Obamacare is here to stay: Why this means change and that gives healthcare investors hope

November 2012
Authors: Stephen Kraus
Related Companies: GetInsured.Com (Fmr VIMO, Inc.) and Liazon
Related Strategies: Healthcare

 

The end of the 2012 election season brings much needed clarity to the healthcare industry and the path forward for reform.   (Phew!)  We believe the re-election of President Obama is the best-case scenario for healthcare innovation and reform.  It means that the Patient Protection and Affordable Care Act (PPACA) remains the law of the land. Rather than using this blog to revisit the debate over the merits and politics of Obamacare, let me say simply that Vice President Biden was right when he said that the passage of PPACA was a “big bleepin’ deal”.  PPACA is big deal because it provides for a number of carrots and sticks to incent various constituents (physicians, hospitals, insurers, patients, etc.) to act in reform minded ways.   The long list of structural challenges that have traditionally stifled healthcare innovation includes (and I will be brief!) high costs, low quality, outdated technology and systems, and a shocking lack of standardization and coordination that we wouldn’t tolerate from any other industry.  All of these are amplified by an aging, growing population. In fact, one of the most alarming statistics for those of us working in healthcare is that every eight seconds one new American joins the Medicare roles.   Think about that for a second (or for eight!) and what it means for our country.  Historically, our healthcare system has been slow to change – slow sales cycles, slow implementation cycles, slow payment cycles, slow moving incumbents. It’s all just slow.   But one of the biggest reasons why PPACA is a big deal is that it has promoted rapid change and innovation in the healthcare system.  And this is good not only for the companies that we invest in at BVP but, more importantly, for patients in our country.   Suddenly change—at least in healthcare—is happening and it’s happening at an incredible pace.   According to the Kaiser Family Foundation, 57 provisions of PPACA were supposed to be implemented by the end of this year; already the government has put 60 provisions in effect  . . . Just in case folks are confused, yes:  this is the often criticized, slow-moving, bureaucratic government moving at lightning speed.   And that gives us hope.   BVP has a long history of investing in innovative companies looking to improve the quality of care in our country, while decreasing costs.   Our dedicated healthcare investing efforts began in the 1980s and over that time we have backed some of the leading companies in the healthcare service and healthcare IT industries, like Allscripts, Vistacare, and IPC The Hospitalist Company.  Over the past three decades, we have seen many great companies and billions of dollars of shareholder value created by entrepreneurs starting companies that address changes enabled by reform efforts.   And we believe now is another one of those seminal change moments in healthcare. PPACA has ushered in a new era of innovation that will fundamentally transform our healthcare system. And, now that change is happening, BVP will specifically focus on investing companies innovating in the following areas:  1. Care Coordination – Prior to reform, hospitals and doctors have been compensated on a fee-for-service, not a fee-for-value basis; we have rewarded inputs and not outputs; quantity of patient visits not quality of patient visits has determined profit margins and take-home pay.    That is all changing with ACOs, bundled payments, readmission penalties, etc. and we believe will yield a tremendous amount of innovative, disruptive business models.    BVP portfolio company, HealthEssentials, is a great example of a company taking advantage of this trend towards better coordinated care  2. Consumerization - For far too long, the voice of the patient has not been heard when it comes to healthcare.  PPACA provides incentives for patients (dare we call them what they are – consumers) to become actively involved in their own care.  But decision-making around healthcare is quite complicated and empowered patients will need help.   We believe tremendous opportunity will exist in helping consumers navigate their healthcare – providing technologies and services that help patients make sense of what options are available and how to maximize the quality and minimize the cost of their care.   BVP portfolio companies, Liazon and GetInsured, are both working towards consumerizing healthcare  3. Digitization – The migration from paper to electronic records has been a twenty year voyage but it looks like we finally have reached the tipping point.  Much of this is due to the fact there has been a mad rush towards the adoption of EMRs as a result incentives provided through the 2009 HITECH Act.  BVP former portfolio companies, Allscripts and Netsmart, have benefited greatly from the digital migration in healthcare.  And now that medical data is digital, we believe many great companies will be started and built that help doctors, payors, and patients make sense of this data.   We also have seen the widespread adoption of ipads and other smart devices in doctor’s offices and patients hands and we think we are the beginning days of a new mobile health era.    4. Cost Containment – Healthcare spend now accounts for 18% of GDP in our country and there seems to be no end in sight.   If this spending continues to go unchecked, it could literally bankrupt our country.  Products and services which help address this problem will be highly sought after in the post-reform healthcare world in which we operate, invest, and live.     

So that’s our vision for the healthcare future.  Do you agree/disagree with our views?  Do you have an opportunity for BVP?  Follow me @stephenkraus to continue the discussion.     

This blog is the first in a series in which Steve Kraus will address topics around healthcare.  

 To find out more about our view on the law and opportunities coming out of it, you can view this video on Bloomberg TV