As more of the public is becoming increasingly aware, the status of general health in the United States is looking more grim by the day. This holds true for nearly all aspects of our healthcare system, whether you have insurance, are under-insured or uninsured completely, chances are, you feel or at least see the effects of the crisis at hand. In particular, public health experts point to the epidemic we see emerging with chronic illnesses. These are generally the result of poor lifestyle choices. While some attribute this to the level of individual factors, others assert that a more holistic approach is accurate, pointing to environmental factors such as the ease of convenience of junk food as well as its heavy promotion by a plethora of large corporations, financial worries, stress, etc. It’s practically been ingrained into our culture and it cuts across all demographics- race, gender, age, you name it. Moreover, this trend of poor health is expected to continue as the new generation of millennials transitions to adulthood. Though there are several efforts underway by government agencies, non-profits and private enterprise alike to improve health outcomes, I believe using numbers is the best way of examining the current state of this issue.
According to a report compiled by the CDC, 6 in 10 adults in the U.S. have a chronic illness and 4 in 10 have two or more. Overall, this contributes to our nation’s staggering 3.3 trillion dollar annual health care costs. As part of these costs, medical devices play a key role in helping folks manage these illness. Ideally, with the concept of insurance and risk-sharing, this cost should be spread out across all consumers to make healthcare affordable for all. Unfortunately, even with modern cost savings such as HSA’s, FSA’s and preventive care, this price tag is still too high and we see the effects of that with rising premiums. So, with all this in mind, who wins and who loses? Well, health-wise, pretty much of all us lose in some way. Financially? The general public loses while the healthcare industry sees its share of the GDP rise year after year. Now, some sectors are more profitable than others due to regulatory reforms, taxes, activism, etc. In particular, the medical device industry has seen record profits the last few years. Now, normally profit can be a good thing, so long as the company is doing the right things (ethically speaking). Though there haven’t been any “major” controversies or scandals coming from well-known corporations within this field, a connection can still be drawn between rising rates of chronic diseases & healthcare costs and record-high profits associated with virtual monopolies in the medical device industry.
From an investor’s perspective, the most attractive companies for looking into a.) have high profits & high profit margins b.) have monopolies within their respective markets (again, this must be done in an ethical manner and for some industries, monopolies can be ethical) and c.) show promise for future earnings. Again, I am not writing this as a means of giving investment advice, but merely to show a correlation between the current health epidemic we’re facing and industry balance sheets, or in other words, what I like to call, a paper trail. With this in mind, the Motley Fool has made formal recommendations for 3 particular medical device companies that they see as money makers with the potential to provide large ROI’s (returns on investment). Two of these, Abiomed and Inuitive Surgical, already have a large grasp in their market and are considered to be monopolies. NovoCure on the other hand, is a fairly new, emerging medical device company that, although is not yet profitable, shows signs of extreme promise to be big winners in the coming years (mostly due to creative and unmatched techniques). In this podcast, Jones and Feroldi go on to discuss the mind-boggling returns that some of these companies have yielded to investors. Personally, I see this as no coincidence.
As a disclaimer, just because a company enters a market, does not mean that they have bad intentions. To the contrary, some businesses enter a market because there is a need or demand for a product or service and they believe they can deliver in an efficient manner. There are countless examples of such companies. As for medical device companies in particular, I can’t say. We obviously need medical devices regardless of the status of public health. Furthermore, businesses need to make a profit in order to survive and continue providing the product or service they set out to. But one can’t help but wonder, how much profit do those companies need to survive? Again, profits are not inherently evil by their nature, but as we can all attest to, capitalism, especially recently, has driven corporations to ignore long-term interests in favor of maximizing short-term profits. With the rising costs of healthcare, families struggling to keep up with premiums and insurance companies denying claims, I ask you, do you see a connection here? As an old friend’s very wise dad once told me, “you wanna learn how the world works? Follow the paper trail.”
Thank you for reading,