In the race for the White House everything remains open

Commentary by Michael G. Mullen, Consultant Bellevue Asset Management AG in the United States

An observation that experienced U.S. health care industry investors may agree on is that political statements about health care reform in the U.S. are frequent, actions with viable solutions are infrequent, but on those rare occasions when action is taken, it can be very disruptive to the stock market’s perception of value of the industry.  Although we still have several months to go before the U.S. National elections, we access a very low probability of a viable scenario where a winner on either side will be in a position to bring forth a plan that would be as disruptive as the Affordable Care Act (ACA) proposed in 2010. 

As we discuss later in this article, a review of each party’s platforms suggests no viable solution that addresses the real underlying issues facing the U.S. health care industry – the rate of inflation in health care spending, the impact of the aging population on demand, the price of new innovations, and the inability to change a very costly provider infrastructure.  In effect, the Affordable Care Act just threw more Federal dollars (that it does not have) at the problem and did not address these underlying issues.  We estimate that the annual incremental cost to the Federal budget for the 19 million people that joined the ranks of insured at USD 36,000 per person.  Was not the Affordable Care Act designed to reduce health care costs by 1.5% per year or roughly USD 2,600 per family by 2020?  At the time it may have been, but it did not.  As Speaker of the House, Nancy Pelosi said as she rushed the bill through the House of Representatives, “we have to pass the [health care] bill so that you can find out what’s in it.”

 High risk investment in innovation when combined with the free market system (as in the U.S.) is expensive.  It is also incredibly productive proven by an acceleration in advances in medical drugs and devices that have revolutionized health care for the world. The system’s inefficiency is often criticized. Yes, the U.S. leads all other industrialized nations in health spending but is dinged for its relative health outcomes and lower percentage of patients served.  Today, estimates suggest that 92% of the population in the U.S. has health insurance compared to 99-100% of other industrialized countries, according to a May 2020 JAMA article.  But freedom of choice is available in the U.S.  7 percentage points of that non-insured 8% of the population are younger adults who likely choose not to spend its money on something it believes it is not expected to need and therefore find no value in doing so.  From a Federal government standpoint, that is their right.

Health insurance is mandated here in the state of Massachusetts.  But I know too many young people who would rather pay a small fine on their state taxes each year than spend a lot more on health care insurance.  “It still has a big deductible before my benefits kick in,” to quote the gentleman I recently interviewed.  Short sighted? Likely, maybe? But that is the way it is.

The cost of health care in the U.S. has been a political issue for decades. The 1980 Democrat Party Platform advocated a Universal National Health Insurance Plan to make health care services more accessible, affordable and to reduce the burden of health care costs on the U.S. economy, which at the time was about 8.9% of GDP (USD 255 billon). In 2018, that number rose to 17.7% (USD 3.6 billion) despite a series of efforts to control costs, the latest of which was the Affordable Care Act in 2010. Assessing the impact of the COVID-19 virus makes it difficult to predict where the percentage to GDP will be for 2020.

At the start of this year, health care issues were at the top of the list of concerns expressed in political polls by American voters. A January 2020 GALLUP poll noted that health care issues led all other issues. 81% of voters considered it “extremely important + very important” in evaluating candidates for election. The COVID-19 pandemic changed the landscape of concerns a bit as health care slipped a bit to just behind concerns over the Economy. No real surprise here but nonetheless, health care policy remains an important issue for voters going into the November elections. But what do voters really want? The answer – to maintain quality of care but pay a lot less for it.

Despite its merits, the Affordable Care Act did not reduce the level of health care spending and nor did it slow the growth of spending. According to an April article in Health Affairs, National Health Expenditures grew 5.6% a year between 2003 and 2010. Growth in expenditures slowed to 4.4% a year between 2010 and 2018. Sounds good. But measured in inflation-adjusted dollars, spending grew at an average annual rate of 2.7% between 2004 and 2010, and 2.8% between 2010 and 2018. This gap would look worse if you also accounted for U.S. population growth (1.7% vs. 2.1%).

For the individual that had health care insurance, in part or whole, through their employer, a monthly cost share increase to 30-35% of the monthly premium was not uncommon on plans with less benefits than a decade ago. Co-payments and deductibles are also substantially higher and a direct hit to compensation. So in general, people feel as if they are working more and getting less. This is why it is such a critical issue for American voters. The prevailing idea to control demand was to make the consumer have some skin in the game and they would likely be more conservative about the use of health care services. But the system is not set up that way. Less expensive alternatives are generally not available and if they are, there is little incentive to use them. 

Voter’s going to the polls this November, basing a decision on who to vote for just on health care, have a difficult choice. In a recent Quinnipiac University poll, 57% of registered voters believed that Biden would do a better job on health care than Trump. It is hard to know what that means as neither candidate has put forward viable proposals that they would seek to implement in the next 4 years.

