Pinstripe, Inc., a human resources and recruitment outsourcing company, announced that Douglas S. Peters has joined the company's Healthcare Advisory Board. Peters is the former president and CEO of Jefferson Health System and co-founder of Advisors to Healthcare Suppliers.
The Florida Hospital Association has announced its Board of Trustees for 2009. The names of the incoming Officers and Trustees for the Association: Chair, Mark O'Bryant, President/CEO, Tallahassee Memorial HealthCare; Vice Chair/Chair-Elect, Steve Mason, President/CEO, BayCare Health System; Treasurer, Lars Houmann, President/CEO, Florida Hospital Orlando; and Immediate Past Chair, Tim Goldfarb, President, Shands Healthcare.
Whew. Maybe we can all get a break from near-constant campaigning—at least for a few months.
We've all been listening to both candidates dish on healthcare, the economy, and the war—not necessarily in that order—and trying to figure out where their differences lie.
But I've got bad news for some of you. The focus of the past three years on consumer-directed healthcare likely isn't going away. I'm no oddsmaker, but something (the financial bailout) tells me there won't be a lot of money on the table to implement some sort of revolutionary plan for affordable healthcare, no matter who's running the White House and Congress on Inauguration Day. Whether you like it or not, we're looking at evolutionary fixes for the foreseeable future.
To be sure, both candidates for the presidency tried to attack healthcare affordability and accessibility in different ways, but both approaches are conducive to continuing CDH as an evolutionary step in the healthcare system.
Despite the fact that a number of studies have suggested that uptake in such plans is not so good, depending on whether employed people have a choice among traditional plans versus consumer plans, many more have shown that consumer-directed healthcare is doing what its proponents said it would—decreasing the cost of care.
Studies are a dime a dozen, and often, they trumpet the party line of the organization that commissioned them, so take what I'm about to write with your own grain of salt, but a WellPoint study released just last week concluded that while costs went down for WellPoint employer clients that switched to CDHPs this year, they rose for those using traditional HMO or PPO plans. Also, preventive care visits by those employers' workers went up—to the tune of 8.8%.
That's the kind of success, may I suggest, that no politician wouldn't like—especially as the cost of healthcare continues to outpace inflation, wage and profit growth for most companies by a wide margin.
Even with a wide majority in Congress, you won't likely see Democrats push seriously for a nationalized or single-payer healthcare system, because the will isn't there. After all, health insurers, banks, and other special interest groups don't just donate to Republicans' campaigns.
Vik Kashyap, CEO of Canopy Financial, says both candidates' plans would support the further growth of HSAs and the accompanying CDHPs they must be paired with. His company provides financial services for HSA funds, so take his words with a grain of salt too, but listen to what he has to say.
"You have to fail an intelligence test not to get into one of these plans, assuming your employer does the right thing," says Kashyap.
And there's the key. Many don't.
The savings companies reap from introducing CDHPs is often not translated into funding the employee's HSA. Sometimes they don't cover preventive care. My wife and I decided to pass on a HDHP offering from her employer because for one, she's pregnant, and two, the risks seemed to heavily outweigh the $600 annual "reward" for switching.
But when you look at the individual market, the differences become clearer, says Kashyap. "Compare qualifying high-deductible plans and those that are not, and you'll see stark differences in prices," he says.
However, despite this good news, there are still a lot of problems with these plans. For one, healthy people tend to choose them. And forget about qualifying for one if you have a pre-existing condition. But that's no different from any other plan on the individual market today.
But given this information from the WellPoint study, they're not going away soon, and that brings me back to the election and the candidates.
John McCain had called for the elimination of the current tax exclusion for employer-paid premiums, and, using revenue generated from the elimination of that tax break—estimated at $3.6 trillion over 10 years—to create refundable tax credits of $2,500 for individuals and $5,000 for families. Consumers could then use these tax credits either to offset the higher taxes from employer benefits or to purchase private insurance on the open market.
The way Canopy sees it, people receiving a fixed credit would be able to purchase insurance far more affordably and would theoretically be more careful with their health dollars, seeking lower-cost, needs-specific tailored plans, while forcing insurers to compete for their business. In this scenario, the savings would in turn be invested in a consumers? individual or family HSA.
Under the Obama plan, a "play or pay" mandate would require employers to either offer health insurance to their workers or to pay a tax to help fund public care. As the "play" component of the plan has not yet fully been specified, in lieu of funding a public program, companies could offer employees a flat rate defined contribution which could be used by employees to procure healthcare on the open consumer market. More likely under the Obama plan would be an increasing number of employers offering higher-deductible, lower-cost plans tied to HSAs to meet mandate requirements.
Pass the salt.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top quality issues facing healthcare leaders.
The Board of Directors of Capital BlueCross has unanimously elected Board Chairman William Lehr, Jr. as president and CEO. Lehr has been fulfilling chief executive responsibilities on an interim basis since the Sept. 15 resignation of former President and CEO Anita M. Smith.
Stanford Hospital & Clinics has appointed Daniel Ginsburg as its new chief operating officer, effective Jan. 12, 2009. Ginsburg succeeds Michael Peterson, whose retirement as the hospital's COO was announced in June, 2008. Ginsburg is currently senior vice president for Cancer and Women's Programs at Massachusetts General Hospital, where he also serves as president and chief operating officer of the Massachusetts General Physicians Organization.
