From Crisis to Opportunity:
Decreasing Health Care Costs

While President Obama has made it clear that health care reform is a top priority for the new administration, it’s difficult to assess the impact on companies in the sector at this point. Contentious debate has engulfed previous reform attempts, and the President has recently emphasized that reform will be a bi-partisan effort. So it is likely that the final result (if any) will be very different from what he proposed during the campaign.

However, one clear and urgent mandate is to find ways to reduce the cost of health care while maintaining or improving the quality of health care. And in the near-term at least, the focus is on prescription drugs.

Prescription Errors. Prescription errors are the largest identified source of preventable errors in hospitals. In fact, a 2006 report by the Institute of Medicine estimates that a hospitalized patient is exposed to a medication error each day of their stay. Preventing these errors could save medical facilities, health insurance providers and employers billions of dollars.

To that end, the administration has advanced the movement toward broad adoption of standards-based electronic health information systems with a $19 billion allocation for health information technology in the American Recovery and Reinvestment Act (ARRA). Electronic systems have been shown to drastically reduce prescription errors, as well as errors related to preventive care, and to tests and procedures

Generic Availability. Both the Senate and House have introduced legislation to protect consumers from pharmaceutical companies paying generic companies to delay the entry of generic drugs into a market (aka pay-for-delay)—which costs consumers, health plans and the federal government billions of dollars a year.

Investment Opportunities

The heightened focus on computerizing health care records and test results should boost companies in the Health Care and Information Technology sectors.

Health care technology companies are the likely beneficiaries since a variety of applications, systems and software will need to be installed and connected to existing technology systems. But some broader Information Technology that build components for health care tech systems may benefit as well.

Of course, a push to control costs by encouraging consumers to use generics should increase demand for generic pharmaceutical manufacturers. And if pay-for-delay provisions are eliminated by the legislation cited above, then generic companies should also be able to market versions of popular brand-name drugs several years earlier.

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