Healthcare is very interconnected and there will be lots of data points coming out soon that will help us better understand what to expect when the healthcare information technology (HCIT), value-based care (VBC) and pharma services companies report earnings later in the Q3 season.
However, over the next several months we anticipate more macro influence than usual with the Fed entering a rate-cutting cycle amidst a U.S. presidential election, in addition to the dynamic healthcare utilization backdrop and ongoing debate around biotech funding.
Utilization Trends Remain an Important Factor for Much of Our Coverage. Outpatient utilization began to accelerate in summer 2023 (respiratory/vaccines, primary care, outpatient surgeries) and has remained elevated since, while inpatient began to accelerate earlier this year. Most HCIT companies we cover should benefit from higher utilization, whereas our value-based care coverage could be more negatively impacted by it.
U.S. Presidential Election Most Relevant to Value-Based Care. At a high level, the transition to VBC has tended to garner strong bipartisan support, which we don't see changing. Digging deeper though, conservatives have been more supportive of Medicare Advantage, whereas Medicaid and providers have fared better with liberals.
Fed Cuts/Lower Interest Rates Help Across the Board. More specifically lower rates should help with 1) valuations—benefiting growthier companies most, 2) balance sheets—lower rates equal lower interest expense and 3) end-markets—lower rates make it easier for clients to raise new capital, enabling them to spend more (e.g., biotech funding and the contract research organizations or CROs).