There are few circumstances or events of a size and scope sufficient to alter the trajectory of the American health care system. It is too big, too regulated and too protected by incumbent interests. The Affordable Care Act came close. There is no way spending $900B over four or five years on anything wouldn't matter. In the end, though, the ACA was an insurance law that improved coverage and with that, access, but did little to address the other problems that have plagued American health care: cost, convenience and sometimes, quality.
COVID will be different.
The spread of SARS-CoV-2, the COVID-19 outbreak and the federal, state and local response to it will make the ACA look like a municipal resolution honoring the retiring school board chairman. The dollars are bigger. The four COVID relief/stimulus bills totalled about $2.4T. The time is shorter. Most COVID-related relief/stimulus is designed to be spent immediately or within a few years. Unlike the ACA, COVID monies are largely direct infusions into the health care system via grants to providers, funding of vaccine development, underwriting of testing and enhancing matching grants to states. And, of course, there are are no deficit reducing pay-fors.
As Ron Popiel, founder of direct response marketing company Ronco, would say, "but wait, there's more."
The massive economic stimulus to the health care system is being met with the equally large deterrent of state and local policies that have kept women out of the workforce and people away from health care providers, either by limiting their activity or scaring the bejeebus out of them. Meanwhile, the Trump administration used the crisis to deregulate the system in a way that would never be permitted outside a national emergency.
By all accounts on earnings calls, health care is running at about 90% of capacity with certain specialties like orthopedic procedures experiencing a greater impact. Emergency room visits, especially to all those freestanding ones, are down almost 20%.
The result? The biggest all skate in the history of health care and perhaps the economy. Providers who can are leaning into providing items and services for which there is federal support like testing and vaccine development and greatly expanding their installed bases. Patients and providers are scrambling the normal care patterns and referral pathways to accomodate reduced capacity, especially in hospitals, creating opportunities for new entrants. Analytical and digital tools are being adopted to better manage capacity and workflow. Five years of science and innovation are being compressed into 18 months, ready to be deployed and applied to other disease areas once COVID passes.
The chart below lists the major policy areas that emerged on earnings calls through 10/29 with a brief description. If you need a comprehensive list of tickers and their associated policy areas send me a note at and we will take care of you. I will update with this week's calls and publish.
For as long as I can remember, health policy in America seemed largely, as Hedgeye Health Care sector head, Tom Tobin once put it, "a debate between the Heritage Foundation and Brookings Institute." COVID and the response, combined with a deregulatory agenda at the Trump White House amounts to policy the equivalent of an asteroid smashing into the Yucatan Pennisula. Change is coming. Not all at once of course; never underestimate the will to maintain the status quo. But as the COVID outbreak persists, the modifications, innovations and accommodations spread like a cloud and begin to accomplish what none of the pointed-headed economists at Washington think tanks were able to do: bring lasting change and perhaps kill a few dinosaurs.
The next several years are going to be some of the most interesting and exciting for health care investors of all types. Get your game on. It is going to be wild ride.
Emily Evans
Managing Director – Health Policy
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