BusinessTN

Remember The Wizard of Oz? Dorothy is searching for the Wizard to send her back home. But when she finds him, he is hiding behind a curtain shouting, "Pay no attention to that man behind the curtain!!"
Congress today is playing the role of the Wizard with the Medicare program. Medicare beneficiaries are looking for the Wizard to make everything right again. Yet, just like in the movie, this Wizard must ultimately proclaim, "I don't know how it works!"

The problem? Baby boomers begin to turn 65 in 2010, and the growth of Medicare spending will begin to skyrocket to a level well beyond the government's ability to pay.

While every single member of Congress knows that Medicare is on a collision course with disaster, there has been a multi-year concerted effort not to address the issue. It isn't because of a lack of understanding—or a lack of viable options—but rather because of a willingness to throw seniors under the Medicare bus because it is politically expedient to do so. Democrats won't give the President a "victory" on fixing Medicare—and Republicans won't give Democrats a "victory." Stalemate.
November should finally break this logjam, for whether Senator McCain or Senator Obama wins the presidency, a "Medicare Reform Bill" should be introduced next spring.

While the emphasis of the bill will be different depending on the winning candidate, health care service providers—hospitals, nursing homes, home health agencies, oxygen services and physicians—should expect large reimbursement cuts. We expect that the bill will most likely be implemented in October 2010, the beginning of Medicare's fiscal 2011. In terms of pain for health care providers, this bill could rival the Balanced Budget Act of 1997, which virtually bankrupted the home health and nursing home industries.

Yet, will the cuts guarantee health care to American's seniors? No chance. For as much as Congress cuts in 2010, it won't be enough, so we expect that another "reform" effort will be enacted in 2013-2015. That bill will be the "mother of all Medicare cuts" as Congress races to fund a flawed system. Could seniors begin to enter the Medicare system at age 70 rather than 65? Could health provider reimbursement be cut more? Both are almost certain to happen.

After nearly 20 years of studying the U.S. health care industry, providing investment banking services to many Nashville companies and investing heavily and quite successfully in the health care service industry, I've come to a startling conclusion: The era of for-profit health care will be history in the next 5-7 years.

In order for Medicare to survive, Congress and the Center for Medicare & Medicaid Services will need to reduce reimbursement so that it barely covers the cost of providing services. Nonprofit health care will have a tremendous advantage with tax breaks and private donations. The "profit" will be removed from for-profit.

So what are health care executives and health care investors to do?

We've given that a lot of thought for more than two years—ever since we concluded that the opportunities for profit in the U.S. system are coming to an end. There are only two avenues for new opportunities—either invest in health care services that do not take Medicare or Medicaid, or invest in health care services outside the United States.

What am I doing? I believe that a huge opportunity exists in the Caribbean. The islands of the Caribbean have a health care system that would remind most people of the United States in the 1960s. Yet, more and more wealthy baby boomers are retiring or buying second homes in the Caribbean instead of in Florida or Arizona. We expect to see a very significant inflow of capital into the islands, and that capital will come from those who most need health care services.

As a result, I'm a co-founder of a new medical school in the Eastern Caribbean, and I am putting together a new health care service company to complement and leverage the medical school relationships.

In The Wizard of Oz, Dorothy does get home—but without the Wizard's help. That analogy may work for the future of health care as well—investors and executives can continue to do well, but without Congress and the Medicare system