Wall Street’s View on Prospects for the Health Care Industry

Health care executives gathered Tuesday for the Nashville Health Care Council’s signature event, “Wall Street’s View on Prospects for the Health Care Industry,” to hear top industry analysts discuss the investment outlook for the coming year.

The conversation was moderated by Paul Kusserow, CEO and chairman, Amedisys, and included Matt Larew, equity research analyst, William Blair; A.J. Rice, managing director, Credit Suisse; and Brian Tanquilut, senior vice president, services equity research, Jeffries.

The analysts reflected on the state of the market during COVID-19 and predicted the direction of popular health care trends. Kusserow led exploration of various health care topics, including telehealth, home health care, behavioral health, managed care, health IT and more. Overall, analysts agreed health care stock performance is slowly rebounding after the onset of COVID-19.

According to Larew, in 2020 health care organizations that produced better returns than the overall market were driven by volume. Home health stocks skyrocketed as hospitals experienced excess volume. In 2021, the outperformance was driven by price and acuity. Looking ahead at 2022, the focus is “less about what will continue to work, but what might work differently,” he said.

Quality and visibility are key to determining a solid investment in 2022, according to Tanquilut and Rice. People are willing to “pay up” for companies with confidence and visibility in their earnings, sound balance sheets and cash flow. “In this uncertain environment, investors have been pickier, and quality is the most important measure. Valuations have compressed, and it’s about execution. Companies that can show they can grow into new markets are the ones that will do better at least in the next 12 months,” Tanquilut said.

The panelists identified several 2022 trends to watch, including primary care, behavioral health care, telehealth, women’s health, social determinants of health and health equity. Larew cited one of the biggest topics of the recent JP Morgan Annual Healthcare Conference in San Francisco, California – the labor shortage.

“Workforce and labor is becoming a strategic focus for health care organizations the same way quality is,” he said. “LHC Group made an investment in the Louisiana at Lafayette College of Nursing and Allied Health Professions. We’re going to see more of this in the next year – moving up channel to the source and providers engaging with potential clinicians as they enter the workforce and putting a greater investment in recruiting and retention.” 

“What began as a short-term pressure point – nurses burning out and leaving the acute setting or retiring – is developing a longer cycle, and there is uncertainty in the investment community,” Rice added. “We’re seeing several companies utilize emergency techs in the ER and funding licensed practical nurse training to work on higher floors.” Rice anticipates the nurse shortage will recede as COVID-19 eases, but some structural aspects will take time to work through.

Another familiar trend that continues to gain traction is home-based care. “The central hub of health care is transitioning,” Larew said. “Our health system is changing from a high impact, fee-for-service institution to a high touch, frequent interaction system in which the patient is the center, not the hospital. Home is where the health is.”

Tanquilut agreed, adding that the site of service shift, particularly with surgery centers and home health, is a key trend to monitor. As joint replacement procedures move outside of the hospital – currently, 25% of joint replacements are outpatient – and into surgery centers, cardiac procedures are not far behind. They will likely transition to outpatient centers in the next two to three years.

Rice examined how COVID-19 has changed the patient perception about health care segments such as laboratories and retail pharmacies. These two services have supported the pandemic, with labs working overtime to produce COVID-19 test results and pharmacies providing a point of care for vaccinations and tests. These spaces were previously “unfavorable” and have recently been “turbo charged.”

Kusserow asked the panel to consider legislative activity in Washington, D.C., and its impact on Nashville. Rice said the Biden administration will give the Build Back Better bill one more push before attention refocuses on the upcoming midterm elections. Following the midterms, regulation will be the priority for managed care and home health care. Larew referenced the public health emergency status and what it means for COVID-19 reimbursement. Tanquilut is closely watching the Center for Medicare & Medicaid Innovation and expects bundled payments will expire. Additionally, he is paying close attention to direct contracting because it could change how Medicare pays for all health care services.

Panelists also identified their top sector picks for 2022, some of which include UnitedHealth Group, HCA Healthcare, Surgery Partners, Acadia Healthcare, Option Care Health, Tenet Healthcare, AMN Healthcare and McKesson.

Bass, Berry & Sims served as presenting sponsor of the program with Alvarez & Marsal, Cumberland Pharmaceuticals, First Horizon, Gresham Smith, and IMAC Holdings, Inc. as supporting sponsors. The program’s media sponsor was Modern Healthcare.