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Mr. Phan is an independent trader for Equity Guidance LLC. In his previous life, Mr. Phan spent over 15 years consulting for some of the biggest brokerage and financial institutions on Wall Street. He launched EGS to assist individual investors/traders in their research. He uses various... More
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  • The Healthcare Act & Its Investment Implications

    June 28th, 2012 the Supreme Court decided to uphold the Affordable Care Act that was approved by Congress March 2010. Additionally, the Court also stated that the federal government can not penalize state(s) that decide to opt-out of the Medicaid expansion.

    This is a multi part series. Part 1 (this article) summarizes the Affordable Care Act and its wide ranging effects on the healthcare industry. Hospitals, health insurers, drug-makers, physicians and technology companies will be affected. Subsequent articles will examine in detail each affected industry and individual related companies. (Click here to see the affected industries and selected stocks).

    One of the Affordable Care Act's most sweeping changes is to require most individuals to obtain health insurance or pay a tax penalty if they do not obtain coverage for themselves and dependents starting in 2014. Coverage can be obtained through their employer, the Insurance Exchange, or private insurance market outside of the Exchange or government programs such as Medicare, Medicaid. The Affordable Care Act also provides subsidies to low-income individuals and their families in the form of tax credits and reduced costs for coverage purchased through the Exchange.

    Here are the key points of the Affordable Care Act (click here for additional details from the Government Healthcare site):

    1. Up to 33 million additional Americans are projected to secure insurance coverage by 2021 (assuming all states participate in the Medicaid expansion).
    2. Penalties will be assessed for not buying insurance by 2014; Starting at $95 or 1% of annual income and rising to $695 and 2.5% by 2016.
    3. Insurance companies, those that focused on the wholesale market of employer-sponsored coverage, will have to devote a considerable amount of resources to individual policies sold on the exchanges.
    4. Government through the Department of Health and Human Services (NYSE:HHS) dictates premium increases by the insurance companies via the Medical Loss Ratio (NYSE:MLR).
    5. Physician services are already constrained. Increased demand for physician services may come from physician extenders, tele-health, retail clinics, and Federally Qualified health Centers.
    a. Some primary-care physician may benefit from a temporary increase in the Medicaid rate.
    b. First dollar coverage will be provided for preventive services. This will shift healthcare dollars to areas previously not well funded.
    c. Large physician groups are better equipped to participate in the new reimbursement model.
    6. Long-term care, skilled-nursing facilities, home healthcare and rehab centers may experience a negative effect from the Medicare rate cut.
    7. Focus on EMR (Electronic Medical Record) implementation for reimbursement as dictated by Medicaid. This will shift dollars to technology but also result in a significant new cost to care providers.
    8. Pharmaceutical and Life Sciences industry will experience the least operation disruption from the law.
    9. Branded pharmaceuticals stand to lose over the next decade as a result of discounts in the Medicare Part D, the effect of the doughnut hole, increased Medicaid rebates and industry fees. This will be partially offset by a modest increase in sales from expanded insurance coverage.
    10. Large generic manufacturers stand to gain in sales because of new discounts and rebate provisions.
    11. The 2.3% Medical Device excise tax will mean that smaller medical device firms will be affected most.

    The Affordable Care Act requires all employers with more than 50 employees to offer health benefits to every full-time employee or pay a penalty of $2,000 per worker (less the first 30). It also dictates the employers will have to provide insurance benefits to all employees as well as bear the cost of insuring the children of employees to a later age. The benefits must provide a reasonable level of health coverage. Except for grandfathered plans, employers will no longer be able to offer better benefits to their highly compensated executives than to their hourly employees. Employees can shop around for group health plans on new insurance exchanges as opposed to individual plans.

    Congress created a $19 billion subsidy program in March 2009 (American Recovery and Reinvestment Act) to help physicians and hospitals purchase electronic-health record (EHR) systems. At this juncture, we are only at an initial funding stage of providing EHR.

    a. EHR systems program is overseen by Centers Medicare and Medicaid Services (NYSE:CMS) and Office of the National Coordinator for Health Information Technology (ONC) under the U.S. Department of Health and Human Services umbrella.
    b. Recipients of the subsidy must meet the criteria of "meaningful users" by purchasing a "certified" EHR and facilitate adoption of Health Information Technology.

    In summary, the Affordable Care Act will have a wide ranging effect on the healthcare sector. This will translate into significant losses for some and gains for others. For a more details views of the affected industries and stocks.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HCA, CYH over the next 72 hours.

    Jul 25 11:33 AM | Link | Comment!
  • Mobile Payment – Near Field Communications (NFC) Analysis
    The traditional method of payment of cash and checks are moving aside based on a recent major consumer trend -- mobile payments.    As smart-phones have become popular, people have become more comfortable using digital currencies and mobile payment both to shop for goods online and at traditional brick-and-mortar retail stores. Stores as varied as CVS (NYSE:CVS), McDonalds (NYSE:MCD) and New York ‘s taxis are currently accepting mobile payments.

