Opinion Piece in Barron’s
Few issues touch more Americans — or take up a larger share of the U.S. economy — than healthcare. While it’s tough to predict what policymakers or courts will do next, I see five trends likely to influence the sector in 2019 and beyond.
First, physician practice purchases. Hospitals and health systems continue to snatch up physician practices, but those acquisitions are not providing them the financial return they expected. CEOs are frustrated with the damage to their bottom line. And physicians aren’t happy, either — they often lose autonomy and don’t gain the reduced administrative hassle they were promised.
Enter private equity. According to a recent report, the number of health care PE deals increased by 29% from 2016 to 2017. Specialty providers, such as dermatology, ophthalmology, and orthopedics, are considered especially attractive targets.
If health systems can learn anything from these moves, it’s that profit does exist in the sector. To find it, however, they’ll have to take a page from the PE sector, which is used to making tough choices. This may mean streamlining staff and support functions; reconfiguring the portfolio of doctors if not all fit the organization’s strategy; and evaluating and strengthening leadership based on qualifications, not just who happened to be in the role when the practice got purchased.
The second trend to watch: Medicare Advantage’s continued expansion in 2019, as members of the baby boom generation gradually work their way up to a median age of 65. Boomers are attracted to the private, HMO-like program because of perks not offered under traditional Medicare, such as gym membership reimbursements, coverage for dentists and eye doctors, as well as capped out-of-pocket costs. The result has been an explosion in coverage. Medicare Advantage penetration has doubled to 20 million beneficiaries since 2010. By 2025, that number is projected to double again.
The two biggest behemoths to embrace Medicare Advantage are also seeing massive dividends. Humana recently cruised past Wall Street’s earnings estimates, largely on the strength of its Medicare Advantage success. The same was true for UnitedHealthcare stock as it hit a new record high. The penetration numbers are hard to ignore for health care conglomerates who have yet to fully embrace Medicare Advantage. The corresponding rise in stock of companies that have makes it all but impossible to disregard.
The next trend on my list is not such a success story: electronic health records (EHRs). The expensive EHR systems that were supposed to make life easier for doctors and hospitals are creating more problems than they are solving. This frustration with point-and-click tasks is even negatively affecting patient health.
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