Category Archives: Investing

The Next 100 Days: What Healthcare Should Expect

Posted on by • Posted in Economy, Funding, Health Insurance Industry, Health System, Hospital, Hospital Industry, Investing, Investment, Medicare, Medicare Advantage, Public Health, Public Opinion, Public Perception, Supreme Court, Wall Street • Leave a comment
The Next 100 Days: What Healthcare Should Expect

The Trump administration is moving into its second 100 days facing conditions more problematic than its first 100. For healthcare, this period will define the industry’s near-term future as changes in three domains unfold:

  • The Economy: The economy is volatile and consumer confidence is waning. The impact of tariffs on U.S. prices remains an unknown and escalating tension between the Ukraine and Russia, Israel and Palestine, Pakistan and India are worrisome. Household debt is mounting as student loans, medical debt and housing costs imperil financial security for more than half of U.S. households. The 3 major stock indices remain in the red YTD, prospects for a recession are high and investors are increasingly cautious. Net impact on healthcare organizations and public programs: negative, especially those without strong balance sheets and access to affordable private capital.
  • The Courts: Recent opinions by the Supreme Court and District Courts suggest a willingness to challenge the administration’s Executive Orders on immigrant deportation and due process, threats and funding cuts aimed at law firms and universities considered “woke” and layoffs initiated by DOGE and more. Court challenges will slow the administration’s agenda and create uncertainty in workplaces. Net impact: negative. Uncertainty paralyses planning and operations in every public and private healthcare organization.
  • The Public Mood: The afterglow of the election has dissipated and the public’s mood has shifted from guarded optimism to anxiety and despair. The public’s uncertain about tariffs and worried about household expenses. Net impact: negative. Healthcare affordability and prices are major concerns to consumers: the majority (76%) think the system is more concerned about profitability than patient care (Jarrard).

Current events in these areas portend headwinds for most public and private healthcare organizations where attention in the next 100 days will be focused in these areas:

  • Oversight: New rules, programmatic priorities, key personnel appointments and re-organization in HHS, CMS, the FDA and VA: RFKJ’s MAHA plans and Commission appointees, Oz’ affinity for Medicare Advantage predisposition toward value-based care and Makary’s overhaul of the FDA’s drug oversight process will be “on the table” in the next 100 days.
  • Funding: Healthcare funding in the FY 2026 federal budget. The GOP-controlled House and Senate can pass a budget with minimal support from Dem’s that reflects a serious effort to reduce the federal debt ($37 trillion/123% of GDP– up from $20 trillion in 2017). Healthcare cuts expected to be significant though rumored massive cuts to Medicaid unlikely.
  • States: State healthcare referenda and executive actions: states are evaluating price controls on drugs and hospitals, reparations from insurers for delays and prior-authorizations, scope of practice restrictions and more. Topping the watchlist in most states is Medicaid funding and potential fallout from discontinued ACA marketplace subsidies factored into the FY 2026 budget being finalized by the GOP-led Congress in DC.
  • SCOTUS: Supreme Court decisions will be handed down or before June 30 when SCOTUS’ 2024 term ends including Braidwood Management v. Becerra which will determine whether the Affordable Care Act’s requirement that private insurers cover preventive services without cost-sharing will continue. The court will also opine to the authority of the HHS secretary to appoint members of the U.S. Preventive Services Task Force. The potential impact of these decisions on coverage, insurance premiums and access to preventive health services is pervasive.
  • Financial markets: Capital markets are in a watchful waiting mode as US trade policy unfolds, inflation fluctuates, the fed’s interest rate determination is disclosed and consumer spending reacts. Private investing in healthcare remains opportunistic though deal flow is shifting and risk thresholds tightening.
  • Polls: Polls draw the attention of media and elected officials. They influence how organizations prioritize advocacy strategies, address consumer complaints and concerns and manage reputations. As reflected in numerous national polls, trust in the system and its key players—insurers, hospitals, drug companies—is at a historic low.

