Independent Thinking^®

Q&A with Accolade Partners and Jennison Associates

Editor’s note: Evercore Wealth Management supplements its core investment capabilities with carefully selected outside funds across the range of the firm’s asset classes. Here we recap part of the April 7, 2022, webinar discussion with Joelle Kayden, the founder and managing member of Accolade Partners; Debra Netschert, a health sciences equity portfolio manager at Jennison Associates; and Evercore Wealth Management Partner and Portfolio Manager Judy Moses. Please note that the views of the external managers are their own and not necessarily those of Evercore Wealth Management.
 
Judy: Over the last two years, we have become much more focused on our personal and our families’ healthcare and the ways in which we interact with the healthcare system. How transformational a period is this?
 
Debra: There are two big issues happening in healthcare. First, the baby boomers are aging, which will increase the number of seniors needing healthcare. Second, we will have a huge demand for primary care physicians because the number of physicians coming out of medical school is diminishing. The estimates suggest that we will be short 50,000 primary care physicians in 5-10 years. The only practical way to solve that is to find ways to be able to provide care in a more efficient virtual setting.
 
We are already seeing changes. For example, telemedicine wasn’t really embraced by physicians and patients pre-COVID. People were hesitant to use it. Even if you had the telemedicine option through your insurance, people believed they wouldn’t get the best possible care that way. Now, it’s easy to understand the areas in which you can use telemedicine and the areas in which you can’t, and how this tool can improve the efficiency of the system. Telemedicine is here to stay.
 
Judy: The United States is often criticized for spending so much per capita on healthcare, and yet we don’t have the healthiest population. Why do you think that is?
 
Joelle: As the saying goes, “There is a trillion dollars of waste, we just don’t know where it is in the healthcare system.” I think it’s in a couple of places. The biggest is in administrative overhead. There are whole industries dealing with reimbursements – making sure that the right person gets paid the right amount of money, and the document is coded correctly and so on. This is nuts! It’s a multibillion-dollar industry. There is fraud, abuse, and waste in this system. There are also huge variations in practice patterns among physicians in different parts of the country.
 
We didn’t really have the data before to be able to do this, but instead of reimbursing on a fee-for-service basis, physicians are now being reimbursed for episodes of care. In other words, physicians are being held accountable for the whole treatment, not just delivering that one service. And they’re able to take risks, which means they can share in the savings against a rate that is largely established by the government, because commercial payers tend to follow whatever the government sets as the appropriate reimbursement.
 
You must have the data in the first place, to convince people that they can take risk and that they could achieve efficiencies in the system. This is a concept called value-based care, and it’s increasingly being adopted by more forward-leaning physician groups and companies that are venture backed. Hopefully it will reduce the utilization of the healthcare system and be used as needed, instead of generating a lot of unnecessary costs.
 
Judy: What are the areas within healthcare where innovation can be most impactful in improving efficiency, reducing costs and/or or improving health outcomes?
 
Debra: If you can provide nutrition and health coach services to someone who is prediabetic to bring their blood sugar down so that they never get diabetes, you will save the healthcare system a whole lot of money down the road. I think eventually we will get to the point to lower the cost curve further down the line.
 
Joelle: A lot of the costs in the healthcare system are consumed in a person’s last period of life, whether it’s six months or a year. These are incredibly expensive inpatient procedures, and none of us want to deny care to a dying or elderly family member.
 
The drugs we are delivering today, such as the immunotherapy treatments that are targeted to treat cancer, are very expensive. You must ask, who is going to get the care, how many people are going to get the care, and who will pay for it? Fundamentally, the United States is a society that prides itself on innovation, but these procedures and drugs are still very expensive. I think there will be a shift if we can achieve some efficiencies to start to deliver this next-generation technology of care.
 
Judy: We saw this big run up in the stock prices of biotech companies initially during the pandemic, but recently it’s been a challenging area to be an investor. Can you talk about the impact of these companies coming to market earlier in their life cycle, and what that really means for the industry and investors?
 
Debra: There’s been a tremendous amount of innovation in biotech, and I still believe that we are in a technological super-cycle when it comes to biotech. We have more information about biological systems than we’ve ever had, which gives us the ability to really understand biology at a much deeper level. A tremendous amount of money was put into the venture capital firms, which in turn invested in a lot of biotechnology companies. As more biotechnology companies were created, they were entering the public markets at an incredibly early stage.
 
For example, 10 years ago, investors would have needed a greater proof of concept. Then, a company that was moving to an IPO would have had solid Phase Two clinical data in 60 to 120 patients so we would be able to understand what that molecule was capable of. But over the past two years, companies coming to the market didn’t expect to have their first drug in a human clinical trial for four to five years. There was an oversupply in the public markets of very early-stage companies that investors wouldn’t know for 10 years if they really had a great technology.
 
Science and drug development is a series of tests. If you fall and skin your knee, you clean it up, you figure out what went wrong, and then you try the treatment again. And that process is just not something that the public markets are good at. As private investors, we expect it will take maybe two or three years to see the fruits of those labors.
 
Judy: We have seen a big mental health challenge in relation to the pandemic, specifically in young people. Can you talk about what you are seeing in those trends?
 
Debra: There has been a huge shift in perception of mental health, where it’s okay to say you have depression or anxiety and it’s okay for your child to have ADHD. People are now realizing that physical health is just as important as mental health. Sometimes one could argue that mental health is even more important. I think we are going to see people be more demanding that whole health is reimbursed. When you think of the average cost per person, it may not go down in the median term because we will start to reimburse for mental health, preventive health coaches, and physical therapy.
 
For further information or if you would like to watch the full video recording, please contact us at [email protected].