1. Wall St. Perspective on the Health Sector and Health Reform: A Panel Discussion at the 54 th Annual NABE Meeting, New York, NY A summary presented to the Silicon Valley Roundtable by Anne Ramstetter WenzelAnne Ramstetter Wenzel Kim Monk, Managing Director, Capital Alpha Partners, LLC Sheryl Skolnick, PhD, Managing Director, CRT Capital Group Matthew Borsch, CFA, Vice President, Global Investment Research, Goldman Sachs & Co., Inc. The session was moderated by Paul Hughes-Cromwick, Senior Health Economist, Altarum Institute.

2. Sources of Health Insurance in the United States, 2009: SOURCE: Microeconomics, R. Glen Hubbard & Anthony Patrick O’Brien Government programs insure about 29 % of the population. The U.S. Health Care System Health care reform was spurred by the U.S. fiscal crisis and rising Medicare/Medicaid costs (26.5% of federal budget in 2010, forecast to increase to 30% by 2016).

3. How the health care market is different: Curious mix of philanthropy, private insurance and government programs covering 29% of the population. – Few people pay out of pocket for services. Asymmetric information – Sick people more likely to buy insurance Hence the mandate for all to buy insurance – Surgery/physician success rates, best practices information not available Marginal analysis not applied – Getting better at all cost

4. States are resisting Medicaid expansion Many states are resisting funding Medicaid as required by the law. – States fear that the federal government might renege on 100-90% match given federal deficit pressures. – State budgets are currently strained, so even a 90% match could require additional, unaffordable state government outlays. – The generous match does not apply to the millions currently “eligible but not enrolled.” Also, state health care insurance exchanges are unlikely to be in place by 2014, as required by the law. – 29 states were involved in the law suit that was recently decided by the Supreme Court.

5. Building of health care exchanges is behind schedule

6. The health care industry has been “a political toy as never before.” Scholnick: Health care delivery is broken 21% of U.S. hospitals are not profitable. – There’s going to be a lot of upheaval in the hospital industry, directed by politics. Some will have to close. – Health care fraud is costly, but scrutiny is expensive. The big question for hospitals is how to plan now for the 2013-2014 changes required by the law? Repeal would have been extraordinarily damaging to hospitals. – Cuts in government health care spending would have been deep and large. – Not enough time for hospitals to merge as protection against sudden cutbacks and loss of revenue.

7. Borsch: What are health care industry investors afraid of? Concerns: Weak mandates, price regulation around exchanges will lead to lower profits. – Will government push back against price increases? Fear of impact of continued funding changes in Medicare. Fee on pharmaceuticals, devices and managed care rises in 2014 (+$165billion, ~75% comes from managed care) – Carrier price through requires a 2% add on to premiums to fund Act. Medical care insurance shifts from employer provided to nonemployer provided. – Borsch/Goldman Sachs baseline forecast is for 30 million to be nonemployer funded (versus 155 million employer insured), but their alternate scenario is that nonemployer funded insurance could go as high as 145 million people.

8. In summary, the hospital industry… Is looking forward to higher revenue from higher number of individuals seeking health care. Expects to be hit by lower Medicare and Medicaid reimbursement rates. Is unhappy with 2% premium tax to fund the program. Expects resistance when insurers attempt to increase policy fees.

9. Additional information: Download the 54 th NABE Annual Meeting health care panel presentations: Borsch Presentation Monk Presentation Skolnick Presentation Anne Ramstetter Wenzel awenzel@econosystems.com 650-233-9613 Author of The Entrepreneur's Guide to Market Research Follow me on twitter: @annewenzel http://www.facebook.com/AnneRamstetterWenzelThe Entrepreneur's Guide to Market Research@annewenzel http://www.facebook.com/AnneRamstetterWenzel