Entering 2015, impacts of the Affordable Care Act will continue to shape the healthcare landscape for both patients and providers. The industry may also see new product launches from medical device companies looking to offset stagnant sales.

1. Bloomberg Intelligence
Health Care Outlook

2. Let’s examine some intriguing
trends expected for 2015 in the
health care sector:

3. Managed Care

5. Payers Square Off With Providers as Obamacare Enters Second Year
A simultaneous rally for managed-care payers and providers is
uncommon; the launch of the Affordable Care Act, which may
provide health insurance to 26 million Americans, provided a
boost to both. As the benefit of the new law unfolds, investors may
need to assess which one – payer or provider – will obtain more
favorable contract pricing.
Managed-care payers (up 35%) and hospitals (up 18%) have
outperformed the S&P 500 Index (up 11%) in 2014 through Nov. 14.

7. Rising Specialty Drug Costs a Concern for Managed Care in 2015
Managed-care medical loss ratios may worsen in 2015 as premium
growth wanes and costs rise for specialty drugs, which could
increase 18% in 2015. Payers may have difficulty justifying double-
digit premium increases given that medical cost growth has
hovered near 6% for the past three years.
The shift to outpatient hospitals visits, as opposed to higher-cost
inpatient admissions, may ease managed-care expenses in 2015
while cutting hospital revenue.

9. Payers May Still Have Edge Over Providers in Price Negotiations
Hospital revenue per admission may grow at a slower rate in 2015,
given the strong pace of higher-revenue elective procedures
in 2014. Payment increases from private payers may be just 5%,
compared with the 8% to 9% received in prior years, HCA says.
Although providers have consolidated, the scale of payers may
still provide an edge in price negotiations. The top 10 health
insurers hold 58% of the U.S. market vs. just 18% for the 10 largest
hospital systems.

11. Obamacare Could Add Enrollment,Cut Uncompensated Care in 2015
The Affordable Care Act may boost managed-care enrollment and
reduce hospital uncompensated care in 2015. Medicaid expansion
in Pennsylvania, along with a push for expansion in Tennessee,
may lower bad debt at Community Health and LifePoint.
The second year of the public health-care exchanges may add
7 million members, who could be healthier and require lower
costs. Payer margins may be pressured by competitive pricing and
reduced risk payments.

13. Medical Devices

14. Defibrillator Sales May Continue to Decline for Medtronic, Peers
Implantable cardioverter defibrillators may continue to decline in
2015 as falling prices offset rising procedures, pressuring device
makers such as Medtronic, St. Jude Medical and Boston Scientific.
ICD revenue has fallen 1% on average since 2012, excluding
currency exchange, while prices have fallen about 4% in the U.S.,
according to Millennium Research Group. While revenue could
improve with new device launches, hospitals continue to push for
lower prices.

16. U.S Orthopedic Growth May Continue to Rise,Aid Zimmer,Stryker
U.S. orthopedic implant growth may continue to rise in 2015,
boosting revenue per adjusted admission for hospitals, though
falling prices may hurt revenue growth for device makers such as
Stryker and Zimmer.
Rising employment and expanding manufacturing have helped
many regain insurance coverage in the U.S., though demand is
becoming more seasonal toward 4Q due to health plan designs.
An aging population may also boost growth.

18. Medical-Device M&A at 10-Year High May Offer Spoils to Onlookers
Large medical-device manufacturers that have engaged in
blockbuster deals such as Medtronic and Zimmer may lose market
share in 2015 as they focus on integrating large businesses and
sales representatives leave for competitors.
Medical device M&A volume is at a 10-year high with more than
$90 billion announced in 2014, led by Medtronic’s $46 billion
purchase of Covidien. Some of the deals may help companies in
the long term as companies seek a stronger pipeline of products.

20. Edwards,Medtronic Heart Valves May Propel Sales Growth in 2015
Heart valve revenue growth may rise in 2015 for device makers if
Edwards Lifesciences or Medtronic get new, smaller transcatheter
heart valves approved in the U.S. that may treat more patients.
U.S. transcatheter heart valve sales have grown about 75% in 2014
due to a broader range of sizes available, increasing the treatable
patient population. Boston Scientific and St. Jude are evaluating
their transcatheter valves in U.S. clinical studies.

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