It is all about revenue!
After a banner year for health stocks and private equity investors, it is possible that the Republican controlled Congress could create problems for new emerging health care technologies and new health care delivery models. The new Congress is looking at every turn to limit the impact of the Affordable Care Act (“the Act”). While there is strong desire to repeal the act, the conventional wisdom is a strategy of “death by a thousand cuts” will be more successful. However, every time there is a change in the law by regulation, executive order, legislation or the Supreme Court, the action by its very nature creates change and uncertainty in the healthcare marketplace. Investors need be aware of the outcome of legal and legislative actions which would substantially reduce the number of people covered by health insurance. These activities could negatively impact revenue projections for any new business dependent upon health insurance reimbursement or the volume of health care transactions. For example, the Republican Congress could change the definition of full time from 30 to 40 hours and eliminate a significant number of employees to be covered by private insurance. Another activity could be a decision in favor of the plaintiff by the U.S. Supreme Court in King v. Burwell invalidating the tax subsidies for enrollees in federal assisted exchanges. More than half the states could be impacted. The outcome of this case combined with the change in the full time definition could significantly impact providers’ revenue especially in those states where Medicaid has not been expanded. The combination of the declining tax subsidies and reduced Medicaid coverage in states that did not opt for expanded Medicaid coverage could dampen profit projections and investors returns. Investors need to be very careful about the revenue assumptions that entrepreneurs embed in their pro formas. A few new actions could make the profits disappear.