Wall Street Looks Ahead for 2011
Wall Street Looks Ahead for 2011 | Wall Street Perspectus, Healthcare Industry, Nashville Health Care Council, Nashville Area Chamber of Commerce, Christopher Cooley, Kemp Dolliver, Adam Feinstein, Frank Morgan, Wayne Smith, LifePoint Hospital, Mergers & Acquisitions, Healthcare Reform

Panelists (L-R) Christopher Cooley, Adam Feinstein, Wayne Smith, Frank Morgan and Kemp Dolliver

The panel experts at the Nashville Health Care Council’s annual “Wall Street’s View on Prospects for the Health Care Industry” luncheon might have been peeking into a recycled crystal ball as they discussed the outlook for Middle Tennessee’s healthcare services sector and hospital management companies.

Panelists saw a number of repeat predictions carried over from last year’s glimpse into the globe and unanimously agreed that 2011 is going to look remarkably like 2010 … but a little better.

With continuing mergers and acquisitions taking the spotlight in the hospital sector as more national and Nashville-based chains seize the opportunity to add smaller, weaker systems to their collections, the group predicted continuing energy and activity in the M & A arena.

Caroline Young, president of the Health Care Council, welcomed guests to the yearly affair and introduced representatives from 13 new business members who have recently joined the Council, a reflection of NHCC’s ongoing presence in Nashville’s signature, $30 billion industry.

The packed luncheon — a sell out at 550 guests — was moderated by Community Health Systems Chairman and CEO Wayne Smith, a past Council president. The capacity crowd jammed into the Convention Center on January 26 to hear first-hand the panel’s projections on key industry segments, including hospital management, behavioral health, outpatient services, senior living, and long-term care.

Smith introduced a new addition to the panel, Chris Cooley, managing director of Stephens, Inc., who joined repeat panelists Kemp Dolliver, senior analyst and managing director of Avondale partners; Adam Feinstein, managing director, Barclays Capital; and Frank Morgan, managing director of RBC Capital Markets.

Smith jokingly observed that he knew there were “lots of questions about activity within the industry, but not about whether HCA is going public again this year!”

Then it was down to business. The panel agreed that last year’s big topic, the contentious 2010 Patient Protection and Affordable Care Act set to be eased into effect by 2014, is already affecting corporate planning. The panelists were also unified in their belief that while a newly elected Republican House might attempt to force its repeal, the law will not be recalled. However, there was some uneasiness about recent court challenges to the universal coverage mandate. Feinstein said, “Extracting the universal coverage provision would be a fatal blow to the legislation. If you pull it out, it’s going to kill healthcare reform. It has to stay.”

Asked about activity in different sectors of the industry, Morgan, commenting about the post acute care sector, said he thought there was “a tailwind” in renal dialysis and the nursing homes sectors due to a change in RUGS, a Medical reimbursement system. He added that, as the economy gets better, he looked for new growth in rehabilitation hospitals and in other sectors like outpatient rehab.

Cooley, who foresees a focus on small to mid cap growth sectors, also predicted an emphasis on innovation and development in four key areas: diabetes (especially in the device arena), tissue, chronic wound care and ophthalmology.

Dolliver expects 2011 to have a robust M & A environment. “It is interesting that smaller payers and wider diversity in payers will provide more opportunity for smaller hospitals,” he observed.

Feinstein said he is “bullish on the healthcare facility sector, especially hospitals,” and agreed that M & A consolidation will be a big theme, driven by healthcare reform.

He added there are a lot of deals that show positive trends and noted hospitals will benefit from Medicare changes, even though there are “a lot of moving parts” to reform activities and a “more difficult regulatory environment.”

Smith interjected that analysts predicting a boom in the economy are “whistling up Sunshine Mountain.” He said unemployment must come down from current levels to the 6-to-8 percent range in order to make a difference in the outlook.

Panelists agreed that the economy itself wouldn’t see much change. Feinstein predicted there will be modest growth of maybe 1 percent or better, while Dolliver thought growth would be flat and that employment will improve more slowly. Still, he said, the picture is not “as bad as last year.” Cooley also predicted low single digit growth for the rest of the year.

Asked to identify which segments have a strong outlook, Feinstein opined for the hospital and patient rehab hospital sectors, and … more cautiously … nursing homes.

Questions from the audience concerned the impact of managed care and reimbursement changes. Morgan said, “No doubt it will get harder over time; it could be a tough year.”

Smith challenged the panel to name their stock picks to watch in 2011. Suggestions included Fresenius Medical Care, HealthSouth, Express Scripts and LabCorp.

Local company LifePoint Hospitals was selected by Dolliver, who supported his pick by saying, “I think most of my competitors have underestimated what LifePoint can do this year, particularly with the acquisition of Gallatin’s Sumner Regional Health Systems. They are the least-leveraged company, therefore there’s capacity for acquisitions and more share repurchases,” he explained.