Jenks Healthcare Business Report June 2001

In the June 2001 issue:

Of Jeffords, CMMS And Analyst Standards: What It All Means For Health Care
P. 1

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Analyst Roundup
P. 2

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Privates and Venture Capital
P. 2

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Private Placement Market
P. 3

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Jenks Stock List in Full
P. 4-5

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Committed to Health Care
P. 6

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IPOs and Secondaries
P. 7

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Merger and Acquisition Market
P. 7-9

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Jenks Insider Trading Roundup
P. 10-11

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Notes and Briefs
P. 12

Jenks Healthcare Business Report

Of Jeffords, CMMS And Analyst Standards: What It All Means For Health Care

Much has been made about the decision of Vermont Senator Jeffords to switch from the Republican Party to become an independent in late May, and how this would impact health care for the next two years. Liberal Democratic senators would take over the various committees dealing with health care and introduce legislation: 1) to adopt a broad-based, and expensive, Medicare prescription drug benefit, 2) for a new patients’ bill of rights, 3) to discourage brand-name pharmaceutical companies from paying competitors to keep cheaper generic drugs off the market, 4) for national standards to regulate the assisted living industry, and so on and so on, or so the theory goes. The reality, however, is much different.

While it is true that Democrats will control the Senate committees dealing with health care, and that new legislation will certainly be "introduced," it is doubtful that much will come of it with a Senate majority of one and a Republican controlled House and White House. The only certainty is that we will see a ballooning of rhetoric (most of it hot air balloons) and, in more limited doses, gridlock, which is not always bad, especially when drastic changes to the health care economy are contemplated. The rhetoric will be less about getting anything accomplished and more about preparing for the 2002 Congressional elections and then the presidential election in 2004.

The one area that is most at risk is the pharmaceutical sector, but this is nothing new. Ever since Hillary Clinton’s verbal assault on the so-called price-gouging of the large pharmaceutical companies, the major manufacturers have feared the imposition of price controls at worst, or price discounting at best. While the basis for that fear does grow with the potential for a Medicare prescription drug benefit, Senator Jeffords’ change in party affiliation will not affect the outcome. In fact, it probably will not change much in the business of health care.

Just as we were going to press, the Bush Administration announced that the Health Care Financing Administration (HCFA) would be renamed the Centers for Medicare and Medicaid Services (CMMS). Tommy Thompson, the Secretary of Health and Human Services, had considered, among other names, the Medicare and Medicaid Administration, or MAMA. If a Medicare prescription drug benefit plan is ever approved, a more appropriate, and endearing, name would have been Big MAMA. Apparently, women found the MAMA acronym to be insulting, so Big MAMA never had a chance.

The name change is supposed to be part of an effort by the Bush Administration to repair the negative image of HCFA held by most payers and providers. What they haven’t mentioned is what it is going to cost the taxpayer to make the change. If image is a concern, about the best thing that could be done to repair it would be to repeal The Balanced Budget Act of 1997, but that would be asking for too much from an administration that just lost control of the Senate. Unfortunately, changing the name will do little to change the attitudes of the staffers wandering the bureaucratic halls of CMMS.

And finally, after much deserved criticism for conflicts of interest among the nation’s securities analysts, 14 Wall Street firms endorsed new ethics standards for research analysts, which appears to be a bit of an oxymoron to us. Will life on "the Street" really change? Hardly, although instead of being so cavalier about the conflicts, analysts and bankers may revert back to the more subtle era of 20 years ago, when an analyst’s opinion did not abruptly turn negative when the corporate finance department did not get hired for a major deal. Although good research does exist, credibility suffers when less than 2% of the recommendations industry-wide are to sell a security, especially when so many equities should have been sold long ago. The "best practices" recently proposed by the Securities Industry Association to ensure the integrity of Wall Street’s analysts sounds nice, but they will not result in many real changes any time soon.

Read the past headlines.