Managed care stocks have seen a nearly 60% decline this year, undoubtedly due to overall equity market deterioration, much of it sector specific. Reduced earnings for managed care companies had been reported prior to the nation's current financial state, leading some to believe that a negative outlook may be premature.
Ideally, bonds would never fail to be remarketed and cause a draw on the letter of credit. But in the current market, the letter of credit is acting as a safety net, proving that this structure remains a viable one in today's economy.
Although healthcare transaction activity has slowed during the downturn in the economy—particularly with regard to acquisitions by private equity buyers—investment banks, private equity houses, hedge funds, and lenders continue to aggressively seek healthcare deals.
According to the research firm Levin & Associates, the first quarter of 2008 saw 27% fewer healthcare mergers and acquisitions compared to the final three months of 2007. Still, the number of healthcare special purpose acquisition corporations has increased steadily, denoting a healthy interest in this segment of the market.
Against the backdrop of these developments in the healthcare industry, the tightening economy and credit markets combined with the current political uncertainty and regulatory changes surrounding healthcare are adversely impacting investors, sellers, and lenders.
Lenders
Lenders are now requiring lower debt-to-equity ratios and are taking additional steps to minimize the risk of default, with particular attention to ensuring that due diligence is conducted thoroughly and competently. Whereas the risk tolerances of healthcare lenders have been lowered, the healthcare industry does have the benefit of relatively better access to credit when compared to other areas of the economy. Thus, healthcare transactions can still be financed as long as they involve realistic cash flows and leverage ratios.
Investor activity
With the present uncertainty in the market and the tightening of credit, healthcare investors are being more discriminating in their acquisition targets.
When acquisitions by private equity firms were at their peak, strategic corporate buyers were often priced out of the acquisition market. Now, as private equity acquisitions recede, valuations of target companies are falling, bringing them into ranges that allow for strategic mergers. The relative shortage of well-financed buyers means that there is a real buying opportunity for investors with readily available financing. Moreover, the rate reductions that the Federal Reserve has made over the course of the past year will allow companies that do have access to financing to benefit from historically low interest rates.
Due to these factors, the current healthcare acquisitions market may provide opportunities for many companies to emerge from the present downturn stronger than they were before it began if they focus on making sound strategic acquisitions.
Enhanced due diligence process
In the past, many buyers understood their targets very well from a financial perspective, but not as well from an operational perspective. Leveraged buyouts of targets with significant upside potential left a considerable amount of room for growth.
This lack of full operational understanding is no longer adequate, and due diligence efforts must now focus on ensuring that true strategic value is present. The current tighter credit market conditions will be considerably less forgiving than they have been in the past.
SPACs
Special purpose acquisition corporations—companies formed for the purpose of acquiring a company using the proceeds derived from the SPAC's initial public offering—also present a vehicle for acquisitions while affording the shareholders an opportunity to review and approve the proposed acquisitions. Hedge funds have been the primary investors in SPACs, and the number of SPACs has increased steadily since their introduction several years ago.
SPACs can be attractive to sellers because they allow the potential for the acquired company's management to continue operating the business and benefit from the upside value that results from future growth. At the same time, the company has the opportunity to expand through its public company structure and access additional capital for further development.
Regulatory and political change
Beyond tight credit markets, the two primary factors influencing the healthcare marketplace are regulatory changes announced by the Medicare program and potential political changes that are likely to follow tomorrow's national election. The Centers for Medicare & Medicaid Services have recently published sweeping changes to the Medicare program that will require some transactions to be restructured or unwound. Those regulations are affecting physician investment in healthcare transactions and structuring relationships between healthcare systems and physicians.
Additionally, the presidential election injects some level of uncertainty in that polls show that many voters favor some form of universal healthcare coverage. Such initiatives would certainly lead to changes in the healthcare industry and, ultimately, may affect investment in certain segments of the industry. However, investors should keep in mind that past political and regulatory changes have not caused radical shifts in the healthcare industry and that the current situation creates as many opportunities as risks.
When taking advantage of acquisition opportunities, it is now more important than ever for all participants in healthcare transactions to retain expert counsel and advisors with extensive knowledge of the market to conduct due diligence, thoroughly analyze the regulatory and reimbursement posture of the target, and to provide detailed guidance to understand and minimize risks.
William J. Spratt, Jr., is a former healthcare administrator and has served as general counsel and special counsel to represent institutional and non-institutional healthcare providers. He may be reached at william.spratt@klgates.com.
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Because of information missing from a newspaper advertisement, the Loudoun County (VA) Planning Commission announced it will join the Board of Supervisors at a public hearing Nov. 20 on a proposed 164-bed hospital in Broadlands. This is the second time the commission has altered its schedule because of a mistake that county staff members made in providing notice of a public hearing on the proposed hospital. Healthcare network HCA Virginia wants to build on a 57.7-acre site. A hearing scheduled for Sept. 25 was moved to Oct. 15 after it was discovered that a sign at the Broadlands property listed the wrong location for the session.
Few healthy spots can be found in the ailing real estate market right now, but some big real estate investors are discovering a better prognosis in medical office buildings. The sector, which has an estimated property value of $173 billion, has emerged as a haven of sorts in these uncertain times, for the simple reason that healthcare needs are largely impervious to economic conditions. Institutional investors like pension funds, private firms and real estate investment trusts, or REITs expect that demand for medical office buildings will only intensify as graying baby boomers require more healthcare and as insurers and government agencies push doctors to perform lower-risk procedures outside hospital settings.