Each sector in U.S. healthcare will be impacted differently: Three face the strongest headwinds:

  • Hospitals: Hospitals face enormous financial challenges, especially not-for-profits, safety net, rural and veteran’s hospitals. Last week’s unfavorable SCOTUS decision against hospitals alleging DSH under-payments will cost $1 billion per year. Congressional adoption of site neutral payment policy could cost $15 billion/year. Drug prices, labor costs, insurer payment cuts and red-tape will negate operating margins and lower investment income knee-capping growth and innovation plans. Complicating matters, employed physicians will demand higher pay and more control.  And Congressional budget-creators believe the sector’s 31% share of total healthcare spending makes it ripe for cuts attributable to “waste, fraud and abuse”.
  • Insurers: Medicare Advantage (which enjoys support by key administrators including CMS’ Mehmet Oz) has become a lightening rod of insurer criticism alongside prior authorization policies that restrict care. Coverage remains key to household financial security but insurers are seen as barriers to rather than facilitators of evidence-based cost-effective care. And the concentration of power in corporate titans (United, Humana, Cigna, CVS, Centene and others) is viewed with skepticism.
  • Public Health: Public health is not a priority in the U.S. health system despite recognition that social determinants account for 70% of the system’s $5 trillion spending. Most programs are funded by state and local governments with federal support limited. Public health is not seen as an investment and, in some settings treated with disdain as welfare or waste. As Mayors and Governors develop plans for the rest of 2025 and through 2026, public health cuts will be likely as federal co-funding becomes scarce.

The next 100 days will define the national agenda for the mid-term election in November 2026, reflect the solidarity of the MAGA movement and show the impact of tariffs on inflation, consumer prices and the public’s mood.

Healthcare leaders will be watching closely. All will be impacted.

One System; Two Divergent Views

Posted on by • Posted in Cost Management, Cost Reduction, Cost Structure, Divergence, Health Policy, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Investing, Investment, Investments, Leadership Vision, Lobbyist, Pharmaceutical Industry, Pharmacy Benefits Management, Political Inaction, Politics, Private Equity, Regulation • Leave a comment
One System; Two Divergent Views

Healthcare is big business. That’s why JP Morgan Chase is hosting its 42nd Healthcare Conference in San Francisco starting today– the same week Congress reconvenes in DC with the business of healthcare on its agenda as well. The predispositions of the two toward the health industry could not be more different.

Context: the U.S. Health System in the Global Economy


Though the U.S. population is only 4% of the world total, our spending for healthcare products and services represents 45% of global healthcare market. Healthcare is 17.4% of U.S. GDP vs. an average of 9.6% for the economies in the 37 other high-income economies of the world. It is the U.S.’ biggest private employer (17.2 million) accounting for 24% of total U.S. job growth last year (BLS). And it’s a growth industry: annual health spending growth is forecast to exceed 4%/year for the foreseeable future and almost 5% globally—well above inflation and GDP growth. That’s why private investments in healthcare have averaged at least 15% of total private investing for 20+ years. That’s why the industry’s stability is central to the economy of the world.

The developed health systems of the world have much in common: each has three major sets of players:

  • Service Providers: organizations/entities that provide hands-on services to individuals in need (hospitals, physicians, long-term care facilities, public health programs/facilities, alternative health providers, clinics, et al). In developed systems of the world, 50-60% of spending is in these sectors.
  • Innovators: organizations/entities that develop products and services used by service providers to prevent/treat health problems: drug and device manufacturers, HIT, retail health, self-diagnostics, OTC products et al. In developed systems of the world, 20-30% is spend in these.
  • Administrators, Watchdogs & Regulators: Organizations that influence and establish regulations, oversee funding and adjudicate relationships between service providers and innovators that operate in their systems: elected officials including Congress, regulators, government agencies, trade groups, think tanks et al. In the developed systems of the world, administration, which includes insurance, involves 5-10% of its spending (though it is close to 20% in the U.S. system due to the fragmentation of our insurance programs).

