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Just an average investor... primarily in American equity and bonds. (Important Note: My articles, blogs, comments, reference links and messages are not intended to be investment advisements; or to value securities. Examples and considerations are hypothetical and educational. Please consult a... More
  • Obamacare: Medical Management Without Medicine 0 comments
    Apr 9, 2012 9:46 AM | about stocks: AAPL, ANGI, AZN, BMY, BRK.A, DVA, GILD, HCA, IBM, ILMN, ISRG, JNJ, KERX, LLY, MRK, MSFT, NVS, NYT, PFE, SNY, THC, UHS, UNH, ANTM, WMT

    PPACA aka Obamacare

    President Obama makes it look so easy. Fourteen months after he took office, Congress passed his Patient Protection and Affordable Care Act [PPACA.] In 2014 every American will be required to have Health Insurance, and if they do not they will be fined. The issue is PPACA aka Obamacare is effectively trying to build a skyscraper, from the top down.

    The only other time Americans have been so mandated by the government was in 1792.[1] That mandate would have required everyone to have a weapon and ammunition, and the mandate was not enforced.

    In a bold step, President Obama spoke, to bridge PPACA and the Supreme Court by saying:

    "I'd just remind conservative commentators that for years what we've heard is, the biggest problem on the bench was judicial activism or a lack of judicial restraint - that an unelected group of people would somehow overturn a duly constituted and passed law... Well, this is a good example. And I'm pretty confident that this court will recognize that and not take that step."[2]

    Then Federal Judge Jerry Smith, from Texas' 5th Circuit, asked the Dept. of Justice to submit to him a 3 page letter, reaffirming whether Judges can rule laws unconstitutional.[3] This set off one lawyer for CNN, Jeff Toobin, to call these Judges "deranged by their hatred for the president." Another lawyer, Laurence Tribe wrote an Opinion Article on CNN "The 5th Circuit Court's insult to Obama."[4]

    Mr. Tribe is one of fewer than 70 Professors in Harvard's history to receive "the title 'University Professor...Harvard's highest academic honor.'"[5] Neither CNN or Mr. Tribe disclose in his article that "Tribe was appointed in 2010 by President Obama and Attorney General Holder to serve as the first Senior Counselor for Access to Justice; [and] currently serves as a Member of the President's Commission on White House Fellowships."[5]

    Neither Mr. Toobin or Mr. Tribe, in their statements and articles bother to explain what Judge Smith's relationship to the PPACA debate is either. Judge Smith is presiding over a case in Texas, over a part of Obama's PPACA, that bars Physician Owned Hospitals [POH] from being formed in the future, that also prohibits POH from expanding or building anew.[6]

    Views from the Street

    The prohibition of Physician Owned Hospitals is akin to the prohibition of Lawyer Owned Law Firms. It simply does not make sense. A hospital is difficult to operate, and while it is important to eliminate impropriety in health care, this prohibition makes absolutely no sense.

    Some have openly wondered whether this clause is contained in PPACA, due to lobbying by the Hospital Industry. It may have made more sense to instead prohibit Non Physician Owned Hospitals.

    Now to put this into perspective, there are only a couple hundred Physician Owned Hospitals in America. Still it is very bothersome, to know that anyone other than a physician, in America today can build and own a hospital. Because, across all of America, there are communities that depend on older hospitals, that do not bring in a lot of revenue. These hospitals may be dictated by religious organizations, community associations, Universities or charitable organization. They could be owned by the same business man who runs a tobacco company or fast food restaurant. However, thanks to President Obama they may not be owned by physicians.

    I like to think that if any President can get a tough job done, it is the Obama Administration. However, his pursuit for perfection, has resulted in the illusion of perfection.

    Medical Management Without Medicine

    PPACA has perhaps unintentionally lowered the quality of care. I have seen several articles that speak of Obama's legislation encouraging, and paying doctors to recommend Hospice. Though articles such as Forbes 'Obamacare Dives into End of Life Debate,' from 2009 help describe the recent history of PPACAs regard for hospice.[7]

    Also PPACA is causing some professors and recent medical school graduates to look for ways to make things easy. Like, by removing the patients from the equation. It is called 'Medical Management Without Dialysis.'[8] The New York Times (NYT) article, 'When Ailments Pile Up, Asking Patients to Rethink Free Dialysis,' explains:

    "Clearly, when the program was initiated in the 1970s, the hope and expectation was that this program would return otherwise healthy people back into society so they could work and be productive," said Dr. Manjula Kurella Tamura, a kidney specialist at Stanford. But, she added, "dialysis at the end of life is a different sort of treatment."

