President Barack Obama will hold an online meeting to discuss health care reform tomorrow. In the video announcement, he calls reform the most important issue for the long term fiscal health of the United States.
About a week ago, three House committees released legislation designed to reform America's health care system. The more than 850 page bill proposes the creation of a public health insurance plan and bundling of payments to hospitals and certain post-acute care providers.
Back in 2001, Milton Friedman weighed in on health care reform. Gain insight into his views by reading his article entitled How to Cure Health Care.
Closer to the beginning of the recession, at health care investing events, many health care deal makers spoke a common theme – the downturn would have little impact on health care services companies, as consumers will not delay or forgo medical treatments. After all, many health care services are necessary, much unlike other discretionary items such as a fifty-inch flat screen television set or that convertible at a family vacation house used only part of the year. Consumers will put off the latter, not the former, and reimbursement concerns, not recession related concerns, would continue to take center stage.
But this recession has impacted industries in ways never thought possible, and health care is no exception. In a recent post, Kristen Gerencher of Marketwatch’s Health Matters blog cites two studies suggesting that consumers have cut back on care and are delaying payments to providers for treatment received.
The American Academy of Family Physicians study indicated that nine out of ten members reported patient concerns over the ability to pay medical bills, and six out of ten reported a rise in appointment cancellations. Additionally, delaying preventive care has created a surge of more expensive procedures needed to treat health problems. Providers have also seen an uptick in charity care and have been forced to discount fees.
Raleigh Durham-based Sageworks also reported delayed payments to providers. For example, home health agencies are, on average, waiting 34 days to receive payment, up from 30 days. The drop in household income makes it difficult for consumers to pay medical bills timely.
Unfortunately, the data suggests that this downturn is indeed different for health care companies. Thus, some health care portfolio companies could potentially struggle – or already are struggling – from the downturn in ways that industry experts previously did not anticipate.
If you're interested in knowing differences in the ways boards of PE portfolio companies and publicly traded companies function, the publication entitled Private Equity vs. PLC Boards in the U.K.: A Comparison of Practices and Effectiveness (highlighted in this morning's edition of Bowne) is a must read. The study concludes that boards of publicly traded companies are more effective at compliance and risk management, but that their PE counterparts outshine them when it comes to value creation, commitment of board members and strategic leadership. The only caveat is that the paper is dated August 2008, before many of the events surrounding the financial crisis unfolded.
What does it take to be a success in business? If you ask Cardinal Fastener & Specialty Co., Inc. President John Grabner, he will likely focus on the following three elements: (1) persistence; (2) perseverance; and (3) pit bull (being aggressive is key, he says).
Why should you take Grabner seriously when he offers these remarks? Because the Cleveland based Cardinal Fastener has grown since its founding in 1968 to the largest and most responsive company in the hot forge bolt industry, is becoming an integral part of the renewable energy industry, and received a nod from President Obama himself back in January 2009 when President Obama and members of his transition team visited the plant.
Presenting before the Cleveland Chapter of the Association of Corporate Growth at the monthly breakfast meeting last Thursday, Grabner explained that the company was not always as efficient as it is today. But focusing on the three "Ps" allowed the company to successfully adopt "Lean Thinking," causing the company to now be in a position to provide same-day service on most orders. The company uses raw materials that are mostly made in America, and bolts for wind turbines account for approximately 20% of the company's sales.
If you're a company like Cardinal Fastener, how do you know when you've made it - when you've developed into a truly "great" company? For Grabner and his team, the numbers were telling, but it was likely when they received a call from President Obama's transition team requesting a visit to their plant. After secret service spent days sweeping the premises, President Obama visited and publicly promoted his economic agenda, his focus on renewable energy sources and Cardinal Fastener.
The visit led to worldwide media attention, valued at approximately $22 million for the company. Most importantly, Grabner noted that the occasion was an unforgettable experience for the Cardinal Fastener employees, who now feel like they can change the world and already are doing so one bolt at a time for the wind turbine industry.
Congratulations to Grabner and his team - a true success and leader in Cleveland!
Jayne Juvan is now on twitter. Check out her page at http://twitter.com/JayneJuvan.
On Friday, Andrew Cuomo announced a "landmark agreement" with The Carlyle Group resulting from the alleged use of intermediaries to obtain investments from the New York State Common Retirement Fund. The forty-five page Assurance of Discontinuance (the "AOD"), issued pursuant to Executive Law section 63(15), centers around the use of placement agents to obtain public pension fund investments, a practice the attorney general deems to be fraught with abuse.
In essence, the AOD states that an aura of suspicion is created when campaign contributions are made to the New York State Comptroller, the elected official with oversight powers over the Common Retirement Fund, currently valued at $122 billion. These contributions are made, albeit indirectly, in exchange for investment commitments.
Cuomo found that such conduct is contrary to the central goal of ensuring that public pension fund assets are protected from manipulation and invested solely in the best interests of public pension fund beneficiaries. Such conduct creates the appearance of "pay to play" practices that undermine the public's confidence in state government.
According to the AOD, Carlyle - which obtained about $730,000,000 in investment commitments -cooperated with the investigation and approves of reform efforts. In connection with the investigation, Carlyle agreed to pay the State of New York $20,000,000 and to comply with the Public Pension Fund Reform Code of Conduct, which requires the following:
Currently, the Code of Conduct applies only to Carlyle. Federal or state legislative intervention could make the Code of Conduct binding industry-wide, though there could be changes to the language if the Code works its way through the legislative process. Even though non-binding, the Code of Conduct serves as a warning to other private equity funds and hedge funds, and such funds should consider the appropriateness or necessity of voluntary compliance with the mandates.
Recently, I have been asked several questions concerning the responsibility of directors of health care organizations to implement corporate compliance programs and to ensure that patients receive quality care. For my readers with similar questions, I direct your attention to the three non-binding guidance documents published by the United States Department of Health and Human Services, Office of Inspector General, in collaboration with the American Health Lawyers Association. These documents do not answer all of the many complex questions that directors face, but nevertheless provide a starting point.
Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors;
Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors; and
On Friday, I moderated a panel - M&A and Investment Trends in Health Care: Outlook in for 2009 and Beyond - at the Cleveland Metropolitan Bar Association's 25th Annual Health Law Institute. The panel featured two local health care M&A attorneys - one from Benesch and another from Jones Day - and a member of GE Health Care Finance.
The panelists covered a wide range of issues, reflecting back to the glory days of M&A activity in 2006 and 2007 and the doom and gloom of the recession and corresponding dramatic deal decline. The panelists generally agreed that credit is available, but that it's a flight to quality and often times very expensive. So, essentially, you have to be both the "right" company and willing to pay the price. Deals are still underway, but often get tripped up in due diligence or when parties try to renegotiate terms (imagine the deal fatigue!). Reimbursement concerns continue to stay at the forefront of many investors' minds, as they (quite obviously) do not want to pay $1.00 today for something that's worth $.67 tomorrow.
When asked when the rebound will begin, the panelists responded that investors are waiting on the sidelines until there's more certainty, and they refused to speculate as to the approximate date. They all agreed that we're in for a long haul and that the recovery will be slow in coming. Still, there are opportunities in certain sub sectors of health care (there's always a silver lining, right?) - sub sectors that benefit from the stimulus package and Obama's budget and reform efforts are likely to be winners (such as health information technology companies and companies that provide home and community based care).
Sincere thanks to the panelists for their participation!
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