Trump is being judged on the past four years where both his own party and the Democrats made it impossible to address the shortcomings of the Affordable Care Act. But his continued blame on the ACA for “soaring deductibles and copays” is falling on deaf ears. Additional steps through “Executive Office Mandates” have made for good talking points but have also had little impact so far. Trump’s primary focus has been on attempting to address the cost of prescription drugs. But again, this appears to be all talk and no real possibility for action before the election. In late August, Trump released the Republican agenda for health care with minimum detail that included:

  • Eradicate COVID-19
  • Cut prescription drug prices
  • Put patients and doctors back in charge of the health care system,
  • Lower health care insurance premiums
  • Cover pre-existing conditions
  • Protect Social Security and Medicaid
  • Protect our veterans and provide world class health care
  • Reduce or eliminate reliance on Chinese manufacturing and drug supply

This all sounds good, but it is clearly political speak that in our view appears to be more of a defensive maneuver for late election politics.

Not that Biden and the Democrat party platform is any better. A review of the proposals  illustrates how its ideas are also lacking in any viable implementation plan and speaks to a further left agenda that wants to “buy” votes by in effect seeming to promise free health care for the masses. Who pays for it? We all will, likely more than expected but in a different format than what is done today. A very brief summary of the key new proposals in the Democrat platform include:

  • Offer a public option through the ACA marketplace and at least one plan will be without deductibles; will be administered by CMS, not private companies; and will cover all primary care without any co-payments and control costs for other treatments by negotiating prices with doctors and hospitals, just like Medicare does on behalf of older people.
  • Doubling investments in community health centers and rural health clinics in underserved urban and rural areas.
  • Expand the National Health Service Corps and Teaching Health Center Graduate Medical Education Program to grow a diverse primary care workforce and to address critical shortages of health care providers in medically underserved rural and urban areas.
  • Empower Medicare to at last be able to negotiate prescription drug prices for all public and private purchasers.
  • Prevent the price of brand-name and outlier generic drugs from rising faster than the inflation rate.
  • Cap out-of-pocket drug costs for seniors and ensure that effective treatments for chronic health conditions are available at little or no cost.
  • Make it easier for working families to afford high-quality insurance in the ACA marketplaces by ensuring that no one pays more than 8.5 percent of their income in premiums and eliminating the cap on subsidies.
  • We will vigorously use antitrust laws to fight against mega-mergers in the hospital, insurance, and pharmaceutical industries that would raise prices for patients by undermining market competition.
  • We will expand access to health care for people living and working across the United States by extending Affordable Care Act coverage to “Dreamers” and working with Congress to lift the five-year waiting period for Medicaid and Children's Health Insurance Program eligibility for low-income, lawfully present immigrants.

A first read on these proposals suggests that Federal spending on health care will accelerate dramatically and that somehow patients are going to pay a lot less. Middle income and upper income Americans will not be able to afford to pay for these spending ideas. Raising corporate taxes will likely be inefficient if you throw on free college education and other spending plans. Recall, we just spent USD 2-3 trillion on COVID-19 economic bailouts. Money we technically do not have. It would appear the goal is to push more and more Americans away from private insurance and to the ACA marketplace eventually leading to a single payer system. Will these proposals make the system more efficient? The only way the system becomes more “efficient” is if government rations health care services similar to what we see in other single payer systems throughout the world. Yes, theoretically we will all have healthcare. But this reminds me of a quote from George Orwell’s book, Animal Farm. Let me paraphrase: “all animals are created equal, but some will be more equal than others”.

Our expertise

Our Healthcare Team consists of an interdisciplinary mix of experts with many years of experience in the fields of biotechnology, medical technology and generics. Many of our experts are graduate biochemists or natural scientists with further economic training. The experienced team analyses a global universe of 600 listed healthcare companies by means of fundamental analysis using various quantitative and qualitative parameters. An important part of the research is regular company visits and participation in technical and financial conferences.

Team BB Adamant Healthcare (Funds & Mandates)

