Runaway healthcare costs will be right behind the war in Iraq as top issues voters will expect candidates for the 2008 election to address, according to healthcare market analysts at William Blair and Company, a Chicago-based investment firm.
In the United States, healthcare spending was more than 15 percent of the nation's gross domestic product in 2003, more than double the percentage in countries such as Japan, the United Kingdom and Italy, according to data from the Organization for Economic Cooperation and Development.
The analysts discussed the data and what it might mean to investors in a conference call earlier this month.
"On average we spend more than 100 percent more on healthcare than the 18 other nations on that chart," said Ryan Daniels, an analyst who focuses on specialty providers and disease management. He tracks companies such as AmSurg, Healthways and IDEXX Laboratories.
Rising healthcare costs puts "huge, huge pressure on the system," Daniels said. "It's really making us globally uncompetitive."
Contributing to the pressure are expert estimates that Medicare will be insolvent by 2018, even as the number of eligible beneficiaries grows.
In response to these pressures, government has already considered means testing and is likely to put greater emphasis on preventive medicine and disease management.
"Government is finally very focused on rolling this out to beneficiaries, but it's going to take time," Daniels said. "It's not going to move the needle enough over the next 10 years to save the Medicare trust fund.
"So what does that leave us with?" Daniels asked. "Provider reimbursement cuts." The cuts, he said, "have the least impact on voting constituents and the most rapid impact on the budget."
Ben Andrew, who specializes in medical technology companies, such as Home Diagnostics, Medtronic and NuVasive, said the last election that gave the Democrats the majority in Congress has some investors worried.
"Really, not a lot has changed, but it's causing investors increasing concern," Andrew said. "The real issue in our view is the '08 election. The '08 time frame is really when I think these issues will come to the fore."
Investors should look to breakthrough, proprietary medical technologies and identify cost-saving service solutions, such as pharmacy benefits management, disease management, as well as electronic medical records and other healthcare information technology.
"Given that reimbursement cuts appear inevitable in the coming years, said analyst John Kreger, "we reiterate our investment theme of focusing on healthcare sectors with little or no government payer exposure, including dental and veterinary verticals."
Hospitals at risk
Daniels said, "Hospitals certainly remain at risk. "The primary reason for that is they're the biggest piece of the healthcare dollar." Hospitals consume 35 cents of every healthcare dollar, he noted.
"They'll lobby against it, but quite frankly what we're likely to see are rate cuts, consolidation in the space and a move toward more efficient vehicles like outpatient centers and home healthcare over the long run."