Ask Axial: How Will Obamacare Affect the Healthcare Industry?

Welcome back to “Ask Axial,” where we ask investors and advisors on Axial questions submitted by middle market CEOs.

Today, we’re discussing some of the implications of the Supreme Court’s recent Obamacare ruling and what they mean for the healthcare industry. Here’s the question:

Now that the Supreme Court has upheld the Affordable Care Act’s federal subsidies, how do you expect to see healthcare companies take advantage of a better-insured population?

Robert Kinsella, Kinsella Group

Among the most visible impacts of the ACA is the demand for total knee and hip replacements, both relatively expensive and relatively profitable procedures for hospitals, which are the primary sites where these procedures are performed. Hip procedures are expected to double over the next 15 years while knee procedures are expected to increase by over 600%. A significant amount of this increase is thought to be attributable to the availability of healthcare to a bigger patient base. The Government (Medicare) will fund a substantial portion of this increase and as a result will focus on means to reduce its cost burden by putting pressure on suppliers (med device companies and hospitals) to reduce costs. Volumes will go up, procedure costs will come down but on balance solid profitability is expected to be attainable. Certainly the economic landscape will change but not necessarily for the worse.

Jeff Villwock, Villwock Advisory Services

The Court upholding the federal subsidies effectively allows the current law to continue unchanged.  If over time more Americans are covered, then the main beneficiaries are the hospitals and managed care companies.  Hospital bad debt has declined as more patients are insured, and this trend should continue.  Likewise, the exchanges add people to healthcare insurance company’s membership roles.  One would hope for more coordination of care between physicians, hospitals and other healthcare providers, but that trend is developing very slowly and the Court’s decision should not speed up this growth.

Ryan Glaws, Excellere Partners

Since its implementation, the ACA has achieved expanded insurance coverage for millions of Americans. This fundamental change in the population of U.S. healthcare consumers has largely resulted in industry tailwinds as more people are able to effectively access the healthcare system.  Yesterday’s ruling by the SCOTUS provides a degree of certainty and stability around the permanence of the ACA, which should continue to be a net positive for the industry.  However, the healthcare landscape remains dynamic and complex due to several fundamental challenges including a need for cost-effective solutions, improved access to care (especially preventative care), and greater coordination of care through integrated technology solutions.  Companies that continue to drive practical solutions and effective delivery models that provide strong value to all key constituents – patients, payers and providers – will be best positioned for success going forward.

Jeff Swearingen, Edgemont Capital

The Supreme Court’s ruling affirms the changes that are already taking place in the marketplace.  Healthcare is in the very early stages of fundamental realignment as a result of the Affordable Care Act, which is changing the way healthcare will be paid for.  If Anthem, Cigna, Aetna, Humana and UnitedHealth Group believe they must consolidate to thrive in the changing market, that is a potent message to all constituents in healthcare about the importance of scale and access to capital.   Edgemont believes that in the coming months and years there will be a three-way struggle between healthcare facilities, providers (physicians) and payers. Market share creates negotiating leverage, operating economies of scale and access to capital, which allows each of the three groups to take on risk arrangements which will prevail in the new reimbursement model. To survive and thrive in the post-ACA healthcare market, you must be consolidated with market share and have access to capital.

Tom Babich, Torreya Partners

I haven’t been as focused on how healthcare companies will take ADVANTAGE of a “better-insured population” but more so on the implications of a focus on allocating resources more effectively as a result of the Affordable Care Act.  With ACOs and a focus on accountable care, we have been spending more time with companies that can clearly demonstrate an ability to improve outcomes while taking cost out of the system.  The most immediate change that I have noticed is the excitement in the investment community for information technology and data companies that create for better, more efficient care. This is spanning the spectrum from companies layering risk analytics on to ICU data to companies like Cure Forward working to build patient genomic databases to more efficiently align individuals with trials and therapy.