TrumpCare: Glass Half Full or Glass Half Empty? What Impact the New Administration Might Have on Healthcare

November 30, 2016
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The results of the presidential election sent shockwaves across our country driving unending debate around the implications of a Trump administration. Nowhere was speculation more rampant than discussions around the future of American healthcare policy. Throughout the campaign, candidate Trump attacked Obamacare as “failed” public policy, threatening to immediately repeal and replace the Affordable Care Act once elected.

Well, now we have President-elect Trump and the questions I get most from BVP portfolio companies, reporters, colleagues, and friends is: what will actually happen to Obamacare? And, how will it affect the healthcare innovation economy?

I start every one of these conversations by noting that all the punditry is pure speculation; I don’t have a crystal ball. But I am of two minds when it comes to how change in the administration could change policy.

Over the short-term (say the next 3–12 months), I take a “glass is half-empty” view. The reason? History has shown that the broader market freezes up in reaction to widespread belief that changes to national healthcare policy are coming. It’s a “wait and see” approach.

Specifically, I fear a potential slowdown in the following areas:

Customer sales cycle — we have seen the healthcare customer market freeze in previous periods of policy change (e.g. in 2010 when Obamacare was being crafted and again in 2012 when the Supreme Court deliberated on the fate of Obamacare). We imagine customers (providers, payers, even employers) could take a “wait and see” approach to purchasing decisions until policy is ironed out.

Potential impact on financing — similarly, we believe some investors will take a “wait and see” before making bets in the space. This could be a dramatic turn from the gold rush of investment in digital health over the last four to five years. We will look to healthcare financing numbers in Q4 2016 and Q1 as an early sign portending a possible freeze in the market.

What does this mean for venture-stage companies operating in the healthcare markets?

Given that a potential freeze could last the better part of the coming year, I would advise entrepreneurs to conserve cash as best they can. Now is not the time for continued million-dollar-a-month burn based on some hope for an uptick in top-line velocity. And, if cheap or even somewhat expensive financing exists, I would encourage companies to take it while they can.

And while I am bearish on the near-term impact, this post is not meant to signal a “RIP Good Times” in healthcare. That would be short-sighted. We at BVP will remain active digital health investors. We know that innovation cannot be constrained and, if history has taught us one thing, it is that new, great healthcare companies can be built in reaction to the regulatory changes of that era. This was true in the 1980s when DRG payments were created, in the 1990s with the Balanced Budget Act, in the 2000s with the Medicare Modernization Act, and in the last decade with the passage of the HITECH Act and the ACA.

In recent times, we have seen billions of dollars of value created in electronic medical records, population health/ACOs, and telemedicine (just to name a few), all in the face of regulatory gyrations. Entrepreneurs and executive leaders at athenahealth, Evolent, and Teladoc didn’t wither when healthcare policy changed, instead they capitalized on the situation.

So in what areas of healthcare will the next Jonathan Bush, Frank Williams or Jason Gorevic start and build their company in the era of TrumpCare?

It’s hard to say. It’s still early days. But, if I were a betting man (which I guess I am as an investor) I’d bet on opportunities related to:

1) An increased focus on the healthcare consumer: The new administration will likely try to better enable the individual consumer to make healthcare decisions. To be clear, employer-based coverage will still be the dominant way Americans access care, but the administration could push consumer-driven policies like the following:

· Expanding Health Savings Accounts (HSAs), allowing them to be shared among family members and passed on as part of one’s estate.

· Providing individuals tax credits (similar to what employers currently get) to procure individual insurance

· Rewarding providers and payers who use digital health solutions to engage with and manage the care of consumers/members/patients.

2) An emboldened insurance sector: Lots of focus has been placed on the potential demise on the federally-funded insurance exchanges and the prospect that 20 million Americans may lose their insurance. But net-net commercial insurers will likely be big winners in the Trumpcare era for the following reasons:

· Strengthening Medicare Advantage (MA), which over the past twenty years has become one of the most popular, bipartisan elements of healthcare policy. We expect MA to expand under the new administration and for already favorable MA policy to become even more favorable to industry.

· Eliminating the minimum Medical Loss Ratio (MLR), which came to be under Obamacare and negatively impacted the profit potential of insurers. The law under ACA basically said that for every $100 of premium (or revenue) that an insurance company made, they had to spend $85 on medical cost, leaving only $15 for SG&A and profit. We expect the new administration to eliminate this policy, thus benefiting insurance companies.

3) A reformed FDA: The incoming administration has made several references to improving the FDA review process, focusing on bringing innovative medications to market faster. Additionally, a Republican-controlled Congress is expected to reduce pricing pressure on the pharmaceutical industry (most notably, removing some recent reforms and proposals in Part B and Part D drug pricing). This is a net positive for biotech companies and for pharma IT.

If it sounds like we’re trying to take a glass half-full approach, we’re guilty as charged. While we don’t know what Trumpcare will end up looking like, and there is always discomfort in times of uncertainty, our belief that great entrepreneurs will build great companies in the coming era of healthcare is unwavering. If you are a founder building innovative technology in the healthcare space, we want to hear from you…