AXA Framlington’s Gemma Game sees acceleration in healthcare sector

The sometimes controversial package of legislation known as ‘Obamacare’ in the US is set to drive change and multi-year acceleration in growth in the healthcare sector, says Gemma Game, maanger of the AXA Framlington Health Fund.

Since his election in November 2008, President Obama has made reforming the US Healthcare System one of his priorities.

The signing of the Patient Protection and Affordable Care Act (PPACA), in March 2010 ushered in a new era of healthcare reform in the US, commonly referred to as “Obamacare”. Its central tenet is to expand access to healthcare and reduce the number of uninsured people, starting in January 2014. Since then, healthcare reform has survived scrutiny by the Supreme Court of the United States, as well as repeated attempts by the Republican party to delay its implementation.

As of 1st October 2013, previously uninsured patients have been able to enrol via the Healthcare Exchange, a novel internet portal that enables people to select and sign up for subsidised healthcare insurance. As the numbers of uninsured patients diminish, new patients are entering the healthcare system.

Each additional person with healthcare insurance is a potential patient able to visit physicians, receive routine tests and potentially a diagnosis of disease requiring treatment. Thus demand for healthcare goods and services will likely increase and should benefit the healthcare sector.

Whilst there is a focus on cost containment and efficiency as part of PPACA, this expected increase in healthcare utilisation by newly insured patients previously unable to access affordable healthcare is forecast to accelerate the growth of healthcare spending in aggregate from circa 4% in 2009-2012 to circa 6% in 2014-2022.

Opportunities for hospitals, distributors and medical device industries

There are numerous industries that are poised to benefit from the implementation of PPACA. For example, the hospital industry will likely see a reduction in the number of uninsured patients – who are currently treated by hospital emergency rooms for free and accounted for as bad debts – as well as higher procedure volumes.

HCA Holdings is an example of a company that operates hospitals and outpatient facilities in the US and may fare well in this new environment. Elsewhere, the distributors, such as Amerisource Bergen, Cardinal Health and McKesson, may benefit from increased use of prescription pharmaceuticals, both generic and branded medications. Additionally, in the medical device industry companies such as Covidien, that manufacture medical devices and products used during surgical procedures, should benefit from increased patient volumes.

While the healthcare sector has enjoyed strong outperformance for the past couple of years, I am optimistic that this outperformance can continue.

Relative to the broader equity markets, valuations do not look demanding and the healthcare sector is trading near long term averages. With reform expanding access to healthcare for millions of people in the US starting in January 2014, I believe we are on the cusp of a multi-year acceleration in demand for healthcare goods and services.


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