Deane Donnigan, fund manager at Polar Capital, discusses the opportunities within healthcare and whether they will be seized.
Warren Buffett has described US healthcare as the “tapeworm” of the economy. Generally, this would infer that as healthcare costs continue to rise, companies are disadvantaged in their ability to compete. Furthermore, and more specific to the US currently, it has tended to inhibit the free movement of talent within the economy’s workforce at large.
In 1960, the cost of healthcare per person in the US was $146 versus $10,739 in 2018.¹ Having gone from 5% of GDP then to nearly 18% in 2017, employers have pushed some of the costs on to their employees. Now that consumers have “skin in the game”, it is hardly surprising that Americans, and of late the political campaigns for the related votes, are pushing back. The US is not alone, on the rising costs nor the sharing side of the equation, but tends to get the lion share of attention due to more readily available figures.
It is overly simplistic for politicians and others to place the onus solely on the biopharmaceutical industry. There is a wealth of data to show the opposite; adequately prescribed medication is an extremely cost-effective investment.² Healthcare systems, whether US-based or anywhere else, are complicated – there is no “magic bullet” solution.
The real story here is that individuals globally are taking on more responsibility and cost for their healthcare yet having to operate within a marketplace that is unfriendly, inefficient and cloudy. Consumers can buy and track a pair of shoes or even a pizza easier than an arguably more important medical prescription.
While not an apples-to-apples comparison, there is obviously room for improvement, though much easier said than done. Healthcare delivery systems and related supply chains are complex as well as highly regulated – unlike the shoes or pizza analogy, errors may result in life-or-death consequences. So while not impossible, it is going to take longer than what has been witnessed elsewhere in the broader consumer marketplace.
As politicians and related parties generate a lot of noise on the unacceptable state of healthcare, the reality is that the healthcare industry, in conjunction with regulators and related government bodies, has been prospectively hard at work to deliver improvements. When speaking to Berkshire Hathaway’s healthcare collaborative effort with JP Morgan and Amazon, Buffett readily acknowledged the challenges are great, that there are no easy answers and, as such, that it is an area where the private sector tends to lead.
All parties can likely agree that the answers will lay in readily accessible personal and health record data – and making it sweat much harder than it does today. The good news is that most healthcare systems have transitioned from a paper-based system to one that encompasses electronic and increasingly cloud-based medical records. A colossal step though not well appreciated yet, since the functionality to date has been limited. That is somewhat down to the cost and time it has taken to implement the related IT systems, plus the limited ability for data sharing across various functions or related parties. In addition, ensuring medical information privacy laws, data security and regulation requirements are addressed is mission critical before patient information can securely move about in a virtual healthcare marketplace.
Without a doubt, the disruption of the healthcare status quo is well under way. This is evident in numerous companies and themes across the healthcare investment universe today but also from emerging areas of investment within large technology companies such as Google, Apple and Microsoft, and retailers Walmart, Best Buy and Amazon.
Previously, investors have played an important role and shared in the success of bringing 21st-century treatments to the marketplace. For these potentially curative therapies to reach those that would benefit most, the opportunity at hand is to address the outdated healthcare systems within which patients are assessed and futuristic treatments are administered.
While innovative breakthrough treatments and procedures will always be welcomed, patients’ greatest unmet medical need today is a marketplace that easily sees – and readily appreciates – the variety of world-class medical options available to it.
- https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html or CMS.gov 2018 as per attached spreadsheet – however preferred to reference or not
- https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2012.1074 or Cosgrove et al. Health Affairs 32, No. 2 (2013): 321–327 as per second attachment
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