Healthcare is expensive and stubbornly inflationary, particularly in the US. Despite spending the most per capita on healthcare, the US underperforms all other developed nations in terms of life expectancy.
Whilst care for the well insured is world leading, it is also very expensive. But, an estimated 27 million (Source: US census bureau) US citizens are ‘uncovered’ and thus have very limited access to healthcare, leading to poorer population health and a higher burden on the most expensive, emergency care. Emergency medicine is necessarily reactive and inefficient, whilst having almost no preventative impact.
What is the value of a human life? Apparently 90% of healthcare costs come in the first and last six months of a human life (unverified claim). Does this mean that a ‘survival of the fittest’ attitude would be cheaper? Not necessarily. The net contribution to society of these groups is very difficult to measure.
National healthcare systems such as that in the UK have independent bodies like NICE that undertake the daunting task of human life cost-benefit analysis. NICE use the buying power of the NHS to negotiate prices down and prevent treatments being covered if they are deemed too expensive.
Meanwhile in the US, the ‘Obamacare’ act sought to gain healthcare coverage for an additional 23 million people (the US census bureau estimated 48 million or 15.4% of under 65s were uninsured pre-Obamacare). This has increased healthcare costs in the short term and ‘value-based care’ has been a focus since. A shift from a simple price negotiated with the healthcare supplier towards an evidence-based demonstration of value. In plain English, healthcare suppliers need evidence that treatments are worth the cost.
The long-term implication for investors is clear. Healthcare products and services that offer demonstrable value will gain share and be able to maintain prices versus the questionable and overpriced. Evidence is becoming more valuable. Capturing data, knowing how to analyse it and then using it to improve outcomes is ever more critical. The good companies we speak to realise this and want to be on the right side of this shift.
The answer to the challenge of reducing costs in the healthcare system lies in the power of technology. Whether it is an innovative medical device, a new drug or redesigned hospital protocol, technological and business model innovation, and its deflationary impact, is probably the most likely and sustainable solution.
We believe that each of the companies below is leveraging technology in a meaningful way to improve health outcomes and reduce cost, whilst capturing value for shareholders in the process. We see it as our job as sustainable investors to seek out these win-win outcomes:
|Company||What they do|
|Cochlear and Amplifon||Cochlear and Amplifon are providers of cochlear ear implants and hearing aids respectively. Cochlear implants in children rank as the second best healthcare expense on a cost-benefit analysis (behind neo-natal care) according to a Stanford study. Hearing loss in old age is increasingly associated with dementia and reduced social interaction, reduced mobility and increased depression.|
|Insulet||Insulet offers innovative ‘tubeless pump patches’ for type-1 diabetics that automatically deliver insulin. This patch demonstrably improves quality of life for patients – particularly children and their parents – whilst also improving long-term outcomes for the patients (reducing the healthcare burden). Indeed, reduced ‘hypo’ events alone (which cost ~$30k per event in the US) justify the increased cost of the device versus multiple daily injections.|
|Medidata and Icon||Drug discovery and development has remained stubbornly inflationary with drug prices rising year-on-year for decades. Medidata is a cloud-based analytics company that is becoming the industry standard for increasing the efficiency of this process. By objectively assessing the progress of the pipeline via data across multiple processes and disciplines, it helps allocate resources to the most promising drugs and accelerate the process. Icon is an outsourcing Contract Research Organisation that works for biotech and pharma companies to efficiently take proposed new drugs through trials to market more efficiently.|
About the author
Craig Bonthron is an investment manager in the Equities team, responsible for co-managing global equities portfolios. He joined us in 2014 from SWIP, where he was investment director in global equities. In addition Craig also had analysis responsibilities for the tech, energy and utility sectors. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors, a member of the global environmental equity team. Craig has a 1st Class honours degree in Building Surveying, an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 16 years’ industry experience (as at 31 October 2017).