Roulston Healthcare Partner Ed Berger on How Healthcare Reform Politics Shouldn’t Affect Investment Opportunities or Strategy

The long debate over, and eventual passage of, healthcare reform fostered a vibrant cottage industry devoted to identifying the potential winners and losers that would result from the legislation. It seemed a foregone conclusion that a policy initiative of such ambition and scope would create new business and investment opportunities while simultaneously deflating the prospects of some established enterprises. The fact that no such dramatic affects have yet been observed might of course be attributed to the legislation’s long implementation timeline – we are still, for example, a long way from the state health exchanges and broad coverage mandate that were and remain the focal point for the reform debate. And the prospects for implementation of those and other elements of the reform bill have been thrown into question by the apparent commitment of the House Republican majority to either repeal major elements of the initiative or deny the funding they require. Two questions remain for investors: “Does the reform legislation as it stands really create new winners and losers?” and “Should investment strategy be predicated upon expectations concerning the success of efforts to repeal or frustrate implementation of reform?”

I’d answer “No”, fairly resoundingly, to both questions. Worry about the investment strategy impact of the politics of healthcare reform is as overheated and futile as the political debate itself. Step back from the political rhetoric for a moment and consider what the healthcare reform bill really entails:

1. At full implementation, it mandates that (almost) everyone buy health insurance, or pay a penalty for failing to buy insurance;

2. It regulates insurance company business practices;

3. It creates mechanisms, through expansion of Medicaid and creation of state insurance exchanges, to provide insurance to individuals and families that can’t afford it in the current market;

4. It (partially) pays for increased public subsidies through a variety of Medicare cost control measures;

5. It mandates broader implementation of electronic medical records and related health information technology ((HIT) tools;

6. It funds an ambitious comparative effectiveness research (CER) initiative;

7. It enables a broader program of Medicare alternative payment demonstration projects, most specifically and notably trials of accountable care organizations (ACOs) as a model for implementing incentives to control costs while improving quality.

Healthcare reform “works” – i.e. achieves the cost control and quality improvement goals its advocates seek – if and only if near-universal insurance coverage is accompanied by altered provider incentives (such as those posited for ACOs) and the more efficient use of resources enabled by CER and HIT. But the important thing for investors to understand is that the movement toward CER, HIT and ACOs predates the passage of reform, and that repeal of reform might slow, but would certainly not stop, that movement.

The insurance companies that adapt most effectively to their regulatory environment, and to the pressures to control costs, will flourish at the expense of those that do not. Companies that improve healthcare data access and management are advantaged in the evolving marketplace. Medical technologies and/or therapeutics to improve clinical outcomes will be good investments, and those that do so while reducing costs will be the best of those investments. Provider organizations that effectively address the structural, managerial and care delivery issues that will allow ACOs to succeed will flourish at the expense of those that do not. And it is a good bet that all of these things would have been true absent healthcare reform, and will remain true regardless of the near term political debate.


Dr. Edward Berger, has more than 25 years of experience working in senior management or as a consultant with medical device, biotechnology and health services companies, dealing with problems at the intersection of U.S. and international health care policy, corporate strategy development, and strategically sensitive corporate communications with government, investors and the media. He is the founder and principal of Larchmont Strategic Advisors which helps life sciences companies create and implement integrated strategies to address the many policy and regulatory obstacles and opportunities they face in their efforts to secure public and private insurer coverage and optimal reimbursement for new or evolving technologies.