Drug pricing, hospital fees, and the rising cost of health care are major hot button issues in 2020. Unsurprisingly, these issues frequently intersect with litigation and political policy.

Staying up-to-date on the latest updates is critical to our investment process. Below, we’ve shared our thoughts on three of the latest health care controversies, and their potential impact on investors:

1. Opioid Litigations

   The opioid crisis remains a major public health issue facing America today. While the crisis has enormous human consequences, for investors, the controversy has had a far less disastrous effect.

   Branded pharmaceutical and biotech companies were not impacted by recent opioid litigation. Only generic pharmaceutical companies and pharmaceutical distributors have litigation exposure, and most of them were not overly dependent on opioid revenues.

   From strictly an economic standpoint, it seems the crux of the crisis has passed. Damages and results of opioid addiction and overuse are becoming known to the public. Public health efforts to warn against their dangers are in full swing.

   These public initiatives mean that the market is very aware of the risks, and those risks are already being reflected in stock prices. This means that the sector is likely no longer a stock market danger zone.

2. Price Transparency Proposals

   There are currently two legislation proposals dealing with the lack of transparency in hospital costs and insurance fees.

   The first bill targets hospitals, and if passed, it will require hospitals to disclose prices to consumers on demand. The second bill focuses on insurers, and if passed, it will require insurers to both disclose prices on demand, as well as allow consumers to receive estimated out-of-pocket costs before services are given.

   Hospitals and insurance companies are both actively pushing back. They claim that giving away proprietary pricing information could put them at a competitive disadvantage. We believe that publishing this information can have unintended effects, potentially enabling hospitals to price collude with each other. The Federal Trade Commission agrees with us. They have informed the Trump administration that these transparency initiatives might be a bad idea, worrying that they may result in higher prices over the long-term.

   Either way, these efforts would not spell disaster for investors. There may be marginal effects on providers, but any real consumption difference would require consumers to change behaviors. Behavioral changes like these can take years. In our view, by the time consumers start price shopping, it’s likely that these companies will have found a solution to stay profitable.

3. Proposed ACA Tax Repeals

   The House of Representatives has proposed a spending bill to permanently repeal several key Affordable Care Act (ACA) taxes.

   When passed in 2010, the ACA implemented a number of health care taxes to help fund its ambitions. Many of these taxes have already been repealed, and this bill is the latest effort. About half of the ACA-imposed taxes still remain, including the Medicare tax.

   The current proposal sets aim at three sets of taxes. First, it would repeal the so-called ‘Cadillac tax,’ a tax on expensive employer health plans. Second, the bill plans to eliminate the medical devices excise tax, which has already been suspended for over three years. Lastly, the health insurance fee, currently suspended but expected to return in 2020, would be permanently repealed.

   If implemented, these changes would benefit managed care and medical device companies. More important are the provisions that were expected to be included but were not.

   Not included were any provisions related to pricing for drug manufacturers, pharmacy benefit managers, or the frequency of surprise medical bills. For investors, these would have had more significant negative effects on the health care industry.

A Word on the Coronavirus

We couldn’t write a piece on the key risks and issues impacting health care today, without acknowledging the Coronavirus.

First breaking out in China, the Coronavirus has spread internationally. Cases are being reported in several countries, and its transmission rate is escalating. The virus is resistant to existing vaccines and can be fatal to the young, old, and those with otherwise compromised immune systems.

What began as a local health care concern has evolved into a worldwide health emergency. As the virus has spread, it has led to the quarantining of major cities, as well as a shutdown of travel and trade. As a result, it is now impacting global markets.

At this time, there are not any health care sector specific investment implications on our portfolios. The primary risk is the potential for a prolonged shutdown of several regions of China with potentially significant negative implications for industries and companies that source materials and supplies.

Because consumers tend to avoid a country in crisis, there are also regional and industry-specific risks. Areas of the market that derive a significant portion of their business or growth in China, as well as certain businesses that involve travel, may be particularly impacted.

We will continue to monitor the investment implications as the ongoing health care situation develops.

You can read an updated prespective on the Coronavirus here.

For a more complete look at the Coronavirus you can read our in depth report here.