Hedge Funds, Health Care and Investment Advice

Investment Advice
1. If it looks to good to be true it is (the Madoff law)
2. Ask your manager how they lose money
3. If you are invested in a hedge fund remember the high water mark has value—if you go to cash and then go back in to the same strategy you have given up 20%

Hedge Funds
1. In the future hedge funds will be (or should be) smaller and focused on single strategies
2. As funds get smaller and regulation increases maintaining a reasonable management fee will be vital to support a viable well run business, but ironically downward pressure on fees will increase
3. Hedge funds should either be invested in highly liquid products and provide high liquidity to their investors at all times or should be locked up like private equity with a start date and an end date when all funds are returned. There should be no middle ground—the mismatch is a not well rewarded risk
4. The FOF (fund of funds) business model will die

And back to Health Care

The business of health care is all wrong (I am coming at this from an economic point of view). Pricing is both too high and too complex.

Why do I insist that pricing is too high? If there was no health insurance and everyone had to pay the full list price for procedures not more than 1% of the population could afford it. And comparison shopping forgetaboutit.

Let me provide an example which illustrates both points. I recently had shoulder surgery to relieve chronic pain. The procedure was subacromial decompression (SAD) and labrum debrement, and included a hospital stay of longer 6 hours. The total list price including 7PT visits and doctor follow up was about $25k. That is close to the equivalent of the after tax median income of a fulltime male worker in the US. If people had to pay full list price for all procedures almost no could afford the current pricing. In short averaged American if you want to get rid of that pain in your shoulder give us your total after tax comp for the year. You are not going to sell a lot of SADs at that price.

Let’s say you wanted to shop around and compare to try to find a less costly place to have the procedure performed. You would need to call different surgeons and ask them how much they charge (I can tell you my doctor had no clue but he made a guess which was 66% too low). Then you would have to get the same information from the various different hospitals, anesthesiologists, and laboratories. Honestly without being a patient of the other prospective doctors I don’t think it would be possible to get the information to compare pricing. But even if you could, it would take hours over many days to dig up all the different prices.

And of course one of the reasons my surgeon didn’t know how much the procedure cost was because there is no transparency in pricing. There is the list price which you only pay if you don’t have health insurance (in the case of my anesthesiologist 72% higher than what my health insurance company had negotiated—does anyone think it makes good economic sense to charge the most to those who are least likely to be able to pay) then there is the multiple negotiated rates that doctors have agreed too. It is quite possible that the same doctor performing the same procedure could get paid more than 10 different rates. This is bad business. Consumers can’t make informed smart decisions. Billing is complex, complicated and convoluted. And bad business results in a more costly and less efficient health care system.

How to improve the health care system in our country in 2 easy steps:

1. Separate health care from employment and make everyone part of the pool

2. Require doctors to set one price for procedures—that doesn’t mean all doctors agree to the same price, just that my pediatrician agrees to get paid $125 dollars for my 5 year old son’s annual check up, not $250 if you self insure, $175 if you have Humana plan a, $150 if you have Blue Cross, $120 if you have United, $90 if you have Medicare etc.

Pretty simple ain’t it?

Love to hear your comments.