The Health Care M&A Monthly: ObamaCare Is Here To Stay-

With Obama’s Re-election, Full Implementation Comes Next
We decided to wait for the election results for the November issue because, if Mitt Romney had won, and with his pledge to repeal “ObamaCare,” no matter how insincere that may have been, the landscape for health care in general, and health care M&A specifically, could have changed significantly.  The level of uncertainty as to who the winners and losers would be would also have risen.  Not to say that there isn’t a high level of uncertainty in the market anyway.
The market greeted the election results with a resounding vote of no confidence, with the Dow plunging 312 points the next day, followed by a 121-point drop on Thursday for a cumulative decline greater than 3.1%.  Within the health care sector, hospital stocks rose because investors believe the result confirmed that these providers will be getting more patients and revenues, while managed care, pharmaceutical and medical device stocks all dropped.  What investors aren’t focusing on is what these hospitals will be paid per episode in three, four and five years, and who will be trying to provide some of the similar services at a lower cost, putting competitive pressure on both census and margins, even as the number of “insureds” rises. 
We will play the contrarian role, since spending on hospital services represents more than 30% of total health care expenditures, and with hospital spending projected to grow by 75% in the next 10 years, that is the area where spending cuts (or reimbursement cuts) will have the most impact on potential savings.  And since all the proposals for higher taxes won’t put much of a dent in future federal deficits without a significant change in economic growth, the only way to slow the rate of growth in health care spending, by both the government and the private sector, is by lower reimbursement rates to providers and vendors, like pharmaceutical companies.  Unfortunately, increased hospital volume alone will not make up the difference and will actually exacerbate the growing problem of rising health costs as a percentage of GDP. Yes, we know, the truth hurts.  After all, the full name of what we all now call ObamaCare is the “Patient Protection and Affordable Care Act,” and since we know that health care will not be any more affordable to the consumer through lower premiums, it will have to become more affordable to the government.  The only way for that to happen is lower reimbursement rates or rationing, or most likely both.  No one will be satisfied with that outcome……….Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today