Seeking value in US healthcare disconnects

Mansa Capital’s Ruben King-Shaw Jr. sees a growing gap in the supply and demand within the healthcare sector that is driving the need for healthcare services and technology innovation and investment.

Ruben King-Shaw ran Florida’s Agency for Health Care Administration under Jeb Bush’s administration and was deputy administrator and chief operating officer for the Centers for Medicare and Medicaid Services (CMS) under George W Bush. 

He is now managing partner and chief investment officer of Mansa Capital, and tells Private Equity International how his firm is trying to take advantage of the significant disconnect between supply and demand in the space, and why Mansa is tapping into rising demand for healthcare from the US’ Hispanic population. 

 Q. What is the current state of the US healthcare sector?   

 A. Healthcare technology and the investment technology are being driven by two forces: shortage of labour supply and the overwhelming demand for healthcare services. NSI Nursing Solutions, an advisory firm to the industry, said it takes 95 days to fill a nursing vacancy, compared with 80 days a year ago. You can get contract labour, which costs 15 to 25 percent more than salaried nurses. That is an indication of nursing supply becoming scarce and expensive in the marketplace.

For physicians, they have routinely faced significant cuts in their Medicare reimbursement rates: this year Congress prevented a 21 percent reduction. That’s a warning to physicians that their income is in danger going forward. With pay-for-performance, which is a risk-based physician reimbursement model, it’s going to go from 9 percent physician pay to 21 percent. With bundle payments, which is another method of paying, it’ll go from 22 percent to almost 30 percent in three years.

Those two things suggest there will be a shortage of medical labour supply. At the same time, Obamacare is projected to add 32 million additional people to the population with insurance coverage. This leads to more access to care, more utilisation of care and greater demand for labour resources. That’s the perfect storm, and technology is the only answer, which is why broad use of telemedicine, digital, telephonic, all that has to happen. It’s unavoidable.

 Q. Given this situation, what opportunities are you seeing as an investor?  

 A. The US Census says, currently, there are 47.8 million Americans that are 65 years and older in age today. That number is projected to increase 55 percent between now and 2030. The overall US population is projected to grow only 11 percent in that time. There’s a fast-growing demand of seniors, who, generally speaking, require significant care.

Let’s talk about supply: the other big issue for this population is housing. Senior housing is growing at only 3 percent a year. You have this growing demand for senior housing and a very slow increase in the capacity. That takes you into what we call “smart homes”: elders in their home, using wireless technology, monitoring services and telemedicine. The supply and demand story is screaming for technology to fill the gap again.

In the pharmaceutical space, we invested in a company called HealthPrize. It uses gamification, incentives and rewards for people to stay on their medication. About half the patients who receive prescription from their doctor never fill it to begin with. Of those who do, about a third or half of them don’t refill it. By 90 days [after prescription], half or 60 percent of all people who receive medication are off it.

There’s a parallel conversation around meeting the demand of the Hispanic healthcare consumer: the Hispanic population is growing quickly and it’s traditionally under-insured. With Obamacare, the Hispanic population is increasingly getting insured, and [has] pent-up demand for services because they had been left untreated. There’s a real economic engine in the Hispanic population and the value delivered to them is incredibly appreciated. Almost all companies we have at Mansa will enter the Hispanic market; it’s an element of the value-creation plan.

 Q. What is the perceived risk of going into this sector?   

 A. At Mansa, we use our understanding of the healthcare economy to find solutions that deliver superior value; value being the keyword. In the old days, healthcare was about containing cost. It’s no longer enough to have a cost-containment strategy. The biggest risk today is that the products in healthcare don’t deliver value, I mean specifically to patients and providers, and in turn, your investors. If you fail to do that, you will lose your money.

The way people used to talk about healthcare revolved around cost-containment, consumerism and transparency. [The latter two] are tools and strategies on the way to value. Value is the promised land.