A few weeks ago, McGuireWoods hosted our 8th Annual Healthcare & Life Sciences Private Equity & Finance Conference along with co-sponsor McGladrey.  The Hon. Bill Frist gave the keynote address.  It was a real treat to have the former Senate Majority Leader at our conference.  With his position as a partner at the private equity firm of Cressey and Co, his role in shaping government policy on healthcare in the Senate and his ongoing practice as a leading heart and lung transplant surgeon, Dr. Frist sits at the vital intersection of government, private industry and the healthcare infrastructure.

            In Dr. Frist’s keynote address, he walked through his assessment of the significant problems we face as a country in rising healthcare costs.  He built his analysis articulating the following sequence:

            (i)      The greatness of America will ultimately be constrained if we are unable to control our growing national debt;    

            (ii)     The primary driver of our national debt is federal entitlements;

            (iii)    The primary driver of the growth in federal entitlement spending is Medicare and Medicaid spending (not social security); and

            (iv)    The primary driver in Medicare and Medicaid spending is runaway healthcare costs.

In short, to Dr. Frist, the continued greatness of America depends in large measure on our ability to bend the cost curve on healthcare services.


            While not everyone would have drawn exactly the same breakdown, the endpoint is not controversial – if we do not control healthcare costs, Medicare and Medicaid will bankrupt the country.  From that stark position, many people have drawn many different conclusions about what we should do to get out of our predicament.  Some advocate changing the healthcare system in general to look more like other countries (seems politically unlikely at this time).  Others seem to call for more modest tinkering reforms (seems unlikely to move the needle enough to change the outcome). As the former Republican Senate Majority Leader, Dr. Frist’s prescription leans much more on private industry innovation.  And that prescription has some definite guidance for the healthcare investor.


            Dr. Frist believes that the innovations that drive toward a better “value‑based” healthcare solution (defined as: clinical results per dollar spent) will be the fertile intersection of economics and policy choices going forward.  He went on to describe what he anticipates as federal and state government policy shifts that will drive policy toward a heightened focus on value-based healthcare. 


            Regardless of your thoughts on the political aspects of Dr. Frist’s perspective, it is difficult to argue with his conclusion that companies offering products and services that improve the clinical outcomes of each dollar spent will be rewarded as we move down the road toward reigning in healthcare costs.  That could mean companies with products or services based on improving community wellness.  It could mean companies delivering structures that change physician incentives toward maintaining the health of a population instead of providing services to sick individuals.  It could mean an information technology solution to specific clinical problems.  It could mean a thousand different things.   The main takeaway from Dr. Frist’s presentation was that the smart healthcare investor should not be looking just for cost savings mechanisms or ways to leverage structural pockets of profitability in the system but rather should be looking for opportunities that promise greater “value-based” healthcare products and services.   Good advice from perhaps the leading voice on healthcare investing.