Last week the Supreme Court ruled that the individual mandate to purchase health insurance was constitutional. The ruling set off a whole new wave of angst among investors as to the investment implication of the Patient Protection and Affordable Healthcare Act (aka "Obamacare").
Massachusetts has been tinkering with health insurance for six years now ("Romneycare"). So, as a resident of Massachusetts -- and a small business owner -- I thought I would take a look at our experience and try to stir up some new investment ideas.
The first thing that happened when Massachusetts passed its healthcare reform was that hospitals realized about 600,000 people would be getting health insurance. But they also realized some of those newly insured individuals would be covered by an expanded Medicare program -- a program not exactly known for its generosity. Hospitals had to take two actions simultaneously. First they needed to cut expenses and, second, they needed to increase their utilization by driving more patients through the system.
But, with most of the cost of hospital services provided by people like nurses, doctors and the like, hospitals needed a new way to lower their costs rather than slash the nursing staff, lay off doctors or junking the $2 million MRI machine. Hospitals needed to increase their economies of scale. The healthcare law in Massachusetts set off an unprecedented wave of mergers, acquisitions and partnerships among the hospitals. The Harvard teaching hospitals saw the implications right away.
Massachusetts General Hospital and Brigham and Women's Hospital founded Partners Healthcare with the idea to create economies of scale and increase their utilization rates. In the last six years, Partners has been on a deal-making frenzy.
Partners Healthcare has either partnered with or acquired 10 hospitals. Whether you're a witch in Salem, Mass., on the North Shore in need of a mammogram or a one-percenter on Nantucket with an emergency stubbed toe, you can stay within the Partners network.
The 10 hospitals have stitched their computer systems together and merged their purchasing departments, and they are actively coordinating care. In an effort to round up as many patients as possible, Partners has acquired or partnered with many large physician groups too. Today, with 60,000 employees, Partners Healthcare is the largest employer in Massachusetts.
The deal making has also increased Partners' clout with the National Institutes of Health (NIH). With a total research budget of more than $1.4 billion, Partners is the largest private hospital recipient of NIH funding in the country -- and, with Harvard Pilgrim providing health insurance, there is no need to leave the umbrella of the Harvard Crimson.
In similar fashion, Children's Hospital Boston launched a major drive to acquire as many patients as possible. Children's has been partnering with suburban hospitals and even building whole outpatient facilities all over the state.
Not to be outdone, the Catholic hospitals even got into the act, forming Steward Healthcare with the private equity arm of the Blackstone Group. Since these hospitals didn't cure polio, invent anesthesia or win 15 Nobel Prizes, they have had to focus on serving smaller, local communities.
After all the deal-making, the hospitals have hit the airwaves, flooding television and radio with advertisements trying to scare up some patients. Olympic swimmer Dara Torres tells how Brigham and Woman's re-grew the cartilage in her knee using stem cells. Further, Children's just launched its "Until Every Child is Well" campaign, which focuses on children with serious medical conditions. If the president's healthcare plan isn't repealed, expect to see a lot more advertisements for hospitals.
Since healthcare is a huge topic, and it's impossible to cover in one article, I will outline my healthcare stock picks Thursday.