In the developed systems of the world, including the U.S., the role individual consumers play is secondary to the roles health professionals play in diagnosing and treating health problems. Governments (provincial/federal) play bigger roles in budgeting and funding their systems and consumer out-of-pocket spending as a percentage of total health spending is higher than the U.S. All developed and developing health systems of the world include similar sectors and all vary in how their governments regulate interactions between them. All fund their systems through a combination of taxes and out-of-pocket payments by consumers. All depend on private capital to fund innovators and some service providers. And all are heavily regulated. 

In essence, that makes the U.S. system unique  are (1) the higher unit costs and prices for prescription drugs and specialty services, (2) higher administrative overhead costs, (3) higher prevalence of social health issues involving substance abuse, mental health, gun violence, obesity, et al (4) the lack of integration of our social services/public health and health delivery in communities and (5) lack of a central planning process linked to caps on spending, standardization of care based on evidence et al.

So, despite difference in structure and spending, developed systems of the world, like the U.S. look similar:

The Current Climate for the U.S. Health Industry


The global market for healthcare is attractive to investors and innovators; it is less attractive to most service providers since their business models are less scalable. Both innovator and service provider sectors require capital to expand and grow but their sources vary: innovators are primarily funded by private investors vs. service providers who depend more on public funding.  Both are impacted by the monetary policies, laws and political realities in the markets where they operate and both are pivoting to post-pandemic new normalcy. But the outlook of investors in the current climate is dramatically different than the predisposition of the U.S. Congress toward healthcare:

  • Healthcare innovators and their investors are cautiously optimistic about the future. The dramatic turnaround in the biotech market in 4Q last year coupled with investor enthusiasm for generative AI and weight loss drugs and lower interest rates for debt buoy optimism about prospects at home and abroad. The FDA approved 57 new drugs last year—the most since 2018. Big tech is partnering with established payers and providers to democratize science, enable self-care and increase therapeutic efficacy. That’s why innovators garner the lion’s share of attention at JPM. Their strategies are longer-term focused: affordability, generative AI, cost-reduction, alternative channels, self-care et al are central themes and the welcoming roles of disruptors hardwired in investment bets. That’s the JPM climate in San Franciso.
  • By contrast, service providers, especially the hospital and long-term care sectors, are worried. In DC, Congress is focused on low-hanging fruit where bipartisan support is strongest and political risks lowest i.e.: price transparency, funding cuts, waste reduction, consumer protections, heightened scrutiny of fraud and (thru the FTC and DOJ) constraints on horizontal consolidation to protect competition. And Congress’ efforts to rein in private equity investments to protect consumer choice wins votes and worries investors. Thus, strategies in most service provider sectors are defensive and transactional; longer-term bets are dependent on partnerships with private equity and corporate partners. That’s the crowd trying to change Congress’ mind about cuts and constraints.

The big question facing JPM attendees this week and in Congress over the next few months is the same: is the U.S. healthcare system status quo sustainable given the needs in other areas at home and abroad? 

Investors and organizations at JPM think the answer is no and are making bets with their money on “better, faster, cheaper” at home and abroad. Congress agrees, but the political risks associated with transformative changes at home are too many and too complex for their majority.

For healthcare investors and operators, the distance between San Fran and DC is further and more treacherous than the 2808 miles on the map. 

The JPM crowd sees a global healthcare future that welcomes change and needs capital; Congress sees a domestic money pit that’s too dicey to handle head-on–two views that are wildly divergent.

How to convince the board that it’s time to merge

Posted on by • Posted in Board, CEO, Health System, Hospital, Hospital Industry, Investing, Investment, Leadership, Leadership Vision, Market Consolidation, Mergers & Acquisitions, Out of Market Growth, Return on Investment, Value Proposition • Leave a comment

https://mailchi.mp/27e58978fc54/the-weekly-gist-august-11-2023?e=d1e747d2d8

This week we had a conversation with a health system executive who has been wondering how to make the case to his board for expansion beyond the existing markets where the organization operates.

