Written by Rebecca O'Connor on 3rd Aug 2016
Welcome to our new blog series – Expert view. It’s a chance for leaders in their field to give practical insight into ways the rest of us can be good with money.
As people get older, they tend to use the healthcare system more. Increasing use means increasing costs and this puts more pressure on individuals and governments to shoulder the burden.
In recent years, government budgets have faced increased pressure from a great number of sources and so politicians and policy makers are beginning to take an increasing interest in just what healthcare systems are delivering for the money invested in them.
A potentially good way to invest in this trend is through customer facing healthcare companies like US pharmacy chain CVS. CVS’s Minute Clinics provide convenient walk-in healthcare services that are staffed by nurses trained to diagnose and prescribe medicine for the most common illnesses. This takes pressure off local clinics and hospitals by reducing patient numbers and is also a benefit to patients, making basic medical care easily available.
Looking particularly at the world’s largest healthcare market – the US – we see a country that has the highest healthcare expenditure of any other nation; in 2014 the US spent over 17 per cent of its gross domestic product on healthcare, equating to $10,000 per person. This doesn’t compare favourably with the results achieved in Europe, for example, where we see similar life expectancy rates but achieved at a fraction of the cost.
For this reason we think there will be increasing pressure on drugs that do not add significant benefit for their cost, while companies developing and producing drugs that provide unique and very real life saving treatments will do well.
US firm Alexion provides treatments for rare and ultra-rare diseases. When only a small proportion of the population suffer from a disease and can die in a matter of months without treatment, we expect the providers of such treatments to continue to be rewarded.
One factor influencing how the healthcare industry has developed to date is a tendency for the system to pay for treatments rather than results. As pressure increases to utilise healthcare spend more effectively, we see a future that rewards companies that help rather than hinder this objective.
At GlaxoSmithKline, the company has made an early and significant move to incentivise its staff on their technical knowledge and thus the quality of service they can provide healthcare professionals, rather than being rewarded purely for selling as many drugs as possible.
It is important to realise that the healthcare system is not an island. Each of us must begin to take greater responsibility for our health. The best way to reduce the burden on healthcare systems is to not get sick to start with. A significant amount of late stage disease can be traced back to poor lifestyle and eating habits throughout our lives.
One of the most effective ways to improve public health is through diet. Improving the food we eat in terms of reducing calories, salt, sugar and fat content can help to prevent chronic illness related to obesity and malnutrition such as heart disease and diabetes. Our thematic work into obesity and food manufacturing highlighted the work of ingredients and flavour technology companies. A leader within this group of companies is Irish based firm Kerry, whose taste and nutrition division enables food manufacturers to improve the health profile and nutritional content of food whilst retaining an appealing flavour and texture.
Of course, despite our best efforts to look after ourselves, genetics may mean that we as individuals are more prone to certain diseases. An exciting step in understanding this is the progress being made in DNA sequencing, which is advancing rapidly and suggesting greater and greater possibilities for patients and investors.
With less than 0.01 per cent of the global population sequenced to date (just 228,000 of a potential 7.4 billion), we think that there remains considerable future growth potential for manufacturers of DNA sequencers and related products. Industry leader Illumina and its main rival Thermo Fisher – which we hold within our Sustainable Future fund range – are both well positioned to take advantage of this.
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 Source: Berenberg 1st March 2016
Becky is head of pensions and savings for interactive investor and a co-founder of Good With Money. She previously worked for Royal London, the mutual insurer, as a personal finance specialist.