loading patient and payor information, supply orders, and other administrative red tape onto computers organizes information and helps reduce costly errors, but many doctors are reluctant; after all, learning the system takes time -- time that could be spent providing care to patients. Technology solutions are also pricey and don't often fit into budgets.