Like many, he’s confronting declining margin performance, and feeling pressure to combine with another system—joining the wave of cross-market consolidation that’s been dominating discussion among system CEOs recently.

His concern was that his locally governed board may be putting an artificial brake on growth, not seeing value of expansion beyond their market for the community they serve.

That’s a valid point—how does it help a Busytown resident if the local health system expands to operate in Pleasantville? Shouldn’t Busytown Health System just focus its resources and time on improving performance at home, and wouldn’t it represent a loss to Busytown if Pleasantville got investment dollars that could have been spent locally?

That’s a question raised by the “super-regional” or national strategies being pursued by many large systems today, and one worth thinking about. 

Whenever a system grows outside its geography, there should be a solid argument that additional scale will reap returns for its existing operations, from better efficiency, better access to innovation and talent, better access to capital, or the like.

Those are legitimate reasons for out-of-market growth and consolidation, as long as the systems involved are diligent in pursuing them.

But local boards are right to hold executives accountable for making the case for growth, and ensuring that growth creates value for local patients and purchasers.

Worsening $7 trillion retirement savings shortfall stirs second thoughts

Posted on by • Posted in Health System, Hospital, Hospital Industry, Investing, Labor Market, Labor Shortages, Recruiting, Retirement, Talent Acquisition Strategy, Talent Management • Leave a comment
https://www.beckershospitalreview.com/compensation-issues/worsening-7-trillion-retirement-savings-shortfall-stirs-second-thoughts.html?utm_medium=email&utm_content=newsletter

U.S. market volatility erased $3.4 trillion from 401(k)s and IRAs in the first half of 2022, making for an anxious time for many workers trying to plan their retirements. 

The 2022 losses suggest the retirement savings shortfall among U.S. households is worsening from its $7.1 trillion valuation in 2019, an estimate that came out of Boston College. At that time, half of working families faced were at risk of not being able to maintain their standard of living once they retired. 

This proportion likely hasn’t changed much since, Alicia Munnell, director of Boston College’s Center for Retirement Research, told Bloomberg. The people who profited from gains to stock and housing prices over the past three years “were people who weren’t at risk in the first place,” she said.

“Living standards are going to decline for a large portion of the population who are in retirement — that’s the concern,” Richard Johnson, a retirement expert at the Urban Institute, told Bloomberg. “For people who are not in that age group, it’s still concerning because it could strain the social safety net.”

Boston College’s 2019 report on the national retirement risk index concluded that “the only way to make a dramatic dent in the retirement risk problem is to combine saving more with working two years longer.” 

The average age for retirement is the highest it has been for the past 30 years, sitting at 61. Nonretirees’ target retirement age has increased from 60 in 1995 to 66 today, meaning the average retirement age will increase even further in coming years if active workers retire when they plan to.

Investment gains masking health system operating margin difficulties 

Posted on by • Posted in Consumer-Centered Care Pathway, Consumer-Centric, Consumerism, Health System, Hospital, Hospital Industry, Investing, Investment Strategy, Investments, Key Performance Indicators, Labor Spend Management, Legacy Business Model, Net Income, Non-Profit Healthcare Industry, Nonoperating Income, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue, Revenue Diversification, Strategy Sustainable Long Term • Leave a comment
https://us17.campaign-archive.com/?e=d1e747d2d8&u=526c5e99ee0439b6f83f7c051&id=1e04d9dbd7

The combination of the Omicron surge, lackluster volume recovery, and rising expenses have contributed to a poor financial start of the year for most health systems. The graphic above shows that, after a healthier-than-expected 2021, the average hospital’s operating margin fell back into the red in early 2022, clocking in more than four percent lower than pre-pandemic levels. 

Despite operational challenges, however, many of the largest health systems continue to garner headlines for their sizable profits, thanks to significant returns on their investment portfolios in 2021.

While CommonSpirit and Providence each posted negative operating margins for the second half of 2021, and Ascension managed a small operating profit, all three were able to use investment income to cushion their performance.

