Pictured are (from left to right): Adam Feinstein (Lehman Brothers), Matthew Ripperger (Citi Investment Research), Ken Weakley (Credit Suisse), Wayne T. Smith (Community Health Systems), Frank Morgan (Jefferies & Company), and Tom Gallucci (Merrill Lynch)

Getting to be as much of a New Year’s tradition as diet and exercise, the Nashville Health Care Council’s “Wall Street’s View on Prospects for the Health Care Industry” gathering drew a crowd of healthcare executives to the Cool Springs Marriott on January 16 for an update and lunch.

The panel was moderated by NHCC chairman, Wayne T. Smith, president, chairman and CEO of the country’s largest publicly traded hospital chain, Community Health Systems, Inc.

Smith charged and challenged a group of top industry analysts, referred to as the “Superstars of the Analytical World,” to reveal what their research and insight forecast for the coming year.

Panelists were:

Adam T. Feinstein, Managing Director of Equity Research for Lehman Brothers, Inc, who covers and coordinates the firm’s Health Care Facilities research team.

Thomas Gallucci, senior health care services analyst for Merrill Lynch, responsible for the sector on Healthcare Distribution/Technology/Pharmacy Benefit and Healthcare Facilities/Provider space.

Frank G. Morgan, managing director, of Nashville’s Jefferies & Company, Inc., who studies facility-based healthcare services.

Matthew J. Ripperger, managing director for CitiInvestment Research, responsible for covering healthcare facilities, and small and mid-cap health care providers.

Kenneth Weakley, managing director for Equity Research at Credit Suisse, who is responsible for covering healthcare services and facilities companies.

Along with a crowd of 450 healthcare leaders and attorneys, accountants and bankers who work with the industry, there were two big issues in the room that everybody wanted to talk about: the presidential election and how the 47 million Americans without health insurance will affect a healthcare system that is breaking down under their numbers.

When pressed by Smith about presidential preferences, the panelists cast their ballots for the incumbent: Gridlock. They all said that too much change, too quickly on the part of Congress or the White House, would further muddle the situation with the uninsured. Panelists leaned toward the Republican candidates because it would be difficult for a GOP president to make sweeping and comprehensive changes to the healthcare system without having control of both houses in Congress. A Democratic president might be tempted to propose bigger changes because continued control of the House and Senate would insure passage of those measures.

Weakley said he couldn’t believe that Clinton wouldn’t want to “tinker” with the system, although he felt that more government intervention was the last thing healthcare needs.

In his opening remarks, Weakley, who said he has been called the ‘Dr. Kevorkian’ of the hospital industry, had some gloomy predictions about the decline of hospitals (the total number has dropped by over 1,000 since 1980), “pushback,” the exercise where employers look for more aggressive ways to achieve cost containment following a recession, and the growth of “therapeutic substitutions.” He said management style has made the difference with those hospitals that are successful.

Feinstein said clearly the country is in a recession with a difficult economic environment, but it is possible to have growth in the hospital sector and he thinks it will come, even in a recessionary environment. The big theme for 2008 is the presidential election and the biggest problem, he agreed, is the uninsured. The country is at a tipping point with pressure, not only on the federal government, but also on the states to try to find some way to fix the problem, but “things take time.” However, an attempt at healthcare reform seems inevitable no matter who wins the presidential contest.

Morgan predicted that success for 2008 will be very “company specific” just as PBMs and the imaging sector were strong performers last year. Rising tides will not raise all boats, but will be very specific. A physician fee fix, unfortunately, does have to go through the pain of watching Congress wrestle with questions about Pay-Go. In the meantime, everything seems to be waiting for elections. All the Democrat candidates have a plan for increasing access, while Republicans are emphasizing cost containment. He pointed out that the long term acute care industry has been absolutely devastated over the last few years, but the industry is close to the bottom, and the situation is probably coming to an end.

Ripperger thinks the biggest “headwind” right now is the erosion of employer-based health coverage, which has declined by 6 million people over the last five years, correlating to equal growth in the uninsured. His concern is that erosion in payer quality in employer- based healthcare coverage has happened in a pretty good economy — and he questions what will happen in a slower economy. Ripperger said that, “This is a circular issue –it’s hard to get out of this fix in an environment where Medicare and Medicaid are reimbursing under cost. That makes it a challenging systemic issue that is reflected across the board.”

Gallucci said that in healthcare stocks, they are seeing a “real flight to quality,” especially in the Pharma Service channels, one of the strongest growth areas, especially with a number of drugs coming off patents and the shift to mail and home delivery. In the past, the Democrats have targeted big Pharma but the success of the Medicare Part D program has made them less of a target. He believes that the Pharma sector will continue to sustain its position.

Smith pressed the panel to answer the “Question of the Day” by identifying three stocks they would recommend for the new year.

• Adam Feinstein picked Psychiatric Solutions, LabCorps and Community Health Systems.

• Tom Gallucci chose Psychiatric Solutions, Cardinal Health, and CVS.

• Frank Morgan identified Kindred Healthcare, Inc., a Louisville L-Tech, Health Care Realty Trust HR, and American Healthways.

• Matthew Ripperger chose Kindred Health Care, Inc. of Louisville, and DaVita.

• Ken Weakley selected Ford, Community Health Systems, and Universal Health Systems.

Lead sponsor of the luncheon was The HR Group. Fifth Third Bank, Harwell Howard Hyne Gabbert & Manner, P.C. and Jarrard Philllips Cate & Hancock, Inc. were co-sponsors.



February 2008

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