    Well, it is not up to a President or one recent graduate from medical school, to determine for the entire country, who deserves to go on living, receiving dialysis, and who does not. Because all End Stage Renal patients only have 2 weeks to live, if they are taken off dialysis.

    People who require dialysis, need a machine to filter their blood, because their kidneys do not function. If these people do not receive dialysis (or a kidney transplant,) they will die in approximately two weeks. Congress passed the End Stage Renal Disease (ESRD) program in 1972 allowing for all Medicare eligible Americans to be afforded Dialysis.[9]

    For instance a company, that Berkshire (BRK.A) has recently invested in, is Davita Inc., (DVA) and their dialysis centers in 43 states. A true sign, in that Davita does not have a dividend, and Buffett is known to focus on dividend companies.

    Obama is a politician. However not everything can be as easy as he may wish. Yes, it is important to open the doors of healthcare to all Americans. However it is imperative that the quality of care have an upward momentum. Diseases are a sensitive and emotional subject, and the President, has placed himself in the center of the action. The result is patients are receiving the care dreamed up by a non medical professional. Someone content with 'Medical Management Without Medicine,' it seems.

    Effect of Publicly Traded Companies

    Basically I would advise any investor to limit investments in Science, to monies that you would not mind completely disappearing. Because more often than not, small companies that are researching a couple drugs do just that.

    For instance Kerx Biopharmaceuticals Inc., (KERX) was slammed this week because it failed a Clinical Trial. These small Pharmaceuticals can not afford to lure investors with dividends. They most often can not increase revenue and earnings, quarterly. Because they are not simply selling a product, they are investing in research.

    So, unless you believe you'd like some ownership in one of these companies, be very cautious. Maybe one in ten picks will buck the trend.

    To get a little exposure to the world of Health and Medicine, an investor might pick up a little Apple (AAPL) and Microsoft (MSFT) and IBM (IBM). Though with the market at a high, I recommend using a long term strategy with these companies. Like buy a couple shares of Apple, a dozen shares of Microsoft and a couple shares of IBM. Check them in a year and have some more cash set aside to consider adding to your positions. Never put all your eggs in one basket.

    Now that you have a little Technology, check out the major Pharmaceutical Companies. Anyone of them can take a big hit, on a bad Clinical Trial, and can lose a lot of value when their patents expire. However, there is no pending law barring Physician or Scientist Owned Pharmaceuticals. (Or we would go back to the day when anyone could promote magic elixers, made of corn syrup, food coloring and sugar. That taste great, but don't do anything.) Literally, if you put a couple hundred dollars in a few, you will have the exposure you are looking for. Again, don't put all your eggs in though.

    Buy a little Pfizer (PFE) and a little Johnson & Johnson (JNJ) then check out Lilly (LLY) Merck (MRK) Bristol Meyers (BMY).

    To get some international exposure, pick up a little Astra Zeneca (AZN) Novartis (NVS) and Sanofi (SNY)

    Literally if you have ten shares of each of these companies you will be bringing in some good dividends, and you will be spread out. However this sector is so volatile, you have to realize there is risk. A really great idea would be to balance your portfolio with some US Treasuries, I often think to myself if I'm forced to sell at a loss, that 'I will live to fight another day.'

    Well, get yourself some Zero Coupon US Treasuries for 10 - 20 years down the line. And your portfolio will be prepared to fight in the future.

    As for Hospitals and Health Insurance, I am very hesitant. These companies have rarely performed well for me. Look at Unitedhealth Group (UNH) and even Wellpoint (WLP) However these companies have the most to lose no matter what direction the Supreme Court goes in. I believe Unitedhealth Group is attractive though. There is very little to no debt, 61 Billion dollar Market Cap, Earnings Growth and Revenue Growth.[10] This is a business that is maintaining its composure, in a very tough sector.

