Good Health comes from many sources and few things can get my clients to voice an opinion more easily than the state of health care in the United States. The concerns of investors about how the system is going to deal with increased demands and government involvement as the baby-boomers age has kept some on the sideline. I have consistently recommended some exposure to the sector but am not oblivious to some of the headwinds. I simply believe that we will work through them; we have to.
Walter Colman and Harlan Sonderling, CFA are both Senior Equity Analysts at Columbia Management and recently put together a chart of the headwinds. I found it to be concise and worth referring to when we are looking at how and why to consider investing in the sector. The following was taken from their article in Columbia’s 2011 Perspectives:
* There is an increasing regulatory burden on companies seeking new product approvals.
* The FDA is taking longer to approve new products.
* There has been an increase in inspections of products, practices and facilities.
* The FDA is starting to work with the Centers for Medicare and Medicaid Services (CMS) on reimbursement
* Health care is increasingly a discretionary good.
* Consumer sentiment and employment trends will drive utilisation going forward in the United States.
* High deductible health care insurance plans have become much more common, contributing to declining
* Economic performance and government policy combined with heightened public scrutiny of deficits will lead to
cost pressure on the health care system as well as budget strain at both the state and federal levels.
* Commercial-pay (private businesses) is being asked to subsidize and limit price increases to its members, an
* Implementation of health care reform will be an uncertain path with many twists and turns.
* The new mixed Congress means a repeal of the law, defunding, or offsetting legislation is unlikely. The battle
now shifts to the statehouses.
* The structure of our system is changing; that is, more doctors are being directly employed by hospitals, leading
to more economic decision-making than before.
The companies operating in this sector have a lot to contend with. I believe most of them are up to the task. Meeting these challenges and all those brought on by natural disaster and geo-politics will require brainpower. I still believe we have lots of it.
-“Susan On Money”
Notes: Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. The opinions voiced in this material are for information only and are not intended to provide specific advice or recommendations for any individual. Your Financial Advisor should be consulted.