    Smart-phone providers Apple iPhone (NASDAQ:AAPL), Google Android (NASDAQ:GOOG) and others are gearing up to battle for the customer wallet.   Mobile payment could be a simple process of holding a phone near a point-of-sale terminal with payment made electronically. The technology behind this process is called Near Field Communication (NYSEMKT:NFC). NFC is a short-range, wireless technology that allows secure communications between two proximate devices.   
    Payment processing companies such as Visa (NYSE:V) and MasterCard (NYSE:MA) collect fees for each transaction and this is a very lucrative revenue source. Competing companies recognize this near monopoly technology and are rushing to cash in on this area. Currently, there are two dominant smart-phone players in this area. Google ‘s Wallet  and Apple iPhone. Google’s Wallet NFC payment program has lined up major players such as Citi Bank (NYSE:C), First Data, MasterCard and Sprint (NYSE:S). Google ‘s wallet is preparing to launch this summer in San Francisco and New York City.  
    iPhone captures major market share in smartphones and has successfully dominated high volume businesses such iTunes and Apple TV.  With NFC, a fee is collected for each transaction, it is certain that Apple will want to capture this huge market.
    To date, Apple has not announced an NFC capable-phone.   iPhone 3 and iPhone 4 currently do not have NFC-capability.  Experts are certain that the iPhone 5 will be NFC capable.  To enable mobile payment, a chip with NFC capability is included in a smart-phone and at point-of-sale terminal.  As an interim solution, for devices without NFC capability an SD card is an approach that implements all NFC-related functionality. With mobile devices that currently have an SD card slot, users can plug in the card to get immediate NFC capabilities.  
    To protect its dominance, Visa and MasterCard are using micro-card type to be NFC-enabled.  Visa is using a payWave technology, NFC-enable like chip (micro-SD card) to insert into a phone.   Users then download an app to make a transaction. To date, there are eleven banks that have signed up including JP Morgan(NYSE:JPM), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC).
    On August 9, 2011, Visa announced plans to accelerate chip migration and adoption of mobile payments.
    “Visa will require US acquirer processors and sub-processor service providers to be able to support merchant chip transactions no later than April 1, 2013”.
    MasterCard developed a competing technology called PayPass and American Express has created a similar technology called ExpressPay. 
    • NXP Semiconductors (NASDAQ:NXPI) – a Dutch company that makes chips that run Google ‘s Wallet.   The market expects 472 million smart-phones to be shipped in 2011.   On Aug 2, 2011, via BusinessWire, NXPI announced a complete fingerprint-enabled payment in the US via a Motorola Android (NYSE:MMI) phone using technology from NXPI, AuthenTec and DeviceFidelity.  NXPI chart via as of Sept 15, 2011.

    • VeriFone (NYSE:PAY) – makes the terminals that read credit cards; The company announced that it will enable all of its devices with NFC technology by the end of 2012.  PAY chart via as of Sept 13, 2011.

    Technology Partnerships:
    Joint ventures with credit card companies, cellular providers and internet companies:
    • Isis – joint venture with American Express, Mastercard, Visa and AT&T (NYSE:T), T-Mobile, Verizon (NYSE:VZ) and Discover Card (NYSE:DFS).   Payment is made by waving their phone at the point-of-sale terminals.
    • Google Wallet – partnership with Citigroup, Mastercard, First Data and Samsung. 
     Competing Technologies:
    • Ebay’s paypal (NASDAQ:EBAY) and prepaid credit cards from Netspend (NASDAQ:NTSP) and GreenDot (NYSE:GDOT).
    • Social Networking ‘s Facebook – BitCoin (virtual currency) – digital currency developed by MIT.
    • Federal Regulation – Durbin Amendment stated that the Federal Reserve can have a say on interchange fees proposed by Visa and MasterCard.
    • Security of financial data
     HedgeFunds Holdings:
    • Third Points, LLC – Dan Loeb, a New York based hedge fund managing over $5.5 billion in assets.   As of March 31 2011, the fund holds approximately 4.7 million shares and comprises 1.42% of the companies portfolio as reported in GuruFocus.
    $20.93 - $31.95
    $ 17.09
    Add 50.78%

     In summary, mobile payment NFC technology’s penetration rate will be enormous over the next several years. The US market is currently in its infancy in adopting this technology. Japan and Korea are currently using NFC-enabled mobile payment technology. Emerging markets such as Brazil, India and China represent a huge un-tapped market. Recent research from Juniper indicates the mobile payments market will triple to $670 billion worldwide by 2015.
    In the near term, the major markets are in correction mode. Investors with a short-term outlook would be wise to wait for the market upturn prior to making an investment. Those with a longer term horizon might want to initiate a position in this growing industry as these stocks have corrected anywhere from 20% to 40% from their 52-week highs.

    Disclosure: I am long NXPI.
    Tags: NXPI, PAY, NFC, AAPL, GOOG, EBAY, V, MA, JPM, C, Technology
    Sep 21 12:32 PM | Link | 3 Comments
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