    Wellpoint has had a great couple weeks (last week of March & first week of April 2012,) however unattractive for Negative Earnings Growth, it is attractive for its 24 Billion dollar Market Cap.[11]

    A couple other companies I like to keep my eye on, are Gilead (GILD) Illumina (ILMN) and Intuitive Surgical (ISRG) Gilead makes medicines for HIV, and closed at 47.76 on Thursday April 5th, before Good Friday. This is 8.50 dollars off its 52 week high. Gilead is a great buy under 40 dollars a share.

    Illumina works in the field of Gene Sequencing and Epigentics, a field of study, where researchers study "heritable changes in gene expression... caused by mechanisms other than changes in the underlying DNA sequence."[12] Illumina had a very tough year in 2011 and has begun to rebuild speed.

    And Intuitive Surgical, makes a minimally invasive surgical suite, called DaVinci. The stock is now close to 550 dollars a share and that is quite expensive, for this company. However, it serves as a role model for one of the few medical equipment companies that has found such momentum in share price.

    Balance, Balance, Balance

    Unfortunately, if history repeats itself, the above recipe is only good for long term investment. In the near term, you will not strike it rich by building up positions in these companies. Though having some exposure helps to round out your portfolio.

    If you set your dividends to reinvest, over time, a couple of these companies will likely prove to be profitable. Though I strongly recommend keeping the percentage of your portfolio in this sector to under ten percent, given the risk. Because often these stocks do not conform to traditional business models. Thus, investors jump ship, and hurt these stocks, at the slightest sign of weakness. Even though in some cases a failed clinical trial yields a lot of important information.

    If you want to be really wise, keep these companies on a Watch List, and check them occasionally. Watch their performance over the next 6 months, and really get to know them.

    Hospitals

    HCA Holdings (HCA) is a hospital chain out of Tennessee that is well off its 52 week high of 35.37 Though in the past week from Friday March 30th to April 4th the stock has gone from 24 dollars to 27 dollars a share. An over ten percent leap. I'd watch for this stock to dwindle slightly during the summer. HCA is buried in debt, 27 Billion dollars worth, with under 500 million dollars cash on hand. [13]

    Unlike Walmart (WMT) another company with a lot of debt, the Hospital Industry does not have a steady stream of customers simply handing over money for products, to go home with. Patients often are using insurance to pay for services and the hospitals are being reimbursed. Instead of paying managers and check-out personnel, Hospitals need medical professionals who are paid far more.

    Another hospital chain Tenet (THC) also proves to be a stock that simply can not produce value for shareholders. At 5.26, Tenet is an 'investor owned health service,' company. Unfortunately, though, with their CEO making 4 million dollars a year and Vice Chairman making 1.8 million dollars, the investors have little to show for their investment, over the near and long term.

    United Health Service (UHS) appears to be another beleaguered Hospital Company. United Health is based out of King of Prussia, Pennsylvania. Its top 4 Executives, none of whom are MDs or PhDs make about 8.5 million dollars a year.

    Though the company has earnings and revenue growth currently, its cash / debt ratio is very imbalanced. 41 million dollars on hand and 3.7 billion dollars in debt [14]

    Eliminating POH, benefits only high paid hospital executives

    In order to enhance health care we need the best and brightest going into Medicine. Obtaining Medical Degrees, and being able to go into hospitals that are run efficiently. The concept that forbidding Physician Owned Hospitals, is some how good for America, or the Hospital Industry, does not prove true based on analysis of the publicly traded American Hospital Industry.

    I can only surmise that the people who will enjoy the elimination are these few, mostly non MDs who are executives at the for profit hospitals.

    The problem that some have with POH, is that the physician owners benefit too much from the care they provide. Some say they are paid three times (for providing care, facilitating care, then for owning the facility,) instead of revenue going to non physicians.[15] Though this argument is not sensitive to the fact that many hospitals lose money. They are built and maintained to treat people. The executives often are paid handsomely, regardless of ownership.

    The point, however is, people need care when they get sick. Because proper care, often will intervene in the worsening of a disease. Often proper care will save money in the long run, and will allow for people to get back on their feet and continue with their lives. Thus benefiting the economy, not only an individual contribution, but a family's contribution.

    Had PPACA, instead said, only physicians can own hospitals, and implemented a code, to allow access for more people and reduce impropriety, I believe we'd see a stronger system. One, where the doctors could converse with people who understand medicine.

