Healthcare costs and reforms are making some companies turn green – at times from queasiness, but at other times from lucre. Healthcare ferment just restarted its bubbling with the passage of a new law under the cloak of the recently-passed Obama stimulus package. This compounds an already-busy interaction among regulators, shareholders and business. Companies throughout the healthcare supply chain are affected, leading to business reactions, disclosures and (in part) the raft of healthcare M&A now underway.  With major regulatory reform already under discussion, further impact seems set to sweep providers, insurers, and businesses overall.

Healthcare in the U.S. is in transition, driven by a variety of catalysts including regulatory, shareholder and economic forces. New laws, such as the Health Information Technology for Economic and Clinical Health Act (HITECH) incorporated into the American Recovery and Reinvestment Act (ARRA), and a much anticipated healthcare reform bill are forcing providers, insurers and employers to consider how they operate.  These regulatory forces are joined by other forces, both legal and economic – among them litigation, activist shareholder actions, and general economic headwinds. The upshot?: Companies are disclosing a range of business factors and a bold few are going beyond to actually buy or sell businesses to better cope with the current environment.

Healthcare has long been a major expense for operating companies and it’s no surprise that it’s also a part of the fabric of disclosures by many. Companies such as Dr. Pepper Snapple Group, Eastman Kodak and Verizon see rising healthcare costs for not only their current employees but also their retirees as a major inhibitor of profits. The automobile industry has been well documented in trying to control the healthcare costs of its retired employees and the significant impact these costs have had on the auto companies balance sheets.

With healthcare expense such a focus, it is no surprise that several litigations play out around pricing of both medical services and pharmaceutical products. In litigation styled American Medical Association ,et al. v. Aetna Health Inc., and a similar separate suit against Cigna, the AMA on behalf of doctors effectively claims that the insurance company was improperly pocketing medical fees that belong to the doctors that performed services as out-of-network providers.  Essentially an argument over how much money to charge medical consumers and how to split the gains, this is one of several matters tied to the contentious issue around pricing. Along the same lines, pharmaceuticals prices are also under pressure. In class action litigation styled New England Carpenters Health Benefits Fund et al. v. First DataBank and Mckesson Corporation, the plaintiffs allege that First Databank, as publisher of pharmaceutical prices, and Mckesson, and wholesale prescription drug provider, conspired to artificially raise the price on over 400 brand name drugs.

With the recent re-launch of healthcare reform, these longstanding concerns have become a lot more interesting and, with them, a new raft of disclosures.  The ARRA included within it HITECH, a new law oriented at improving healthcare. In particular, it is intended to promote the adoption of health information technology that will allow for electronic recordkeeping of patient data shareable among providers and insurers. HITECH also provides financial incentives for the adoption and use of health information technology and strengthens the requirements around privacy and security of the data that is collected. These privacy and security requirement expansions now include anyone having access to protected health information, or “business associates”, of healthcare providers and health insurers.

Several companies have disclosed how healthcare reform – and more specifically HITECH – may affect their businesses. Some see potential opportunities through their product offerings in the technology fields while others are worried about the cost of implementing the technology. Computer Programs & Systems, a healthcare information technology company discusses how the financial incentives of the legislation may be utilized by its clients. Another potential beneficiary is Quantum Group, which sees its healthcare technology platform as being in line with President Obama's healthcare agenda regarding the use of technology to reduce costs. Contrasting these views are two companies who disclose possible detrimental affects. For instance, Hansen Medical, a developer of medical robotics, worries that it may have increased costs in complying with the privacy and security standards required as a possible “business associate”. While Corrections Corporation of America, the largest operator of privatized correctional and detention facilities, discusses the reporting requirements HITECH may impose regarding the health care the company provides to inmates.

The government is not the only catalyst for healthcare reform, though. Shareholder groups, including the American Federation of Labor and Congress of Industrial Organizations, have submitted proposals on company proxy statements for the adoption of healthcare reform principles based upon five principles established by the Institute of Medicine, a part of the National Academy of Sciences. These principles state that healthcare coverage should be universal, continuous, and affordable for individuals and families, health insurance strategy should be affordable and sustainable for society and health insurance should enhance health and well-being by promoting access to high-quality care. Several large companies including Google, Lowe’s, Ford Motor and Bank of America have received these proposal. Many of the recipients are opposing the proposals on the grounds that it is the role of government and that adoption of the principles would not effectively contribute to healthcare reform efforts.

Add all of this foment, regulatory and otherwise, to depleted product pipelines, disappearing patents, and declining economy and it is little surprise that pharmaceutical and biotechnology players feel an increasing need to hook up. Reading the (medicinal) tea leaves, pharma companies understand that healthcare cost reductions are one of the principal goals of healthcare reform (along with universal coverage and better delivery) and are bound to affect them. With both the President and Congress lining up behind this issue, new legislation is expected to emphasize improved healthcare delivery, expanded health insurance and reduced healthcare costs. From the business perspective, there are likely to be a slew of significant impacts on all players: pharmaceutical, insurers, hospitals…and business in general.

Published:  March 26, 2009