Highlights of the June 2, 2009 IVCA Event: ‘Outlook on Healthcare Reform'

Highlights of the June 2, 2009 IVCA Event: ‘Outlook on Healthcare Reform'

June 3, 2009

CHICAGO - “ The ultra-sleek halls of the UBS Building in the South Loop of Chicago was the setting for the latest Illinois Venture Capital Association event. A gathering of the membership enjoyed a sandwich buffet lunch but the focus was clearly on the privilege program panel that included five experts on the hot-button topic of health care reform.

IVCA Executive Director Maura O'Hara kicked off the proceedings by introducing the sponsor representative, Reginald McGaugh of Houlihan Smith & Company, who then introduced event moderator , Pete Shagory of Baird Venture Partners.

Sitting on the  forum panel was

Reginald McGaugh, Houlihan Smith & Company

Tony Davis of Linden LLC,

Eric Hargan of McDermott Will & Emery

John Rex-Waller of National Surgical Hospitals

The United States is anticipating a new era of healthcare coverage. With a campaign promise to shake up the system, President Obama's administration is tackling one of the most difficutl issues in our country; both politically challenging and legislatively complex. With the - œpush me-pull you-  mechanics of the current system in mind, the panelists broke down the dialo-gue into four major subjects.

1) What is Different This Time Around

Moderator Pete Shagory started out the presentation with a number of quotes, which all promised the elusive brass ring of blanket healthcare coverage for all Americans. Each of the citations were revealed to be from several different eras, including the present campaign.

Illuminated in the quotes was President Clinton's coverage attempt, President Nixon's hope for it (in the midst of Watergate) and even an emphasis on the godfather of uni-versal reform, President Harry Truman. They were all promising the same thing, but not one of them was able to accomplish it.

So what is different now? From an investor perspective, structural challenges exist. In the current model, physicians are paid to treat but not to prevent and third payer insur-ance systems have an economic incentive to approve or deny coverage. And while the United States is number one in the modernity of its system, it still ranks 37th (according to the World Health Organization) in access to coverage.

The main difference is the aging of the Baby Boomer population. 75 million of them will be turning age 65 in the next thirty years. Medicare and Medicaid, already two systems in crisis, is about to be hit with a tsunami of new users. This translates into an projected increase of healthcare costs from 17% of the GDP to close 50% by 2082.

Eric Hargan, former Deputy Secretary of Health and Human Services under the Bush administration, spoke of the recent atmosphere to get it done under the new administra-tion, with the difference being Democratic majorities in both the House and Senate. And of course with the current economic climate, the physical stress on government budgets is acute.

Tony Davis, coming from a medical family background, talked of the need for change in the philosophical and ethnical approach to end-of-life care. And also how do we give medical care to everyone who needs it.

John Rex-Waller spoke of cost shifting. With Medicare/Medicaid dollars not compensat-ing full amounts, hospitals tend to - œshift-  costs to private payers. Rex-Waller expects this situation to get worse if blanket coverage is implemented. He also spoke of the need for electronic records, as in an ATM scenario. If we can bank all over the world, why can't our health records (excepting privacy, of course) be assessed accordingly?

Waller asserts the U.S. legislature will tackle coverage first, and costs later. Which will be a future shock.

Reginald McGaugh believes that the Obama administration will implement more trans-parency in the procedural elements of reform, and the home care and hospice industry is on the edge of a boom (as in Baby Boomers).

2) Key Reform Policies

Three themes are in the Obama plan: expand coverage, make it more affordable and increase quality. The detail behind those surface goals were espoused by Eric Hargan.

Senator Max Baucus (finance committee) is the prime mover in shaping the reform, even as Obama took the oath of office. In concert with Senator Edward Kennedy (health committee), the two men have formulated a set of principles that are shaping the legis-lation. Baucus has targeted the end of June, 2009, and they are on track.

There are three overriding economic principles in the legislation - “ universal coverage, cost cuts and identifying sectors of healthcare that gouge the healthcare system.

Hargan emphasized the need to get the legislation done this year, to avoid the midterm elections of 2010, where backlash can create a sea change.

Universal coverage options: Individual mandates that all uninsured buy into coverage. Business mandates where companies will provide coverage (small business exemp-tion), expansion of Medicare, expansion of Children's Health Insurance Program (CHIP) and an expansion of the Federal Employees Health Plan, which is government spon-sorship of a health insurance plan or manage competition.

Cost Cuts: Cutting the massive dollar expenditures of Medicare and Medicaid through cutting waste (estimated at 30%).

Regional disparities will come under the microscope. Areas of the country that achieve health care more efficiently and cheaper will inspire other more expensive areas in cost cutting. Rex-Waller pointed out a British system that has had success in disparity and cost effective research.

Profit Abuse: More focus on federal oversight on price gouging and fraud.

3) Future of Health Care in America

Rex-Waller: We will get universal coverage first. We don't have to courage or research to attack the cost side of it yet.

We will develop a two-tier system. Ultimately the government will take on more of the healthcare pie, with a resultant impact on pay outs. This will subsequently limit the pro-viders and create the two-tiered system (basic versus upscale service).

Tony Davis: Ethnical and moral decisions are coming regarding end-of-life issues in cost containment. - œQuality of life-  surgeries (knee replacements, etc.), and decisions therein, may be the trade-off.

4) Impact on Investors

Reginald McGaugh: Home healthcare services and senior living facilities (smaller and more specialized) will see growth with the aging population. Also there is a trend toward less hospitals and more characteristic care institutions (cancer centers, etc.).

Rex-Waller: Bundling of payments and letting hospitals budget the money, which bigger hospitals can take advantage of, with more efficient management. Creating sub con-tracted advisors to get these efficiencies in motion.

Tony Davis: Be cautious around anything having to do with government reimbursement. Also wellness and preventative businesses (information and otherwise) will see growth.

Q&A

Q: How will government health care reform address early stage intervention in regard to diabetes and other lifestyle diseases?

A: Davis: Choices have implications. Employers in the last couple years have been pushing incentives, both positive and negative (higher premiums for unhealthy lifestyle choices), for preventative care.

Rex-Waller: Companies providing insurance are finding this is worth it.

Hargan: Government has not - œpicked the lock-  on preventive care information and main-tenance.

Q: Won't we just shift populations in behavioral health? For example, in the mid 1990s many mental health facilities just shut down, putting a significant population back onto the streets and into prisons. How will we address this in broader health implications, and what did we learn from the earlier shifts?

A: Davis: It may result in the cutting of people off the rolls, as in Medicare. After the su-pernova effect of universal coverage, there is the inevitable white dwarf star effect of the implications.

Hargan: A cosmic significance.

Moderator Pete Shagory: On that note, we will close the program with the white dwarf concept. Thank you to the panelists.