Predicting Effects of Coming Changes
Panelists with Caroline: Caption: (L-R) Tom Cigarran, David Jahns, Ravi Sachdev, Council President Caroline Young, Jon Santemma, and Doug French prepare to discuss deal-making trends in healthcare. Photo Credit: Nashville Health Care CounciL
An overflow crowd of local healthcare leaders, investors, and advisors turned out on May 15 for the Nashville Health Care Council’s annual ‘Financing the Deal’ panel discussion at the Franklin Marriott Cool Springs.
This year’s version, subtitled ‘Deal Making Trends and Strategies for Health Care Companies,’ focused on how momentous shifts that have occurred in the industry over the last year will play out and affect healthcare in the near future … and beyond. The many sizable deals that followed the record-setting HCA public offering last year have been keeping activity at a fast pace.
During the panel discussion, some of the industry’s savviest leaders predicted what the industry might find around some of the anticipated curves in the road.
The pending Supreme Court decision on the fate of the Patient Protection and Affordable Care Act and November’s presidential election both add elements of uncertainty to plans and forecasts.
The panel was absolutely sure of two things, however — 1) no one knows what is going to happen as the country faces the implementation of recent healthcare reform measures; and 2) whatever happens, there will be big payoffs for those who accurately predict and prepare for coming changes.
Moderated by veteran industry leader Thomas G. Cigarran, chairman emeritus of Healthways, the panel included Douglas D. French, managing director of Santé Ventures; David Jahns, managing partner, Galen Partners; Ravi Sachdev, managing director, J.P. Morgan; and Jon E. Santemma, managing director, Jefferies & Company.
Presenting Sponsor of the luncheon was Baker Donelson Bearman, Caldwell & Berkowitz, PC with supporting sponsors Council Capital, emids, and LBMC Healthcare Services.
Cigarran opened the discussion by pointing out, “Nashville companies have the experience and creativity to find new opportunities in a rapidly changing industry. The city has earned its reputation for successful innovation in the healthcare sector from a number of ventures that were created here, and thrived here, when faced with challenging market conditions.”
Jahns observed, “Over the past year, the healthcare industry’s presence in mergers and acquisitions activity has grown as CEOs look for ways to keep abreast of healthcare reform regulation and anticipate the changes that may be in store for the future.”
Santemma noted, “The pace in our business has picked quickly as people have accepted that the business model has to change.”
Sachdev agreed, saying, “It is surprising to me how quickly people have accepted that their business models have to change regardless of what happens in Washington.” He added one change already happening is that in specific hospital transactions, many companies are getting out of an area if they see that they will not be number one or two in that market. “Transactions we would have seen three years ago are not taking place,” he said. “Considering these factors, the growth in hospital M&A is not surprising, given the need for facilities to be more efficient in the face of anticipated reimbursement cuts and reform.”
“The push for innovation in the healthcare industry has opened new doors in life sciences,” said French. “As we learn more about the factors we can anticipate, like in chronic diseases, work is being done to bring new solutions to those areas.” He added that Santé Ventures is also looking at companies that have found ways to coordinate care and have business models that take advantage of information from electronic medical records and clinical outcomes.
Cigarran asked the panel what percentage of employers would opt out of participating in the government plan, saying that much of cost assumptions for the legislation were based on a figure of 3 percent but that budget figure has since been raised.
“What would the real number be?” Cigarran asked.
Santemma thought it would be around 30 percent but Jahns, “just to be negative,” predicted that a “herd mentality” would make it actually 100 percent of employers that would opt out, and he anticipated the result would be the development of two separate systems, much like those in countries in Europe.
“But,” Jahns added, “this really is not negative — it is a tremendous opportunity. The next decades are going to be better than the last. I say that because there is a lot to do … 70 percent of our unfunded liabilities are healthcare related. There is no other solution than to find a way to reduce costs and improve service.”
The panel discussed the future possibilities and opportunities to work with foreign healthcare systems and the growth of interest in providing services to foreign companies, such as a growing interest in telemedicine in countries like China where initial activity in telepathology is being tested. French said he sees growing interest in working with U.S. companies in Japan, Germany, Paraguay and India.
Jahns pointed out the growth potential in providing services abroad, saying, “For one thing it is easier to do business with another country than it is to do business across state lines.”
Caroline Young, president of the Nashville Health Care Council, closed the meeting noting, “There is nowhere else better positioned to anticipate and react to the challenges ahead than Nashville’s healthcare industry. With more than 40 years of unrivaled expertise and a nurturing business environment, Nashville’s established and emerging companies will lead the way in innovation.”