Healthcare’s Fastest-Growing Companies—By the NumbersFebruary 28, 2014 by Melissa McCormack
Each year, Inc. magazine releases its list of the 5,000 fastest-growing companies in the nation: the “Inc. 5000.” The list is comprised of companies from more than 30 sectors—including the health industry.
To gauge how the health industry has evolved over the past five years, we took a look at health companies from Inc.’s 2008 and 2013 lists. We analyzed 264 companies from 2008 and 355 from 2013. Here’s what we found:
- Health companies on Inc.’s list experienced above-average five-year revenue growth (96 percent, compared to the all-industry average of 69 percent).
- Health companies providing consulting and outsourced business services topped the charts in 2013 with $2.7 billion in total revenue.
- Pharmaceuticals earned the highest average revenue per firm ($131 million) and revenue per employee ($1.14 million) in 2013.
Business Models in the Health Industry
To make more granular observations about the health industry, we’ve segmented the companies in that industry into ten business models, which we’ll analyze further in this report. Those business models include:
- Biotech / Life Sciences: Laboratories and companies that develop or test products using living organisms.
- Business Service Providers: Companies that provide business consulting services to, or perform outsourced business services for, health organizations (excluding IT consulting).
- Consumer Services: Companies that provide non-medical services to healthcare consumers, such as publishing educational health content.
- Devices and Equipment: Companies that manufacture and/or distribute medical devices, supplies or equipment to health organizations or directly to consumers.
- Fitness / Supplements: Fitness centers and companies that manufacture and/or distribute dietary products, vitamins and supplements.
- HIT / HIT Consulting: Companies that develop and sell health IT software or technology, and companies that provide health IT consulting services.
- Home Care: Companies that provide patients with in-home medical care, rehabilitation or assistance with daily living tasks.
- Medical Services: Hospitals, ambulatory clinics and other organizations that provide medical services directly to patients.
- Pharmacy / Pharmaceuticals: Retail and specialty pharmacies that provide drugs to health organizations or directly to consumers, and pharmaceutical companies that develop those drugs.
- Staffing: Companies that place employees at health organizations, in positions ranging from clinical to administrative to executive.
Health Companies Experienced Above-Average Growth
Total revenue for all health companies on the Inc. list grew 96 percent over the five-year time period we analyzed: from $9.1 billion in 2008 to $17.9 billion in 2013. The average revenue growth of companies from all industries was 69 percent, landing the health industry squarely in the “above-average” category (though it ranks ninth overall, behind such industries as security and media).
The number of health companies on Inc.’s list grew by nearly 35 percent in the five-year time period we analyzed, from 264 in 2008 to 355 in 2013. This volume increase is partly responsible for the overall revenue increase. But per-company revenue in the health industry grew as well: the average health company on the Inc. list generated 46 percent more revenue in 2013 than in 2008 (with revenue growing from $34.5 million to $50.3 million per firm). In other words, the health industry is growing, healthily.
Business Service Providers Lead the Pack
The proportion of health business models represented on Inc.’s list stayed remarkably similar between 2008 and 2013. Business service providers comprised the biggest piece of the pie in both years: 20 percent of health companies on the list were business service providers in 2008, compared with 21 percent in 2013.
Business service providers also led the way in revenue each year. In 2008, business service providers accounted for $1.5 billion in revenue—the highest-grossing business model among health companies, but only by $0.1 billion. But by 2013, business service providers’ revenues skyrocketed to $6.4 billion, giving them an almost $4 billion edge over the next highest-grossing business model (medical services, with $2.8 billion).
It should be noted, however, that one company in particular on the 2013 list grossed $2.7 billion in revenue, an outlier which contributed to the business service provider boom. Still, even factoring out that company’s revenue, the business service provider business model registered close to $4 billion in revenue in 2013.
The fact that the proportion of business service providers on the list stayed constant while revenues grew dramatically indicates the average business service provider did significantly more business in 2013 than in 2008—an assumption the data support. The average revenue per business service provider on Inc.’s list grew by more than 200 percent over the five-year time period.
This growth suggests that healthcare organizations are increasingly employing the assistance of consultants and outsourced providers for services such as accounting, marketing and strategy development. And since most of the business service providers on the Inc. list serve either pharmaceutical companies or medical service providers—business models which grew in revenue by more than 100 percent each over the last five years—we might even infer that the use of business service providers is helping health organizations generate more revenue.
We were a little surprised that health IT and IT consulting placed so low on the list. Though these companies’ revenues did increase, we expected more dramatic growth given 2009’s HITECH Act which introduced monetary incentives for providers to adopt health IT in the form of electronic health records (EHRs).
Pharmacy and Pharmaceuticals Enjoy Highest Average Per-Firm Revenue
Although business service providers account for the biggest chunk of revenue overall, pharmacies and pharmaceutical companies had the greatest percent increase in revenue, with more than 200 percent growth from 2008 to 2013.
These companies also saw the highest revenue per firm in 2013, with an average of $131 million per company. The consumer services business model held the highest-revenue-per-firm honor in 2008, averaging $135 million per company—but consumer services revenues sunk to just $15.2 million per company in 2013. This loss is likely due to the fact that insurance providers (which tend to generate the highest revenue in the category) were more sparse on the Inc. list in 2013 compared with 2008—in other words, they’re not growing as rapidly as other types of health companies.
Pharmacies and pharmaceutical companies also earned the highest revenue per employee in 2013—a metric with strong implications for a firm’s profitability. These companies generated $1.1 million per employee in 2013, significantly eclipsing the second-place business model: business service providers, which generated some $400,000 per employee.
This is perhaps unsurprising, since pharmaceutical companies are consistently listed among the most profitable in the U.S. They’ve long been notoriously good at profitizing revenues, and our research confirms that they generate relatively more revenue with relatively fewer employees than other health business models. Pharma companies are also heavy users of business service providers, which could indicate that outsourcing processes or consulting with experts helps these companies streamline operations and improve efficiencies, increasing both revenues and profits.
From 2008 to 2013, health companies increased in prevalence on the Inc. 5000 list, indicative of the industry’s growth. Health companies on Inc.’s list increased in overall revenue, revenue per company and revenue per employee. If the industry’s fastest-growing companies are any indication, the future looks bright for health organizations.