Monday, March 3, 2008

Health Care, Pharmaceuticals and Investments

Do you remember the piece I wrote a few days ago about health care costs doubling by 2017? Well, today I am going to revisit that topic by sharing with you an article by Brian Lawler I found on the investment website The Motley Fool.

Why would I share an article on investing here, you might ask? Because it provides a window into some of the economic forces that are driving the health care industry. Lawler references the Centers for Medicare and Medicaid Services (CMS) forecast which shows aging baby boomers creating one of the largest demographic shifts on record. As these boomers begin reaching the age where they will be relying on Medicare/Medicaid, and the attendant prescription drug plans, the pharmaceutical companies will be raking in larger and larger profits. Or will they?

While this forecast for increased prescription-drug spending might be a positive omen for the pharmaceuticals industry, the reality is that if health-care spending does jump to a fifth of GDP, there will be a lot of pushback from government and private health-care payers. For example, as we're seeing now, the leading presidential candidates are agitating to allow prescription-drug importation from less-costly developed countries, or to give Medicare and Medicaid more direct negotiating power over drug prices.

Nonetheless, there are strong demographic trends favoring the pharma industry. With the large dividends that many large-cap drugmakers like GlaxoSmithKline (NYSE: GSK) pay out and the relatively recession-proof nature of the pharma industry, investors should keep a keen eye on the sector in the coming years.
As the citizens of the U.S. push for reform in our health care system, it would be wise to keep in mind that economics and political lobbies are a very large factor in what decisions and legislation actually pass. A quick scan of the dollar amounts donated by pharmaceutical companies and their lobbyists to the current batch of presidential hopefuls speaks volumes about the industry's influence.

I would love to hear some input from anyone with an investment background on this issue. Please leave us a comment if you have views you would like to share.

SOURCE: "Medicare, Health Care, and Megabucks" 02/28/08
photo courtesy of, used under this Creative Commons license

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