Profitability for large and mid-sized healthcare companies improved in 1995, while smaller firms continued to struggle, according to an analysis by WDI Capital Markets, a Hilton Head, S.C.-based investment banking firm.
"Smaller healthcare firms are faced with ever-increasing barriers to sustain growth," said John Cumming, WDI's chief executive officer. "Runaway growth of managed care has created pricing pressures which in turn have eroded margins."
In addition, consolidation among hospitals has reduced the number of purchasers of supplies, he noted.
For example, only 15% of healthcare companies with less than $10 million in revenues reported profits in 1995. That's about the same percentage as in 1994.
However, profits improved for other segments.
Thirty-nine percent of companies with revenues of $10 million to $25 million were profitable in 1995, compared with 37% in 1994. In the $25 million to $50 million segment, 78% were profitable, compared with 69% the year before, and in the $75 million to $100 million segment, 73% were profitable, compared with 68%.
Among provider and healthcare service companies, profitability increased with size. For example, all the companies with more than $250 million in revenues were profitable. In contrast, only 35% of companies with revenues of less than $10 million were profitable.
Those companies generally showed increasing profitability with increasing revenues.