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Tad Gage
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Tad Gage is a managing director of Ambassador Financial Group and co-founder of Capital Insight Partners. He has more than 25 years in financial journalism, investor communications and management consulting. Before entering the investor communications field, Gage was a financial journalist and... More
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  • The Ugly Underbelly of National Healthcare Reform 0 comments
    Jun 19, 2009 5:16 PM | about stocks: PFE, GSK

    This is a little off-topic from the usual posts on investment opportunities, but I just had to toss out the concept. Frankly, this has been buzzing around in my head and I think it has a major impact on publicly traded drug companies, healthcare facilities, and doctors. I just haven't seen much discussion of it.

    With all the discussion about making healthcare more affordable, who's talking about the pricing structure related to doctor visits and generic meds versus name brand perscriptions? Let me make this simple: you probably have a favorite primary healthcare provider (doctor) and perhaps a few specialists you work with for specific issues. Did you ever price-shop doctors to find the best value? Have you discussed generic alternatives to the perscriptions they prescribe?

    Probably not, because one way or another, you're a smart and successful investor and you have some kind of insurance. Did you ever ask how much a particular treatment would cost? Or dicker over the price of an office visit? Again, probably not, because you count on your insurer to hammer your healthcare provider on the cost of everthing from a routine follow-up to a significant medical procedure. Most likely, your doctor will charge something outrageous for a 10 minute office visit and you count on your insurance provider to beat them into submission to an appropriate charge based on market rates.

    Haven't we all seen the $170 office follow-up visit knocked down to $70 on an EOB, and the doctor accepts it? Of course. Is this a good business model? And do you, as a consumer,simply accept this because no price can be placed on your health?

    Do you just accept using a name-brand medication without even asking your doctor if a generic alternative is available? Well, if you have no insurance or a very high deductible, you might be more interested in asking these questions, because it's coming out of your pocket.

    Let me ask you a question: if you were looking for a new plasma television, would you simply walk into a store and say, "here's what I want, so please just charge me whatever you like for it." I think not. You shop around, and you demand value. So why do we go into a doctor's office and simply accept whatever they tell us and whatever they charge us?

    The fundamental problem with any healthcare reform is that people can't place a value on their health. If you went to an oncologist who told you that you had cancer but, if treated, you had a very good chance of living to a ripe old age, would you dicker about the cost of the treatment? Would you get a second or third opinoion based on price versus value? Probably not. But perhaps you should.

    I like Pfizer (NYSE:PFE) because of their cutting edge research. But would I select a Pfizer drug over a generic alternative because they're advertising on TV? No way, because my health plan favors generics.

    Andrew Witty, CEO of Glaxo Smith Kline, told a healthcare conference recently: "It's been a major upheaval and I'd be the first to admit that a year ago morale in our discovery organisation was not very good, in fact it was terrible." These guys need to figure out a new direction, for sure.

    If fair and competitive pricing for drug companies and doctors is the result of some kind of national healthcare reform is on the horizon, a lot of changes in doctor's and hospital's business models are in the works. What does this mean for publicly traded healthcare operations and drug companies?  I'm not sure. But I'll be watching.  And maybe you should ask your doctor how much he or she is chargiing for your visit, and tell them you're shopping for the best value available. An interesting concept.

    By the way, I have a high deductible policy and my doctor agreed to charge me for every other visit, bill the value of the visits she knows will be paid by my insurance company, and perscribes only generic drugs that are accepted by my plan. Now that is a cool doctor.

    So what are your thoughts about how we make this affordable healthcare thing work?





    Stocks: PFE, GSK
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