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Big Business: Healthcare's a Gold Mine

 |  By Philip Betbeze  
   January 14, 2011

Here's a news flash. Healthcare can be lucrative. Based on recent stock market action, you'd think most of the money is in raw materials such as oil, minerals, and metals. China, after all, needs them badly, and those companies have been going gangbusters for the past several years, with little pause for the great global economic crisis. But materials is old news, apparently. The new gold is being mined in healthcare.

I know what you're thinking. You might be struggling to keep your head above water with declining reimbursements, and for now, treating the uninsured is as big a problem as ever. Meanwhile, salaries for doctors and other medical talent aren't shrinking, and neither are your other fixed costs.

But if you look closely, Big Investment Money sees huge profit potential in this space. In fact, I doubt if there is any other industry that has this much potential. Why? Put simply, healthcare is behind other industries in rooting out inefficiency and waste. We all know that. But it's significantly behind. Technology could make a greater impact on efficiency in healthcare than any other industry it's tackled in a generation. It's complicated, sure, but the returns could be stratospheric. 

My personal epiphany came when I noticed that Stanley Black & Decker, yes, that's right, the hand- and power-tool company, has decided that it can bring its expertise to healthcare. It's willing to spend big on acquisitions to go after that high return. Why should I be surprised? Microsoft and Google jumped in with both feet a couple of years ago. Who thought healthcare would be a profit center for them? Other nontraditional companies have entered the space in recent years as well, mainly on the consulting side. What does that tell you?

Many people are down on healthcare right now. Costs are astronomical, and patients are having to pay more out of their own pockets for services, leading to revenue problems at hospitals and physician practices. I could go on and on. In fact, finding problems to fix in healthcare is as easy as finding January snow in Minnesota. That's exactly why Big Investment Money sees opportunity.

Back to Stanley Black & Decker, which, incidentally, has had a healthcare solutions division since 2007 (who knew?). Anyway, it announced in December it will be spending $61.2 million to buy InfoLogix, a company that focuses on software and consulting solutions to help wring better prices on supplies for healthcare providers. For a Fortune 500 company, $61 million and change is a relative pittance, but it shows that even a company that has made its name in hand and power tools sees its future growth tied to a business in which it has historically had little presence.

At first glance, I didn't know if I wanted the same company that made the rechargeable hedge trimmer I got for Christmas handling my healthcare, but that's not really what they're doing. I'll bet they're experts at getting the waste out of their own production and parts sourcing. Healthcare could use a dose of that scrutiny. 

And that's the bottom line. Companies that have long paid through the nose for healthcare costs that they thought were outrageously out of line with the rate of inflation probably figured there was some expertise that was lacking in the business, and that there was no reason they couldn't provide it. After a little thinking, I agree with them.

Stanley is hardly alone. Things are moving fast in healthcare, and the big money is flowing. As I wrote a couple of weeks ago, Community Health Systems is very interested in buying Tenet, though their offering price seems a little low, and a recent survey by Pepperdine University shows that private equity investments in healthcare will take off significantly in 2011.

It might seem strange that in a time where people are cutting back on healthcare expenditures because more is coming out of their own pockets, companies are itching to get in, but I'd follow the money in this case. It's usually right.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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