Cyrill  Zimmermann
Dr. Cyrill Zimmermann, Head
  • Since 2015 Head Healthcare Funds & Mandates, Member of the Executive Board
  • 2001 – 2014 Co-founder and CEO of Adamant Biomedical Investment AG
  • 1996 – 2000 Member of the Management Team BB Medtech at Bellevue Asset Management AG
  • 1993 – 1996 Advisor for institutional clients and former assistant to the Executive Management at Credit Suisse
  • Dr.oec.publ. (University of Zurich)
Oliver Kubli
Oliver Kubli, CFA, Portfolio Manager
  • Since 2015 Managing Director, Head Portfolio Management Healthcare Funds & Mandates
  • 2008 – 2014 Member of the Management Team and Head Portfolio Management at Adamant Biomedical Investment AG
  • 2000 – 2007 Senior Portfolio Manager at Zürcher Kantonalbank
  • Bachelor of Business Administration, University of Applied Sciences, Winterthur, CFA
Remo Krauer
Remo Krauer, CIIA, Portfolio Manager
  • Since 2018 Senior Portfolio Manager Healthcare Funds & Mandates
  • 2016 -2018 Head Portfolio Construction, Discretionary Mandates at Zürcher Kantonalbank
  • 2005 – 2016 Senior Portfoliomanager at Zürcher Kantonalbank
  • Bachelor of Business Administration, University of Applied Sciences, Winterthur, CIIA
Samuel Stursberg
Samuel Stursberg, CFA, Portfolio Manager
  • Since 2015 Head Research Healthcare Funds & Mandates
  • 2007 – 2014 Head Research at Adamant Biomedical Investment AG
  • 2005 – 2007 Stock analysis medtech and biotech at Bank Sarasin
  • 2001 – 2005 Sustainable Asset Management, stock analysis in healthcare
  • M.Sc University of Basel, MBA HSG, CFA
Christian Lach
Dr. Christian Lach, Portfolio Manager
  • Since 2015 Senior Portfolio Manager Healthcare Funds & Mandates
  • 2008 – 2014 Senior Portfolio Manager in Biotech at Adamant Biomedical Investment AG
  • 2001 – 2008 Member of the Management Teams BB Biotech and BB Medtech at Bellevue Asset Management AG
  • Dr. oec. HSG, dipl. natw. ETH
Stefan  Blum
Stefan Blum, CEFA, Portfolio Manager
  • Since 2008 with Bellevue Asset Management as lead portfolio manager of the BB Adamant Medtech & Services (Lux) Fund
  • 2004 – 2008 Sonova, head investor relations
  • 2000 – 2004 Obtree Technologies Inc., finance and investor relations
  • 1996 – 2000 Bank Sarasin, medtech analyst
  • Master’s degree in Business Economics, University of St. Gallen (HSG), CEFA charterholder
Marcel  Fritsch
Marcel Fritsch, Portfolio Manager
  • Since 2008 with Bellevue Asset Management as portfolio manager of the BB Adamant Medtech & Services (Lux) Fund
  • 2004 – 2008 Deloitte & Touche LLP, business consultant with focus on the medtech and pharmaceutical sectors
  • Master’s degree in Business Economics, University of St. Gallen (HSG)
Marvin Ng
Marvin Ng, MBA, Consultant
  • Consultant Bellevue Asset Management in Asia
  • Since 2002 DN Venture Partners, Singapore/Germany, Director and consultant to life sciences organisations on business development in Asia
  • Since 2002 Greener Grass Communications, Singapore, Director and consultant to technology companies on public relations matters
  • First Class Honours Degree in Microbiology, University of British Columbia (Canada), Masters in Business Administration, Simon Fraser University (Canada)
Michael  Mullen
Prof. Michael Mullen, CFA, Consultant
  • Consultant Bellevue Asset Management AG in the United States
  • Since 2005 Tarvos Capital Management, LLC, Boston / Basel, Managing Director and founder
  • 1999 – 2005 President of Bellevue’s U.S. research operation, Co-manager of lead products: BB Biotech and BB Medtech
  • B.S. from Fordham University in Accounting and Finance
  • MBA from Indiana University Graduate School of Business
  • CFA, member of the CFA Institute
Lukas Leu
Dr. Lukas Leu, Analyst
  • Since 2021 with Bellevue Asset Management as Healthcare Analyst
  • 2019 – 2021 Julius Bär, Equity Research Analyst Healthcare Sector including a 6-month period in trading of structured products
  • 2015 – 2019 ETH Zürich, Research assistant
  • PhD in Biochemistry ETH Zurich
Zahide Donat
Zahide Donat, Portfolio Manager
  • Since 2015 Portfolio Manager
  • 2014 – 2015 Credit Suisse AG, Banking Operations Specialist
  • 2010 – 2013 Migros Bank AG, Client Advisor in the customer center (e-banking Hotline, as of 2012 also Service Line)
  • 2009 – 2010 Migros Bank AG, Internship in the areas of call center (e-banking Hotline) and securities operations for 6 months each
  • Bachelor of Science in Business Administration with Specialization in Banking and Finance UAS Zurich
Sandra Muino
Sandra Muino, Operations & Finance
  • Since 2015 Operations& Finance at Bellevue Asset Management
  • 2002 – 2014 Compliance Officer Adamant Biomedical Investments AG
  • Professional Bachelor in Business Administration
Alexandra  Keller
Alexandra Keller, Office Manager/Assistant
  • Since 2015 at Bellevue Asset Management
  • 2012 – 2015 at Adamant Biomedical Investments AG
  • Commercial employee with federal diploma in Banking
Lukas Leu
Lukas Leu, Analyst
  • Since 2021 with Bellevue Asset Management as Healthcare Analyst
  • 2019 – 2021 Julius Bär, Equity Research Analyst Healthcare Sector including a 6-month period in trading of structured products
  • 2015 – 2019 ETH Zürich, Research assistant
  • PhD in Biochemistry ETH Zurich
  • Cyrill  Zimmermann
  • Oliver Kubli
  • Remo Krauer
  • Samuel Stursberg
  • Christian Lach
  • Stefan  Blum
  • Marcel  Fritsch
  • Marvin Ng
  • Michael  Mullen
  • Lukas Leu
  • Zahide Donat
  • Sandra Muino
  • Alexandra  Keller
  • Lukas Leu