VC (and PE) Thoughts on Healthcare Reform Bill

Following last night’s House passage of the landmark healthcare reform bill, we asked some healthcare VCs (and a couple PE pros) for their thoughts on the bill and what it might mean for healthcare investing.

[slide title=”Al Waxman, Psilos Group”]
“In order for this healthcare bill to succeed long-term, we must reduce the cost of healthcare. Nothing in the bill addresses this challenge. Specifically we must attack: rehospitalizations, the cost of the chronically ill, and the impact on Medicare. As far as I can tell, this bill hasn’t done anything to improve the longevity of Medicare. In order to extend the life of Medicare, we must focus on real delivery system changes (Accountable Care Organization), error reduction and other cost savings technologies through healthcare innovation.”

[slide title=”Alan Frazier, Frazier & Co.”]
“On the drug and development side, I think it’s generally good. The area that’s got us a bit more concerned is on the service side, with the expansion of more Medicare and Medicaid. Are we going to bankrupt those systems and, if so, what’s going to happen then?

I’m a social policy guy, and love the idea of getting more people into the system. But I don’t believe we’re going to have the stomach to do it right.”

[slide title=”Robert Liptak, Clarus Ventures”]
“I think it should have a positive impact on both the biotech, medical device and pharmaceutical markets as it expands the availability of lifesaving therapies and devices to a greater population.”
[slide title=”Mark Brooks, Scale Venture Partners”]
“The Current bill is actually relatively positive. The long-term effects–structural U.S. budget deficits, greater government involvement in healthcare– are more worrisome and will cause price/margin pressures on all companies in the sector over next 25 years.

Regarding the taxes on the medical device industry, it is still unclear how much of these dollars can be passed on by the medical device industry to the hospital industry through higher prices.”
[slide title=”John Steuart, Claremont Creek Ventures”]
“Investors should not be surprised that healthcare stocks are rallying on today’s passage of the long awaited healthcare bill.  In a trillion dollars of new spending over the next decade, there is something to cheer about for many medtech companies. 

Venture backed companies stand to benefit from greater utilization of innovative treatments and therapies, extended patent protection for some new drugs, and an R&D tax credit. Most of all, the uncertainty is over and health care companies can get back to cures.”
[slide title=”Jeffrey Jay, M.D., Great Point Partners”]
“The real cost of this legislation when the gimmicks and slight of hand are taken out is $2.5 trillion over the next ten years. The incremental taxes are going to slow the growth of the economy as we try to recover from the worst recession in 50 years.  owever, the massive expansion in coverage will cause a surge in demand for basic health care services such as primary care and the accompanying products generated by those visits such as prescriptions. Much of this excess demand will not be able to be met by private practitioners and so we will see increased volumes of patients flooding the emergency rooms and longer wait times, in general, to see physicians. 

Overall this legislation will accelerate the increasing percentage of GDP that is spent on healthcare in this country. As a consequence we may be entering the golden age of healthcare investing due to a massive boost of demand, paid for by higher taxes on income, savings and capital investments to finance it.
However, in this new golden age of healthcare investing, there will be an increasing premium on in depth knowledge of the reimbursement and regulatory landscape which will be undergoing rapid change. Exceptional returns will be earned by many investors who can correctly select the companies that will become the new winners. However, those who invest aggressively in challenged areas such as Medicare Advantage plans or physician owned hospitals could be investing in business models that will be coming under considerable pressure.”

[slide title=”Philip Canfield, GTCR”]
“The big take-away is that there will be a lot more people who weren’t insurable before who are going to get insurance. It’s something like 25 million to 30 million newly insured people. We think that’s a good thing for the entities serving them, such as hospitals and nursing homes and rehabilitation and physical therapy centers.”

[slide title=”Michael Goldberg, Mohr Davidow Ventures”]
Very complicated, implications will largely  be company specific rather than health care sector specific. The details are delegated to various agencies to define administrative rules and procedures. When the dust settles, we’ll have much better clarity on how to pick winners… that could be several years.

Our market just got bigger but it will require more skill to navigate. All opportunity comes with some challenges. We’ll figure it out.