Wednesday, April 22, 2015

Physical Therapy - Healthcare Sector Qualitative Outlook

Research Gremlin here.  Recently Ryan at My Dividend Growth (MDG) put up a great post on some healthcare sector dividend challengers, plucked from David Fish's CCC list.  This was an excellent look at four companies that have a ton of promise.  I personally liked one, U.S. Physical Therapy, Inc. (USPH), enough to write about their industry.  The article at MDG covers basics about the company, and I want to take a broader look at Physical Therapy (PT) (warning this is a long post).  Part of this is due to curiosity and that I had almost gone into this profession, but part is also to take a look at healthcare with our changing and aging populace here in the USA.

If you search on Google "Physical Therapy" your first two results are The American Physical Therapy Association (APTA) and the Wikipedia entry for it.  Perhaps I get the former because I live close to their main office, but regardless what follows the first two is a series of providers local to my area.  There are hospitals and private practices, along with offers for education and other related items.

Focusing on what PT is you get a general definition of "profession that remediates impairments and promotes mobility, function, and quality of life through examination, diagnosis, and physical intervention" (straight from Wikipedia).  When searching for the definition you get "the treatment of disease, injury, or deformity by physical methods such as massage, heat treatment, and exercise rather than by drugs or surgery" from Google.  So although the definitions by are not identical, they are not terribly far off each other.  However, Wikipedia is much more scientific and Google focuses on specific treatments; so let's use both together as a combined definition for what the field does.  With that established its important to understand the main groups which will receive this service; those include rehabilitation sports injuries and services for older segments of the population. 

Sports injuries (Wikipedia) come in two types, traumatic and repetitive.  The former is a sudden injury from dynamic motion or contact, typical of sports such as hockey, football (America), soccer, rugby, etc.  The latter is from frequent motion activity such as long distance running, swinging of a racquet (tennis elbow), or throwing of ball (as a pitcher in baseball would).  Both types of injuries require PT to rebound from, some need extensive services.  The fact is injuries are becoming more common, partially due to our understanding of them.  Watch a football game today and you will recognize injuries are treated much faster and with greater care, and rehab can take longer.

This is not only visible in professional sports, but rather a big part of youth sports (ABC News).  Look at the statistics on sports injuries across the general population and you see a trend with an increase in occurrence.  Each year hospitals see 30,000 high school sports injuries, 500,000 doctor visits occur due to those injuries, and an estimated 2 million injuries are reported at that level.  Those numbers are astonishing; what is even more disturbing is approximately 3.5 million kids receive medical treatment for sports injuries.  Those are jaw dropping numbers, and if you think that is all, check out that link to the Stop Sports Injuries Organization.  These figures are backed up by the American Academy of Orthopedic Surgeons, not pulled out of thin air either. They get even worse if looking at some specific injuries like ACL tears and shoulder / elbow stress (AAOS, Dr. Kocher), which require surgery or time to correct.  That interview also brings up many points, chiefly that children are not just miniature adults, their recovery and return should be viewed much differently.

Naturally, the idea is to slow or prevent those injuries.  One interesting fact from those links you see above is that the majority, 62%, of injuries occur during practice.  This makes sense because most teams practice way more than they play other teams.  On top of that, parents and kids are increasingly pushing or pushed into one sport they excel at instead of multiple sports.  This ups the chance of repetitive injuries, and in my opinion does a disservice to kids in terms of sports knowledge and experience.  I know I learned a playing soccer, baseball, hockey, and basketball - which influence the sports I play today and allow me to see them in a different light than someone who has only played 1 or 2 sports their entire life.  This is also pointed out in the ABC News link above, specialization too early is partly to blame for injuries.
(Courtesy Wikipedia)

As you can see, sports injuries are on the rise and PT will play a huge part in fixing those problems.  Those trends will not change for a while, and neither will the issue of aging in the USA.  The literature on the benefits of PT for older adults is astounding, along with the population curve the USA.  So first let's look at some information on the population of the US.  Our population is growing as evidenced by the last census, and we are about to see something unique.  Never before in history has a generation as large as the Baby Boomer's come around and retired or moved beyond age 65.  Looking at the chart above you can clearly see where they start at around age 65.  Obviously this has many implications, but it also shows that PT for seniors will be in rising demand now for a long time.  PT will be likely in higher demand for them too, as many decided to work longer due to the financial pitfall that was 2008-2009.

Looking at that demographics link you see people are living longer, so they will need PT services for more time.  That is implicit in the numbers.  What is not self evident is that PT will be needed not only for injuries sustained by age, but also to prevent them.  The APTA recommends PT to increase balance and prevent falls, which  are responsible for 20-30% of moderate to severe injuries for people aged 65 and older.   APTA is not alone in this, it is backed up by the journal Physical Therapy and National Institutes of Health.

Between that bubble of retiring seniors and the increasing number of sports injuries you can bet that PT will be more important.  Just browse a job board, companies are constantly looking for new PTs and related assistants.  My outlook on the industry is that they have a lot of business and work coming their way.  It is impossible to ignore this trend in PT and across the general healthcare industry as a whole.  Not only will be PT be needed, but also medical devices, pharmaceuticals, and other instruments of health.

For these reasons and the great write up Ryan at MDG had, I've added USPH to my list and continue to watch the healthcare sector.  There are ample options in the area right now to buy at a discount, though not USPH, and that industry as a whole should continue provide great dividend opportunities.

What do you think on healthcare?
- Gremlin
Long JNJ, my sole healthcare stock currently.


  1. Excellent write up, thanks for sharing. Along with increasing need, those revenues, earnings and cash flows should skyrocket. I'd be interested to see if any of other competitors have good numbers like USPH since they're at a discount. Something to look into....where does all the time go??? Thank you for the mention!

    1. MDG,

      I'd be shocked if health care companies across the board do not benefit or reap huge rewards from these trends, good or bad as they may be. Either way, something for us to look at definitely. Thanks for the challenge!

      - Gremlin

  2. Really amazing blog, I’d love to discover some extra information.Healthcare Market

    1. Andrew,
      Thanks for your comment. There is a ton of information out there, the best place to start looking is usually the non-profit medical organizations, though Wikipedia is always a nice place to start too.
      - Gremlin