SA Asks: How will H-1B visa changes impact the healthcare sector?

The proposed H-1B visa changes, particularly the increased application fees of $100,000, may significantly impact the healthcare sector, which currently accounts for about 6% of H-1B applications but plays a crucial role in the economy.

While physicians have been granted some exemptions, many other healthcare professionals, including those in pharmaceutical companies, may face hiring challenges, leading to potential offshoring and increased operational costs for these firms.

The heightened application fees could threaten the financial stability of various medical practices and hospital networks, which are already close to financial collapse, and may result in increased healthcare expenses due to staffing shortages in underserved areas.

Biotech and pharmaceutical companies, motivated by local talent shortages, are likely to absorb the new H-1B fees as additional costs, endangering the financial viability of startups that rely heavily on foreign talent while struggling to increase domestic labor supply.

Recommendation Rating: Impact Analysis of Proposed H-1B Visa Changes on the Healthcare Sector

The proposed adjustments to the H-1B visa program by President Trump, which involve increasing application fees to $100,000, are poised to significantly influence the healthcare sector. Analysts from Tunga Capital—Brett Ashcroft Green and Jack Bowman—shared their insights on the ramifications of these changes.

According to Tunga Capital, the healthcare industry currently accounts for a modest portion of H-1B visa applications, approximately 6% or around 24,000 applications expected in 2024. However, the importance of healthcare within the economy far surpasses that of the tech industry. The sudden introduction of these policies has resulted in chaotic circumstances, with the government hastily creating exemptions for physicians. This turmoil is reflected in the stock performance of healthcare giants like HCA and Tenet.

It is essential to note that the healthcare sector isn't solely comprised of physicians. Pharmaceutical companies rely on highly educated professionals such as PhD scientists, biologists, and chemists, who fall outside this exemption. Firms like Amgen and IQVIA face potential expenses nearing $10 million as a result of these hiring hurdles. A study conducted by economist Britta Glennon in 2023 revealed that for each visa denial, organizations tend to hire 0.9 employees in international markets. Consequently, the most likely outcome for major pharmaceutical companies may involve increased offshoring, while smaller firms might pursue alternatives such as the O-1 visa. Given the profit margins associated with these companies, circumvention of regulations is more plausible in this sector than in tech.

Brett Ashcroft Green expressed concerns that the healthcare industry will encounter challenges akin to those seen in Big Tech. Many skilled medical professionals utilize H-1B visas and may find relief through avenues like the EB-2/EB-3 classifications. However, the notion that these professionals are a cost-effective solution remains unconvincing; Green points out that individuals within this category are typically well-compensated and crucial for addressing labor shortages, especially in underserved rural areas. The looming staffing deficits could lead to increased healthcare expenses.

Moreover, the elevated H-1B application fee of $100,000 may jeopardize the financial viability of certain medical practices. Observations indicate several hospital networks are precariously close to financial collapse, thus amplifying the impact of the proposed fee structures, which are particularly burdensome for healthcare entities.

While Green anticipates that biotechnology will also feel the effects of the increased fees, he believes these changes will hit hospitals more severely. Biotech researchers might still take advantage of uncapped O-1 visas available for senior research scientists, a perk not generally accessible for hospital personnel, whose roles demand extraordinary credentials.

Jack Bowman weighed in, emphasizing that biotech and pharmaceutical companies are motivated to recruit foreign scientists primarily due to a local talent shortage rather than cost considerations. As a result, the new H-1B fee structure will likely become an expense ultimately borne by shareholders of numerous pre-revenue biotech firms. These changes may reduce the financial runway for startups heavily dependent on foreign talent.

Bowman asserts that biotech firms could be more negatively impacted than others, as they possess limited financial capacity to accommodate rising expenses and lack alternative labor sources. Boosting the domestic labor supply for biotech and pharmaceutical companies remains a significant challenge that cannot be swiftly remedied.

In summary, organizations affected by these changes will have to endure the ensuing difficulties as best as they can, with the possibility of laying off workers if financial liquidity diminishes. Unlike the tech sector, which can offload some functions to overseas locations or substitute workers with AI technology, healthcare faces fewer options for adaptive measures.