Some investors have been interested in the idea that 2017 was a bottom in medical consumption, with 2018 offering easy compares from depressed valuations, particularly for providers. The “less worse” thesis worked reasonably well in 4Q17 as a combination of Tax Reform and broader economic strength drove the S&P 500 and relative multiples higher.
We’re taking the other side for 2018.
We expect the toxic cocktail of payer mix deterioration and insured medical consumer disenrollment will continue to poison the US Medical Economy. If our bear view is correct, you should expect to see:
- Defensive M&A
- Bankruptcy Cycle
- Capacity Reduction
- Capital Spending Declines
- Lower Utilization
- Margin Declines
- Weak Health Care Employment
In this scenario, we believe the more optimistic investors and executives will face dramatic disappointment.
Health Care Chapter 11 bankruptcy filings increased ~200% in 2017, adding to and validating the laundry list of risks we’ve been highlighting for some time. The industry is under stress and we struggle to find evidence that 2018 will suddenly get better.
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