What's making healthcare the worst sector on the ASX 200, down 39% in a year?

ASX 200 healthcare shares have tumbled 39% in a year, with several sector giants trading around multi-year lows today.

This makes healthcare the worst performer of the 11 market sectors over the past 12 months.

It's even worse than technology, which is down 26% on fears that artificial intelligence (AI) is an existential threat to the sector.

However, while technology is turning around, healthcare remains in the doldrums.

The S&P/ASX 200 Health Care Index (ASX: XHJ) hit a six-year low of 25,193 points today.

What's going on?

Expert explains multiple headwinds hitting healthcare

Samy Sriram, a market analyst at online investment platform, Stake, says there are multiple reasons for healthcare's downward spiral.

First of all, there are currency headwinds and the likelihood of further interest rate rises in Australia.

Sriram said:

A weaker US dollar is eroding the offshore profits of giants like CSL Ltd (ASX: CSL), which accounts for 45% of the index.

At the same time, the RBA's decision to keep interest rates high to fight inflation is weighing heavily on the valuations of growth stocks like Pro Medicus Ltd (ASX: PME).

The Australian dollar is currently at a four-year high of 71.3 US cents, up 12% over 12 months.

Meanwhile, the Reserve Bank has already raised interest rates twice this year, and the market is pricing in a 76% chance of another hike next Tuesday.

Cost-of-living pressures force patients to compromise

Sriram also says cost-of-living pressures are impacting healthcare companies, not only in Australia, but also overseas.

She commented:

… persistent cost of living pressures in the US are alarmingly turning some medical procedures into optional expenses.

We've seen this with Cochlear Ltd (ASX: COH), an Australian company that manufactures and supplies hearing aids.

Their shares tumbled 35% due to patients deferring implants.

Last week, Cochlear downgraded its FY26 earnings guidance substantially.

The company now expects an FY26 underlying net profit of $290 million to $300 million, down from $435 million to $460 million.

Management commented:

Consumer sentiment has declined in key markets, reaching historic lows in the US.

The decline appears to be affecting discretionary healthcare decisions in the adults and seniors segment, adding to demand uncertainty in the near term.  

In Australia, consumer sentiment experienced its biggest fall in five years this month.

Iran war's impact on healthcare

The International Monetary Fund (IMF) has warned of a global recession as the fuel crisis drags on, with no end to the war in sight.

A recession would further erode consumer confidence due to inevitable job losses.

For now, Sriram said the war in Iran was hitting healthcare through higher shipping costs.

She commented:

With hospital operators like Ramsay Health Care Ltd (ASX: RHC) already being squeezed by rising staff wages and capped insurance payouts, geopolitical volatility is putting extra strain on the books, despite having a turnaround in 2026.

(Ramsay Health Care shares hit an 18-month high of $44.73 in March. The ASX 200 healthcare share is up 21% over six months.)

Cochlear also discussed shipping issues and capped insurance payouts last week.

Cochlear said it expects "order cancellations and a heightened risk of delivery delays to some countries" due to instability in the Middle East, and that lower reimbursements to patients in China "will lower premium tier sales in China in the second half".

FDA uncertainty under Trump

Biotech investors are also growing wary of the US Food and Drug Administration (FDA) under the Trump administration.

Leadership upheaval at the FDA, along with conflicting signals on approval standards across different categories of foods and medicines, has created uncertainty over how, and whether, new drugs and products will reach the market.

Earlier this month, a rare diseases advocacy group wrote to President Donald Trump and Health Secretary Robert F. Kennedy Jr., citing reduced flexibility at the FDA and a large proportion of biotech firms reporting difficulty raising funding.

Meanwhile, Secretary Kennedy has openly promoted vaccine scepticism and disputed scientific claims amid a global trend in fewer people seeking vaccinations, possibly as a reaction to mandatory programs and COVID-vaccine injuries during the pandemic.

At CSL's 2025 AGM, former CSL CEO Dr Paul McKenzie commented: "… we have seen a greater decline in influenza vaccination rates in the U.S. than we expected."

Last week, The Australian reported that the US military has now scrapped its annual flu shot requirement for service members.

Foolish Takeaway

All of these factors are hitting the healthcare sector hard, and sending many ASX 200 healthcare shares to multi-year low prices.

Here's how the top 10 ASX 200 healthcare shares by market capitalisation have performed over the past 12 months.