    We'd never, ever hear the end of it, if one day MDs tried to ask that there be no more Lawyer Owned Law Firms. It would be considered a joke, by lawyers. 'Who in the world do those Medical Doctors think they are?' Would be the battle cry.

    Some, not all, but some MDs who own hospitals, never ever give up. They devote their whole life and all the money they make to try to raise the bar of medical excellence. To support not just their communities, but the entire Nation. To advance medicine, the subject they are knowledgeable of, from education and experience.

    Currently, if a physician wants to build a hospital, they need to ask anyone other than their peers, to be the owners. PPACA automatically presumes that all these other organizations are more capable, more trustworthy, than the actual people who are trained to handle these health conditions.

    I still like to believe if anyone can take on the toughest challenges and find success, it is President Obama. However, I just hope he can see that one of the toughest challenges, is making sure that PPACA does not lower the quality of health care. That in order for real care and healing to take place the only option is, medical management with medicine.

    ____________________

    Sources:

    [1] "The Militia Acts of 1792... would have required every "free able-bodied white male citizen" between the ages of 18 and 45, with a few occupational exceptions, to "provide himself" a weapon and ammunition" en.wikipedia.org/wiki/Individual_mandate

    [2] "Obama 'confident' Supreme Court will uphold health care law" by David Nakamura (April 3, 2012)
    http://washingtonpost.com/politics/obama-remains-confident-supreme-court-will-uphold-health-care-law/2012/04/02/gIQA9HIOrS_story.html

    [3] "Federal Judge Demands Obama Explain 'Obamacare' Statements" by Devin Dwyer (April 3, 2012)
    news.yahoo.com/federal-judge-demands-oba...

    [4] "The 5th Circuit Court's insult to Obama" by Laurence H. Tribe (April 6, 2012) http://cnn.com/2012/04/06/opinion/tribe-obama-remarks/?hpt=hp_c2

    [5] Laurence H. Tribe 'Harvard Law School Faculty Directory' http://law.harvard.edu/faculty/directory/index.html?id=74

    [6] "PPACA Eliminates Stark Exception to Physician Owned Hospitals (June 9, 2010) http://gastro.org/journals-publications/gi-quality-and-practice-management-news/2010/june/ppaca-eliminates-stark-exception-to-physician-owned-hospitals

    [7] "Obamacare dives into End-Of-Life debate" by David Whelan (July 24, 2009) www.forbes.com/2009/07/24/obamacare-medi...

    [8] "When Ailment Pile Up, Asking Patients to Rethink Free Dialysis" by Gina Kolata (march 31, 2011) http://nytimes.com/2011/04/01/health/01dialysis.html

    [9] "End Stage Renal Disease (U.S. Federal Program)" Wikipedia Article en.wikipedia.org/wiki/End_Stage_Renal_Di...)

    [10] United Healthgroup Key Statistics (April 7, 2012) finance.yahoo.com/q/ks?s=UNH+Key+Statistics

    [11] Wellpoint Key Statics (April 7, 2012) finance.yahoo.com/q/ks?s=WLP+Key+Statistics

    [12] en.wikipedia.org/wiki/Epigenetics

    [13] finance.yahoo.com/q/ks?s=HCA+Key+Statistics

    [14] finance.yahoo.com/q/ks?s=UHS+Key+Statistics

    [15] "Physician-owned hospitals under scrutiny" Angieslist (ANGI) (May 7, 2010) http://angieslist.com/articles/physician-owned-hospitals-under-scrutiny.htm

    Disclosure: I am long BRK.B, AAPL, IBM, MSFT, ILMN, MRK, LLY, WLP, BMY, AZN, NVS, THC, ANGI, WMT, NYT, GILD.

    Additional disclosure: I have no positions in SNY, KERX, UNH, UHS, DVA, ISRG, HCA and no plans to initiate any positions in the next 72 hours. I receive no compensation to write about any of the specific stock, sector or theme.

    Themes: economy Stocks: AAPL, ANGI, AZN, BMY, BRK.A, DVA, GILD, HCA, IBM, ILMN, ISRG, JNJ, KERX, LLY, MRK, MSFT, NVS, NYT, PFE, SNY, THC, UHS, UNH, ANTM, WMT
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