A growing number of health systems are doubling down on investment strategies in an effort to diversify revenue streams, and capture the kind of returns from investments generated by venture capital firms. However, it is unlikely that revenue diversification will be a sustainable long-term strategy.

To succeed, health systems must look to reconfigure elements of the legacy business model that are proving financially unsustainable amid rising expenses, shifts of care to lower-cost settings, and an evolving, consumer-centric landscape.    

Thoughts of the Day: Charlie Munger

Posted on by • Posted in Arguments, Common Sense, Derivative Accounting, Economy, Inflation, Investing, Investment Banking, Investments, Legacy, Lower Expectations, Marriage, Pretending, Thought Leaders, Thought of the Day, Understanding • Leave a comment

https://www.marketwatch.com/story/charlie-munger-warren-buffetts-right-hand-man-just-turned-98-and-has-some-choice-words-about-inflation-ebitda-and-marriage-11641319939?siteid=yhoof2

Many Americans, even those who don’t pay much attention to investing and the markets, know the name Warren Buffett.

Buffett, of course, is the billionaire philanthropist who created one of the greatest investment fortunes in history. Far fewer, however, know the name of his longtime business partner Charlie Munger.

And that’s a shame, because Munger is at least half the brains behind Berkshire Hathaway BRK.A BRK.B, the holding company he runs with Buffett and which manages billions and billions of investor dollars.

Notably, despite his deal-making prowess, Buffett is a big fan and longtime proponent of low-cost personal investing.

Munger turned 98 on Jan. 1. To celebrate his wit and market wisdom, here is a collection of quips from various interviews and question-and-answer sessions over the years.

On business education

Those of you who are about to enter business school, or who are there, I recommend you learn to do it our way. But at least until you’re out of school you have to pretend to do it their way.

On common sense

If people weren’t so often wrong, we wouldn’t be so rich.

On company earnings

Yeah, I think you would understand any presentation using the word EBITDA, if every time you saw that word you just substituted the phrase “bullsh** earnings.”

On a changing economy

So no, I’m optimistic about life. If I can be optimistic when I’m nearly dead, surely the rest of you can handle a little inflation.

On public spending

Everybody wants fiscal virtue but not quite yet. They’re like that guy who felt that way about sex. He was willing to give it up but not quite yet.

On legacy

Well, you don’t want to be like the motion picture executive in California. They said the funeral was so large because everybody wanted to make sure he was dead.

On stock buybacks

I think some people just buy it to keep the stock up. And that, of course, is insane. And immoral. But apart from that, it’s fine.

On marriage

Warren: Charlie is big on lowering expectations.

Munger: Absolutely. That’s the way I got married. My wife lowered her expectations.

On the purpose of money

Sure, there are a lot of things in life way more important than wealth. All that said…some people do get confused. I play golf with a man. He says: “What good is health? You can’t buy money with it.”

On money managers

The general system for money management requires people to pretend that they can do something that they can’t do, and to pretend to like it when they really don’t. I think that’s a terrible way to spend your life, but it’s very well paid.

On systematic investing

Well, I can’t give you a formulaic approach, because I don’t use one. If you want a formula you should go back to graduate school. They’ll give you lots of formulas that won’t work.

On human nature

As Samuel Johnson said, famously: “I can give you an argument, but I can’t give you an understanding.”

On financial innovation

It’s perfectly obvious, at least to me, that to say that derivative accounting in America is a sewer. is an insult to sewage.

On business competition

Competency is a relative concept. And what a lot of us needed to get ahead was to compete against idiots. And luckily there’s a large supply.

On cryptocurrency

I think the people who are professional traders that go into trading cryptocurrencies, it’s just disgusting. It’s like somebody else is trading turds and you decide, “I can’t be left out.”

On investment bankers

Once I asked a man who just left a large investment bank, and I said, “How does your firm make its money?” He said, “Off the top, off the bottom, off both sides, and in the middle.”

And finally, a parting shot

Munger: I think I’ve offended enough people.

Buffett: There’s two or three in the balcony!