Florida Healthcare Industry – Prevention vs. Treatment

Prevention versus treatment. One might assume investment dollars flow freely into preventative care based on the overall media coverage. However, having just returned from the largest bio-healthcare conference of the year, I can tell you that investing in treatment (pharmaceuticals, medical devices, health insurance, etc.) is still king and has no near-term threat of being overthrown. Approximately four percent of the $2 trillion spent annually on healthcare is earmarked for prevention. So it is easy to understand the investor focus on treatment.

Observations from our research and discussions with CEO’s, CFO’s, venture capitalists and money managers indicate the pharmaceutical pipeline is thin, creating a leading cause of the M&A activity in this sector. Pharma companies need to show growth and stability. What better way then to put two unstable revenue vessels together?

The recent change in Medicare coverage for drugs is driving new opportunities. This market is starting to see some stabilization as the program heads into its third year. Initially, most companies sought growth through organic means. However, now that the “selling” (enrollment) season has been reduced to about four months, acquisitions in this area should pick up to meet the investor demands for growth.

Biotech investing will continue to get attention from the investor crowd. The area is joining/replacing the pharma area for high risk/high return. I liken it to playing roulette. Investors in this segment need to play a lot of numbers to get a return on their investment. Florida will see increasing bets placed in this segment with the addition of Scripps.

Since the federal government weighs heavily into the fortunes of these companies, many executives and investors are concerned about price reimbursement changes. What represents costs to the government, but revenues to the companies, will drive further cost cutting and potentially impact quality. These cutbacks will initiate mergers searching for backroom efficiencies, similar to the banking industry consolidations.

Prevention, consumer driven healthcare, electronic medical records, state Medicaid reform, health information, the uninsured and the rising healthcare costs to businesses were primarily absent from investor presentations and relegated to hallway chatter. However, a few companies are making headway in the area of consumer information and disease management with some very promising financial results. I expected more companies to tout electronic records and prevention models. Alas, without a revenue stream, there is no business model – just charity.

This will change in the coming years. Investing in treatment will not bring down the healthcare costs that are threatening corporate profits and consuming our tax dollars. Consumers pay for all healthcare costs. Our contributions to healthcare might be masked as government (tax dollars) and business (wages) expenditures, but we pay 100 percent. There is a growing movement to help us understand this reality and take control of this $2 trillion revenue stream. We are far from the tipping point; however I am excited about the business opportunities that will be presented in the coming years.

If you have comments or questions about this article, or would like more information on this subject matter, please contact us.
David Jasmund

Investment Banking
Orlando Office

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