Industry insights

February 9, 2024

A favorable swing towards providers, Medicare Advantage, potential impact of GLPs, Artificial Intelligence and the election cycle on the healthcare industry were all hot topics at the Nashville Health Care Council’s annual Wall Street convening. 

A favorable swing towards providers, Medicare Advantage, potential impact of GLPs, Artificial Intelligence and the election cycle on the healthcare industry were all hot topics at the Nashville Health Care Council’s annual Wall Street convening. 

More than 600 healthcare leaders gathered this week for one of the Nashville Health Care Council’s most anticipated annual events, Wall Street’s View on Prospects for the Healthcare Industry. The crowd heard some of the industry’s most experienced analysts discuss the investment outlook for the sector in 2024.  

Nashville Health Care Council President Apryl Childs-Potter welcomed the sold-out crowd and turned it over to Sam Hazen, chief executive officer of HCA Healthcare, to moderate the casual, candid and sometimes surprising conversation. Featured analysts this year included Whit Mayo, senior managing director, healthcare providers and managed care, Leerink Partners; Brian Tanquilut, healthcare services equity research analyst, Jefferies, LLC; and Gary Taylor, managing director, health care—facilities and managed care, TD Cowen. 

Hazen and the panel discussed a variety of topics related to healthcare investments and trends from the past year and whether those trends will intensify or wither in the coming year. They also discussed short-term and long-term macroeconomic issues affecting healthcare, the coming election cycle, their most favored sectors within healthcare and contemporary trends.  

Despite the looming presidential election, analysts didn’t expect to see healthcare emerge as a top focus of candidates. Mayo quipped that generally, results from a Republican administration would be good for Medicare and bad for Medicaid, and that the reverse was true for a Democratic one.  

Analysts focused more on the impact of monetary policy, with the Federal Reserve having raised interest rates to multiyear highs in an attempt to curtail inflation.  

“Private equity activity has slowed down because it’s harder to do deals as interest rates go up,” said Tanquilut. “We should see a resurgence in deal flow on the private equity side if rates recede.” 

He added delays at the Securities and Exchange commission will continue to be a limiting factor for hospital consolidation. Under this administration, “these things take forever to get done, so regarding the election, an administration change could be positive in that regard.” 

He described the initial public offering market as slow. Despite a “strong pipeline of deals out there, right now it feels like the bar is higher for IPOs,” he said.  

Favored sectors 

In assessing the headwinds and tailwinds buffeting various segments of the healthcare business spectrum, Taylor stressed the pendulum of the healthcare economy has swung toward providers after at least two decades favoring payers.  

“The operating environment is great for providers right now,” he said. “The labor cost curve is fading meaningfully, and visibility around the business is getting better.” He said behavioral health is having a moment in the sun, as payers are beginning to recognize that psychological well-being is an integral part of overall health and historical restrictions on behavioral access from payers are loosening significantly.  

Tanquilut mentioned his bullishness on providers as well, more specifically the hospital and surgery center sectors, and especially businesses that have a hand in both, as services continue to shift toward outpatient care where possible.  

Taylor further emphasized the prospects of providers, adding, “2023 and 2024 are the only two years in the past decade that we’ve recommended providers over payers.”  

He said for-profit hospitals are likely well-situated to gain market share because he sees a minor business investment supercycle where hospitals with access to capital will be able to take share from rivals by making smart investments in technology and facilities. He mentioned many nonprofit hospitals emerged from the pandemic in worse shape on capital access metrics than their competitors.  

Hot trends 

Hazen asked about the impact of GLP-1 weight loss drugs on the payer and provider sector.  

Mayo was quick to weigh in that while the buzz around such drugs has had a significant positive impact on the stocks of the drugs’ developers – and a significant negative impact on the stocks of a variety of other healthcare businesses expected to suffer from their widespread use – he does not expect that negative impact to be long-lived.  

“It comes down to affordability of the drugs and compliance,” he said. “If an individual takes one of these drugs and stays on it for 12 months, then stops taking it, and regains much of the weight, as the financier, am I getting any long-term value out of these?” 

Mayo added that long-term effects on services are uncertain. For example, a patient who needs orthopedic surgery may not be eligible for such surgery without losing weight, in which case the drugs would have a positive impact on consumption of services. 

Taylor called the perceived negative effects on providers overblown.   

“This is the most overhyped unaffordable thesis that has ever moved stock,” he said. “Device makers and hospitals dropped too far in response to a drug that costs $1,000 a month and makes sense for only a small subset of patients.” 

Medicare Advantage Challenges 

Hazen asked about recent challenges Medicare Advantage plans have faced regarding declining profitability, political challenges and news coverage about shortcomings members have experienced in obtaining needed care.  

With enrollment now at 34 million, Medicare Advantage remains too big to fail but its previous annual growth rates of 9-10% are a thing of the past, said Taylor, who expects a slowdown in growth and a pinch to profitability.   

“The medical cost trend accelerated in 2023 after pretty much two decades of decelerating,” he said. “We think growth will slow by half over the next five years,” and many Medicare Advantage plans will “struggle financially.”  

Technology as enabler, disruptor 

Hazen also asked the analysts to opine on technology, specifically artificial intelligence, as an enabler and disruptor in healthcare.  

Mayo said he’s struck by the hype he’s seeing from self-described “tech enabled” companies. He hailed the prospects of AI and innovation, but said the key is not only the availability of this technological breakthrough, but also the complexity of training it to make sense of disparate healthcare data and translate what machines learn from the data to improve back-office efficiency and clinical practice.  

“We’re all tech-enabled now. What’s the differentiation? That’s what I struggle with,” he said.  

Tanquilut saw AI impacting care delivery and back-office functions unequally, in terms of timeframe. He mentioned one potential direct use case for AI that has been proven more efficient and accurate is in imaging.  

“The problem is, payers are not willing to pay for it yet,” he said.  

He mentioned AI as a potential near-term threat to providers, however.  

“The most immediate place [AI] is being used by payers is to engage in cyber-warfare against your revenue cycle,” Taylor said, adding that everything payers do to make reimbursement difficult is “going to get a lot smarter.” Providers will have to invest in AI themselves to push back.  

In concluding the event, council president Apryl Childs-Potter announced an expanded second annual Nashville Healthcare Sessions conference, a weeklong series of events Oct. 7-11, designed to gather innovation-minded healthcare, finance and technology leaders.  

“We’ll have more space this year, but even so we expect another sellout for an event showcasing how Nashville companies, leaders and investors are shaping the future of the healthcare industry,” she said.  

Bass Berry & Sims served as presenting sponsor for the event, with Alvarez & Marsal, Ardent Health Services, Cumberland Pharmaceuticals, First Horizon, Gresham Smith, Hardenbergh Group, Healthpeak Properties, LBMC, and Wellpoint as supporting sponsors. Modern Healthcare served as the program’s media sponsor.    

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