Healthcare Investing Perspectives From Cedars-Sinai Trip

A few weeks ago Andrew and I went to California to visit with one of our Advisory Partners, Tom Gordon. As the head of the Cedars-Sinai Medical Group, Tom gave us unparalleled access to the hospital system. We were able to meet with some of the best medical practitioners and healthcare minds in the country. Andrew and I were excited about this trip as an opportunity to test some of our thinking and get a view into what’s top of mind for Cedars. Below I will share some of our learnings on the regulatory environment and two potential investment areas, specifically business services and preventative care.

It was clear from the trip that our medical system is undergoing big changes. Healthcare is adopting technology, trying to work within a new regulatory landscape, and attempting to provide higher quality service. Guiding the direction of these changes is, of course, reimbursement. After all, regulators can use reimbursement to drive behaviors in the healthcare system. Having explored a number of healthcare investments, we were certainly no strangers to reimbursement risk. That being said, we believe the current environment will pose greater challenges to healthcare investors as new political initiatives and economic pressures further complicate the assessment of risk. The theme of political and economic uncertainty was raised in every dialogue we had with physicians and hospital administrators. Our expectation is that, as healthcare reform shifts from theoretical to actual, these risks will subside, but also the window for outsized returns will have shrunk. For now, we expect to be cautious when assessing opportunities that have reimbursement or regulatory exposure.

On the positive side, the trip reinforced our interest in medical business services. We have always liked services related to revenue cycle management and outsourced laboratory work. However, seeing, first-hand, the level of attention being devoted to EMR (electronic medical records) we have broadened our focus to include technology services (infrastructure and implementation) as it is our view that investing ahead of the technology improvements occurring in the system is likely to prove fruitful. Cedars is currently in the process of implementing a massive new technology program for the hospital and they are certainly not the only health system to do so.

Lastly, we found that doctors were focused on improving patient health by supporting preventative medical practices. Remote home monitoring and services to help patients complete their treatment courses were some of the topics that were top-of-mind for physicians. While some technologies have yet to be developed, we found that physicians were embracing ways to help their patients adopting technologies that would improve their health and the quality of healthcare they received.

All told, the Cedars trip was a great success. We reaffirmed some of our long-standing investment theses, gained clarity on the evolving health landscape, and acquired exciting new ideas that could offer great investment opportunities for us in the future.