Dominant longer-term investment themes for healthcare investors will be true innovation or cost-control. Successful business models will increasingly offer a differentiated ability to either 1) deliver clinically superior outcomes or 2) take costs out of the system. The market will continue to reward true innovation, though the financing of the innovation pathways will be more challenging in a belt tightening environment.
On the cost side, focus will rise on improving care efficiency and on incentive realignment in two fundamental ways. First, we will see a migration away from fee-for-service reimbursement toward quality-based payment and, second, we expect a continued ownership shift of care costs onto consumers. Relative pricing power could mitigate these dynamics, though pricing power without a demonstrable clinical or cost advantage may erode more quickly than many appreciate.