Prevailing Certainties in Healthcare

Last week, over 30,000 people gathered in San Francisco to attend the 35th annual J. P. Morgan Healthcare Conference. The attendees represented all sectors of the healthcare industry including investors, medical device companies, pharmaceutical companies, health insurance companies, ambulatory care companies, hospitals and a host of others who are stake holders in healthcare delivery businesses.

 Not surprisingly, this year’s conference was preoccupied with a wide spectrum of concerns over the imminent repeal, and possibly replacement, of the Affordable Care Act ("Obamacare") and how various change scenarios may impact their respective investments, both current and future. Various healthcare industry groups and publications have released their recaps and summaries of the key topics presented at the conference. One of these was written by Vince Panozzo, Head of Enterprise Health Solutions at Context Media: Health (Published by “Becker’s Hospital Review”), which listed what the author took away as the “Ten Top Themes” from this year’s conference. Without relisting these themes, it is accurate to say that they all shared one common thread: uncertainty.

Undoubtedly, 30,000+ people did not converge in San Francisco to learn to embrace uncertainty. Despite the strong possibility that absolute certainty is the enemy of real growth and opportunity, neither investors nor those operating their portfolio companies are big fans of uncertainty. In the healthcare world, a degree of short-term certainty in getting paid for your services/products is essential to the viability of existing and future business strategies.

 We have been hearing a lot of Congressional chest pounding about “returning to a competitive healthcare marketplace.” Really? Since the start of our current third party payer system in the 1940–50s, the U.S. has never had a competitive marketplace for healthcare in the same sense that competition exists in other consumer markets. When the end user (consumer) is not the same as the payer, competition becomes thwarted and disassociated. This has changed over a rather short period of time. Escalating healthcare premiums and soaring deductibles are now forcing consumers to shop and make decisions that have previously been made by someone else. In the past 4 decades, healthcare choices have been driven by doctors, more recently by payers and now, out of sheer necessity, by consumers themselves.

 Besides the underlying threat of marketplace uncertainty, which impacts all types healthcare businesses, there are a few, prevailing trends that have surfaced and will remain sustainable, regardless of impending legislative decisions at both the federal and state levels. Whether we will see a healthcare marketplace that closer resembles open competition or we arrive at a federally mandated single payer system, there are a few inevitable catalysts that are already driving transformation within all sectors of healthcare delivery. For owners and operators of healthcare portfolios, these transformative trends should be fundamental assumptions for M&A strategies as well as ongoing decision-making:

 1) Growing consumerism?—?Fueled by increased pricing transparency, access to information about provide performance/outcomes, better educated senior population and treatment alternatives

 2) Continued growth of ambulatory care (over hospital-based and other inpatient care)?—?Fueled by pricing transparency and ongoing technology advancements

 3) Innovation (in diagnosing and treatment)– Fueled by drug discoveries, changing physician practice patterns and more direct consumer marketing/engagement

Author: Kevin O'Donnell (www.healthcareresourcesofamerica.com)